Democratic Legitimation of Central Bank Independence in the European Union

The book explores the evolving relationship between central bank independence and democratic legitimation, particularly in the context of the European Central Bank (ECB) and the financial and sovereign debt crisis. It examines the justification of the high level of autonomy granted to the ECB and identifies requirements for democratic legitimation of central bank action.

Format: Paperback / softback
Length: 167 pages
Publication date: 31 May 2022
Publisher: Springer Nature Switzerland AG

The relationship between central bank independence and democratic legitimation is a complex and evolving issue, particularly in the context of the European Central Bank (ECB) as it assumes new responsibilities and faces unprecedented challenges. The financial and sovereign debt crises have significantly impacted the ECB's position within the Economic and Monetary Union, without substantial changes to the Union's legal framework. However, the transformation of the ECB from a primarily price stability-focused institution to one that also plays a crucial role in sustaining financial stability, performing banking supervision, and supporting economic policy raises questions about the level of autonomy granted to the ECB in light of the principle of democracy that demands adequate accountability and control.

This book aims to address these concerns by identifying the requirements for the democratic legitimation of central bank action in relation to specific tasks. It also analyzes other scales of independence encountered in EU law to provide a better conceptual understanding of central bank independence.

Central bank independence is a crucial aspect of modern monetary policy, as it allows central banks to pursue their monetary policy objectives without political interference. However, the level of independence granted to central banks can vary significantly across countries and institutions. In the case of the ECB, it has been granted a high level of autonomy, including the ability to set interest rates, purchase government bonds, and conduct monetary policy operations.

While this autonomy is necessary to ensure the effectiveness of monetary policy, it also raises concerns about democratic legitimation. Democratic legitimacy refers to the ability of institutions to be accountable and responsive to the needs and concerns of their stakeholders, including the public. In the case of central banks, this includes ensuring that their actions are transparent, accountable, and consistent with the principles of democracy.

One of the key challenges facing the ECB in terms of democratic legitimation is the transformation of its role from a primarily price stability-focused institution to one that also plays a crucial role in sustaining financial stability. This transformation has been driven by the need to address the financial and sovereign debt crises, which have highlighted the importance of a strong and stable financial system.

However, the increased focus on financial stability has raised concerns about the potential for central bank intervention to undermine democratic control over monetary policy. For example, the use of quantitative easing by the ECB to stimulate economic growth has been criticized for undermining the independence of commercial banks and potentially leading to inflationary pressures.

To address these concerns, the book identifies several requirements for the democratic legitimation of central bank action. These include transparency, accountability, and consistency with the principles of democracy. Transparency refers to the ability of central banks to communicate their policies and decisions to the public in a clear and accessible manner. Accountability refers to the responsibility of central banks to be held accountable for their actions and decisions by their stakeholders, including the public and the political establishment. Consistency with the principles of democracy refers to the ability of central banks to act in a manner that is consistent with the values and principles of democracy, including the rule

In addition to these requirements, the book also analyzes other scales of independence encountered in EU law in order to provide a better conceptual understanding of central bank independence. These scales include legal independence, operational independence, and financial independence. Legal independence refers to the ability of central banks to act independently of the political establishment and other branches of government. Operational independence refers to the ability of central banks to conduct their operations without interference from the commercial banks or other financial institutions. Financial independence refers to the ability of central banks to maintain their financial stability and independence from external influences.

The book concludes by highlighting the importance of balancing central bank independence with democratic legitimation. While central bank independence is essential for the effective implementation of monetary policy, it is also important to ensure that central banks are accountable and responsive to the needs and concerns of their stakeholders, including the public. This requires a commitment to transparency, accountability, and consistency with the principles of democracy, as well as a willingness to engage with stakeholders and consider their perspectives when making decisions.

In conclusion, the relationship between central bank independence and democratic legitimation is a complex and evolving issue that requires careful consideration. This book identifies requirements for the democratic legitimation of central bank action in relation to specific tasks and analyzes other scales of independence encountered in EU law to provide a better conceptual understanding of central bank independence. By balancing central bank independence with democratic legitimation, we can ensure that central banks are able to effectively implement monetary policy while also being accountable and responsive to the needs and concerns of their stakeholders, including the public.

Weight: 291g
Dimension: 235 x 155 (mm)
ISBN-13: 9783030751173
Edition number: 1st ed. 2021