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Why is the European Central Bank President still the politicians' plaything?
Posted on 27/06/11
Should EU’s politicians, in the middle of a great financial crisis, still be trying their old dirty tricks? At the centre of the euro is the European Central Bank. The chief executive, the president or governor, is its guardian. The treaties say that he represents the bank in his or her person. All citizens using the euro have an interest in his integrity, experience and wisdom. This implies that the ECB president must personify the integrity of European money for the European economy and far beyond the eurozone.
How then is the ECB president selected and confirmed in office? Should he be both nominated and chosen by the politicians? Think about the mischief politicians get up to in fiscal fiddles, bribing the electorate for votes and dissembling the statistics. I am not just referring to the Greek and Latin problems of the Mediterranean countries. At the June European Council the Hungarian Prime Minister Viktor Orban said his country’s (previous) government was involved in ‘skyrocketing debts‘ and ‘falsified statistics‘.
Thus, even at the European Council announcement of the ECB presidency, one politician throws the spotlight on the untrustworthy nature of this political class and the disastrous effects they have on sound money policy. Politicians are not the sort of people that can be trusted with the monetary printing press. Non-party guarantees are required for a real democracy. This is why Robert Schuman and the Founding Fathers designated key institutions as being independent and run by independent personalities to ensure democratic freedom of choice.
The main political parties acting as a cartel have tried to take over the democratic supranational Community system by substituting their party members in places designated for non-political organized civil society. Wherever possible in the key institutions they camouflaged their take-over.
A bank should be run honestly based on agreed technical rules, not according to a political ideology or a egotistical whim that ‘runs up skyrocketing debts‘ and ‘falsifies the statistics.’ The euro was built to stop this. Membership requires discipline — hands out of the till. There should be a clear demarcation between the European Bank for the euro and politics. We should also emphasize here that all eurozone States must agree by law that the governors of their national central banks must be selected independently. It is not an option. It is treaty law. National Central Bank Governors in the eurozone must be free to act with total independence of the politicians, governments and ‘any other body‘.
In general governments do not wish to be seen placing as head of their national bank a party hack responsive to party orders. They should advertise the vacant post in the press. They have a separate Statutory Board that selects the most experienced and independent banker for the task.
What happens at the European level — that is the stratum of big, big money? The politicians think that they can totally discard this rule of independence. A candidate is chosen in secret, maybe in the ultra-secret Euro Group meeting. Who are the members of the Euro Group? They are all politicians. The chosen name is then passed on to the Council of Ministers. Who are the members of the Council of Ministers? Yes, they are all politicians! Then the name is confirmed by the European Council. Who are the members of the European Council. Right again, they are all politicians!
The secretive system of a political cartel is the opposite of what citizens expect in a democracy. Secrecy encourages lying and that encourages speculation. It is now well known that several members of the Euro Group built up and hid ‘skyrocketing debts‘ and colluded in ‘falsifying statistics‘. A more open, supranational system would calm the markets and encourage trust and growth. Who knows more about the dirty little secrets of all the other Member States than the 27 intelligent men and women of the European Council?
According to the Lisbon Treaty, the same legal requirement of absolute independence applies to the President of the European Central Bank, as it does to the national bank governors. It is all specified with clarity in articles 130 and 131.
The politicians try to wrap the election of the ECB president in language to ensure thick opacity and murkiness. The dirty little political trick is called ‘pass the parcel‘. The wrapping is a distracting colour that turns the public’s eye away from its contents. (It is announced amid many much ‘hotter’ issues at the European Council.) Who defined the contents? No one can be sure. The parcel has been quickly passed from one committee or council to another. When a journalist asks: where did the parcel originally come from? The one who has it last — the European Council — points to the person on his left, a Council of Ministers. But everyone is sitting in a circle and the parcel goes round and round until it stops at the heads of government. These top politicians are most probably the real culprits who wrapped up the contents in the first place. They have the motive, the opportunity and the machinery. They will gain from the crime. Politicians want to control the money supply, the statistics and the definitions of the currency.
