GPI Review of the ECB – An Update

The GPI response to the ECB Review invitation, in preparation, examines briefly the first decade of the life of the ECB from 1999, but concentrates on the evolution of the ECB monetary policy, during the second decade, following the Global Financial Crisis.

Looking forward – with the added problems posed by the recovery from the COVID-19 – there seems every reason to expect the current recessionary pressures, including low productivity and deflation to continue. It is with this in mind that, in our response, we are raising concerns that – unless there is a radical shift in the set of monetary policies followed by the ECB – the reputation and ability of the ECB to act in the social, economic, and political interests of the EZ and the EU may be damaged.

Our concerns range across various areas: the current mix of monetary instruments (the tool kit), the constitutional legal basis of the quasi-fiscal policies followed; the inadequate definition of price stability and the need to move to new targeting; the lack of democratic accountability; the inability of the monetary instruments to provide sufficient regional, wealth, and income equality; the underpinning political consensus dictating policy; the urgent need for the EZ to adopt an accompanying central fiscal capacity and deployment, and the current communications strategy.

The aim of the reforms being suggested in the GPI response is aimed at reducing some of the complexity in the modelling of a an increasingly complicated mix of subsidiary monetary instruments. We appreciate the need for a degree of modelling complexity, inherent in the process of delivering a coordinated monetary policy However, too much renders problematic the democratic accountability which needs to be applied by the European Parliament, and national political and legal authorities, on behalf of the EZ electorates.

The reforms proposed in this paper will, we believe, result in a less complex and better targeted monetary policy to be achieved by the ECB. This policy modification would avoid challenges to its confederal status, and it would pave the way for a clear understanding of the need for fiscal capacity and action at confederal level. In so doing it will preserve the democratic integrity of the EZ and the EU, and the ECB itself, as the confederal evolution of the EU proceeds.

Work on the final draft document should be completed by the end of June. After a period of consultation, we will publish and submit the final version to both the ECB and the European Parliament later in the year.

About the GPI

The Global Policy Institute is a research institute on international affairs. It is based in the City of London, and draws on both a rich pool of international thinkers, academics as well as policy and business professionals. The Institute gives non-partisan guidance to policymakers and decision takers in business, government, and NGOs.