The Economist: Has the European Central Bank become too powerful?

“Nothing is possible without people. Nothing is lasting without institutions,” noted Jean Monnet, one of the European Union’s founding fathers.

The ECB is unique in that it has no political overlord or fiscal counterpart. Its independence is enshrined by treaty, the closest the EU has to a constitution. 

During covid-19 and under Christine Lagarde the ECB bought $2trn in public debts to arrest doubts about governments’ liquidity. 

She followed this up by announcing another bond-buying programme last year, when inflation threatened to send interest rates on Italian bonds soaring.

In all but name the ECB has become the lender of last resort to euro-zone governments. 

The bank is at pains to stress that its bond-buying programmes come with strings attached. Indeed, in order to sidestep the treaty’s ban on financing governments, officials must combine a monetary-policy justification with adherence to the EU’s fiscal rules and the need for sustainable debt.

Perhaps aware of its political power, countries are nominating politicians to the ECB’s governing council. The president herself was previously France’s finance minister; Luis de Guindos, the bank’s vice-president, was Spain’s.

The Economist 13 September 2023

“Europe will be forged in crisis and will be the sum of the solutions adopted for those crises.”

 Jean Monnet 

If the eurozone is to get through this successfully, the question of sharing fiscal resources will again arise. 

It will ultimately be unsustainable to expect the European Central Bank to be the main fiscal backstop in such a crisis. 

Martin Wolf FT 6 September 2022

If you want to save the euro permanently, the judges are saying, write new rules into the European treaties and explain them to your voters.

What the judges didn’t explicitly say, of course, is that this mission creep — this treaty change on the down-low — is not a bug but a feature of EU policy. The message from Karlsruhe is that this obfuscation must stop.



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