The 17 May Council of Economic and Financial Ministers had this to say:
“The Council adopted a recommendation on the nomination on Mario Draghi (Italy) as President of the European Central Bank, to succeed Jean-Claude Trichet…‘
Who recommended the candidate? Was it the finance ministers? It does not say. Was it someone else? If they are referring to ‘a recommendation‘ of the Euro Group, why don’t they say? And whoever it was making the recommendation, what were the criteria for the choice? When were they published? How did they choose this one person from among Europe’s 500 million? There must be a lot of bankers with Wall Street or City experience who would like to apply for the job. Why weren’t some honest bankers considered? Did the ministers have a list after a public Call for Candidates in the Official Journal? No one saw the advertisement. If the post of ECB president is paid from taxpayers’ money and public funds, it should come under the usual rules for selecting and hiring civil servants. Surely the politicians would not want the public and the markets to think they are involved in political patronage and nefarious nepotism?
If the politicians did not act impartially to choose an independent governor, are we to assume the new ECB president is not impartial and has as a covert task the mission to save the politicians’ hides? How can anyone know if the politicians are concerned that a governor shows no favouritism to any Member State? In other words: is his nationality irrelevant? The sole criteria for the appointment should be independence, experience and integrity.
The president should have enough strong character and experience to deal with dire situations where politicians gang up against him to try to bastardize the currency. The ECB president should have metal to resist the politicians. He should not be the politicians’ plaything. The new candidate has several stripes against him, deserved or not.
It is educational to recall what happened at European Council in 1998 and the first selection of the governor of the Central Bank. The site of the ECB was chosen as Frankfurt. What has that to do with the choice of governor? A lot in Gallic eyes. The French president of the Republic said that as the ECB was in Germany the governor should naturally be French. (Don’t you love the way the French use naturellement?)
But hang about! Aren’t there a few more States besides France and Germany. Aren’t there a few States who have an economy even sounder than France’s? Doesn’t France get involved in some dubious monetary practice from time to time?
France did not get its way and Wim Duisenberg, who had headed the pre-euro European Monetary Institute, was confirmed as the first governor. He was previously governor of the Dutch central bank and had ample experience. Before Duisenberg, the EMI was headed by Hungarian-born Alexandre Lamfalussy, a respected economist and international banking adviser, from Belgium.
The Germans, the Belgians and Dutch said NON to the French. They told them that they wanted to have a strong euro. They did not want someone who ‘bent’ the rules and did not defend the ECB’s independence. A nasty fisticuffs occurred. In the end the French lost.
The French declared afterwards that a compromise had been reached. In the margin of the European Council they said that all agreed that (1) Mr Duisenberg could stay on — but only for a bit and he should resign half way through his 8-year term (2) their named French candidate, M. Trichet, should then take over.
To any rational observer this would fail logic and fairness tests. It assumed that (a) Mr Duisenberg would want to resign and in fact he stayed on rather longer than the French wanted, until November 2003; (b) that M. Trichet would also be around, healthy and capable and hadn’t in the meantime wandered off to Wall Street to make a private fortune; (c) that the “gentleman’s agreement” (that is the outcome of the European CouncIl wrestling match) would bind the still future European Council with slightly different political wrestlers; (d) that no other candidates from the 25 other Member States would be allowed to place their name forward; (e) there would be no public call for candidates in the Official Journal from all the aspiring European bankers. In other words the heads of government were convinced that this illegality could continue for a few more years.
In the end the French managed to hold this conspiracy together. How? Possibly because it was a political cartel agreement — held together by party political secretariats. M. Trichet was eventually made the ECB governor. Imagine a private Bank with 27 major shareholders where the CEO was fixed in this way. What an uproar would ensue at the shareholders’ meeting. What court cases there would be!
The European Council’s ‘fix’ says more about the secret forces holding this particular political dirty deal together and total lack of free choice in the way the head of the ECB is chosen. It says rather less about democracy and the high-minded principles that should be involved and the financial legalities.
I asked earlier: Who knows more about the dirty little secrets of all the other Member States than the 27 intelligent men and women of the European Council? The figures about debts and fraudulent statistics are coming to light. Yet the European Council is perpetuating the same sort of secret system in choosing the ECB president.
It bodes ill for the public because it is a clear indication of the corrupt nature of EU politics — even when faced with a horrendous crisis of the euro and the financial future of several Member States.
It is not the sort of behaviour that reassures the markets, the speculators and the private bankers. Only a democratic, supranational monetary system can do that. It will take some time to remedy and solid democratic institutions are needed … or the Court.