Who or what can check or limit the ECB?

by on February 11, 2014 at 2:41 am in Current Affairs, Economics, Law, Political Science | Permalink

A loyal MR reader, with expertise in this area, writes to me:

But this suggests an interesting thought experiment (regardless of the legality of OMT): suppose an ECB central banker were to overstep her/his legal authority and in doing so created all sorts of cross-border obligations.  Would we have to `undo’ this policy?  How is this individual to be policed?

In the US, the Fed is accountable to Congress.  If ever the Fed overstepped its mandate, in theory, Congress could pass laws, subpoena officials, etc. to reign them in.  In the Eurozone, the ECB was created without political overseers.  Neither the Commission nor the European Parliament can change the ECB’s mandate; only a treaty change can do that.  So if the ECB oversteps its mandate, this is a much more serious issue than if the Fed misbehaves.

If treaty law, the ultimate form of legal pre-commitment in the EU, governing the ECB can simply be cast aside whenever it is time-inconsistent, how should EU nations approach future treaty negotiations?  Ignoring the treaty law could be very detrimental for the long-run institutional evolution of the EU.  Few economists are willing to publicly entertain this prospect.​

otto February 11, 2014 at 3:00 am

“In the Eurozone, the ECB was created without political overseers.”

The German government is the political overseer, as should be clear to all.

Das February 11, 2014 at 12:05 pm

If only it were so.

prior_approval February 11, 2014 at 4:28 am

‘suppose an ECB central banker were to overstep her/his legal authority and in doing so created all sorts of cross-border obligations’

Let’s try it a bit differently – suppose an ECB central banker were to overstep her/his legal authority and in doing so created all sorts of cross-border obligations, which would then be repudiated, as the legal authority to make those cross-border obligations clearly did not exist.

This really isn’t that hard.

‘In the Eurozone, the ECB was created without political overseers’

Well, except for the fact that grave misconduct is a ground for dismissal – and overstepping legal authority comes to mind as grounds for grave misconduct. Further, the heads of all the national banks in the EU (not the eurozone) have a say in how the ECB is run.

Personally, I find it much more fascinating how an American president can, seemingly with impunity, order the death of an American citizen, without any concern regarding the Fifth Amendment* – http://www.washingtonpost.com/world/national-security/us-weighs-lethal-strike-against-american-citizen/2014/02/10/24bc47ac-9268-11e3-b46a-5a3d0d2130da_story.html

And then be criticized in Congress for not executing American citizens secretly and promptly enough.

(* No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.)

Alan February 11, 2014 at 7:23 am

Words on paper don’t constitute a shield.

TallDave February 11, 2014 at 4:32 am

Ignoring the treaty law could be very detrimental for the long-run institutional evolution of the EU.

I doubt it matters. They’ve been ignoring treaty law since long before the EU. European institutions are not the EU in much the same sense that Germany is not Greece.

In practice, no one is accountable to Congress unless what they do is so unpopular that both parties broadly oppose it. Obama’s arbitrary implementation of PPACA has proven that.

Donald Pretari February 11, 2014 at 5:23 am

I have some Expertise in an area called BS, which allows me to understand the German Objection as being more about Spending More than they want, and less about the ECB Overstepping its Authority or Violating German Law. I’d be more impressed if Germany were objecting in principle to something that saved them money while costing other members.

Z February 11, 2014 at 7:36 am

Whenever this topic crosses my view, I’m reminded of the Stalin line about the Pope. Europe, as a legal institution, is a fiction. It exists only so long at the real institutions of Europe say it exists. The retort is that all governments are temporary, but Germany will always have a government. It may not be this one, but there will be one. That’s not the same with the EU. It has no authority of its own. That reality will eventually make its presence known. Eventually, people figure out that the EU has no prisons, no police and no army and therefore no force of its own.

CBBB February 11, 2014 at 8:00 am

On the contrary the EU has the support of the most powerful financial and political elite in Europe. Whatever the people figure out is irrelevant.

Z February 11, 2014 at 8:37 am

Only while it is convenient. This religious zeal for an integrated Europe is based entirely on anti-nationalism. Demographics and observable reality are making fears of a new Napoleon or Hitler rising up to dominate the continent hilariously misplaced. The rise of nativist parties may be enough to keep the elites in the fold, but it could also motivate them to abandon the enterprise as counter productive.

I’m no better at predicting the future than anyone else. It just seems like the EU is going to evaporate once the Germans get used to ruling Europe again.

Rahul February 11, 2014 at 10:17 am

It may or may not be a doomed idea, but integrated Europe was also an “efficiency” project. Some of it might have succeeded: e.g. barrier free transport, more tourism, harmonized procedures, increased trade, better workers, newer markets, economies of scale etc.

The crucial challenge always was how to achieve these without the downsides.

Z February 11, 2014 at 10:28 am

Not all bad ideas are all bad. The removal of tariffs is an obviously good idea for most of Europe. Easing of travel restrictions is another good idea. Harmonizing of business regulations between nations is another good idea, for the most part. None of these require a vast bureaucracy. Whatever the merits of those ideas, that was never the point of the EU. The point was to erase nationality by erasing the nation state. To do that requires erasing anything related to self-determination.

Rahul February 11, 2014 at 10:41 am

You may be right about the immediate post WW-II origins. But my impression is that over time the anti-nationalism was sidelined by other more pragmatic, baser goals. All sorts of special interests too. Besides, it created jobs for economists, policymakers, bureaucrats & retired intellectuals. Always crucial.

CBBB February 11, 2014 at 1:08 pm

I’d like the see the whole thing collapse myself, the dangers of nationalism seem to be outweighed by the dangers posed by a massive, unresponsive, and undemocratic bureaucracy. None-the-less the European elite seem to be very committed and this thing doesn’t seem like it’s going any time soon.

charlie February 11, 2014 at 7:43 am

I’m a bit bemused on how Congress “passing laws” or “subpoena officials” makes the Fed accountable?

dax February 11, 2014 at 7:54 am

“with expertise in this area”

But no reading ability.

http://www.euractiv.com/euro-finance/german-court-refers-ecb-bond-buy-news-533387

Brian Donohue February 11, 2014 at 9:33 am

Speaking of serious issues, is it appropriate in excerpting someone’s comments, to correct for annoying misspellings, such as reining in the rampant erroneous explosion of ‘reign’?

Yancey Ward February 11, 2014 at 12:49 pm

There is nothing wrong, in my opinion, with fixing typos and misspellings in quotes and indicating it was done, though the more appropriate practice is to leave them with notation sic erat scriptum.

Rahul February 11, 2014 at 10:19 am

Has the Fed ever overstepped its mandate? Has Congress ever needed to reign it in using legal threats? Perhaps legal constraints are not always the best way to get an organization to work?

Z February 11, 2014 at 11:07 am

That’s like asking if the dog ever needed to scold its walker. The proper question is how will the Fed reign in Congress.

John Thacker February 11, 2014 at 12:29 pm

Pretty certain that the part of the law creating the Fed about how the governors have to come from different Federal Reserve districts has been essentially ignored (and appointees have laughably claimed to come from different districts than the ones in which they do), but that hasn’t really drawn a response.

Lurking Lawyer February 11, 2014 at 10:29 am

Theory is irrelevant here. The Fed and ECB are in reality beholden to no one.

Vivian Darkbloom February 11, 2014 at 12:09 pm

” In the Eurozone, the ECB was created without political overseers. Neither the Commission nor the European Parliament can change the ECB’s mandate; only a treaty change can do that. So if the ECB oversteps its mandate, this is a much more serious issue than if the Fed misbehaves.”

This discussion by the “expert” strikes me as a bit muddled. First, if the ECB violates the treaty that established it, there is no need to change the treaty. What needs to be done is for the existing terms of the treaty to be enforced. In this respect, it is similar to the same issue as regards the Federal Reserve–if the Federal Reserve exceeds its mandate, is it necessary to *change the law* or to *enforce it*? Does Congress have unilateral enforcement powers or must Congress bring suit against the Federal Reserve to enforce the law on the books?

In order to enforce the treaty, action must be taken by the European Court of Justice (ECJ). In this respect, the ECB actually has many political overseers. Each member of the Eurozone would have standing to bring suit in local courts for referral to the ECJ. In fact, this is exactly what happened in Germany. The case was referred by the German court to the ECJ.

http://www.nytimes.com/2014/02/08/business/international/german-judges-refer-ecb-bond-buying-plan-to-european-court.html

Peter Hund February 11, 2014 at 7:08 pm

For background: Ludwig Ehrhard. Wirtschaftswunder.
Question: What if ECB understeps …..yes, it’s mandate (as it arguably did before the Greeks blew the thing up.
Remark: “Karlsruhe is not and ECJ will not be about mandate(s), but about the use of specificaly prohibited tools (Like: how many aliens and or non-aliens can mr. Obama have killed in the execution of his mandate to …. save the US?)
So … don’t worry too much about ‘Europe’

Nigel February 12, 2014 at 8:47 am

This ECB document is persuasive evidence that some in the organisation consider themselves the overseers of the member states, rather than the other way around:
http://www.ecb.europa.eu/pub/pdf/scplps/ecblwp10.pdf

I particularly liked its reference to a “largely obsolete concept of sovereignty”…

The Anti-Gnostic February 12, 2014 at 4:04 pm

Blood and iron.

John Trevor February 16, 2014 at 10:45 pm

ART, CELEBRITIES, REVIEWS AND MORE!!!!

http://www.trevorjohn.blogspot.com

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