Select Committee on European Union Forty-Second Report



159. The inter-connected concepts of transparency and accountability are of central importance to the image and reputation of institutions such as the ECB that are independent of much democratic political control. In its response to our first report on the ECB, the Government said: "Openness and transparency are key to ensuring the ECB gains the trust of the European public and financial markets. They help provide the credibility needed to deliver monetary policy effectively."[98] In the ECB's own words: "Accountability is a fundamental precondition for, and core element of, democratic legitimacy." Transparency and accountability are so interrelated that it is helpful to consider them together. Accountability is impossible without a substantial degree of transparency of decision-making processes and outcomes.[99]

160. We have already discussed and recommended changes to the transparency of the ECB's monetary policy objectives and how the ECB communicates its monetary policy strategy. The issue of transparency, however, goes beyond communication and, for instance, deals with the fact that not only markets, but also other participants in the political process in Europe, want to know the reasons for the ECB's monetary policy decisions and how they are reached. Transparency has to do not only with the clarity of objectives but has to do also with issues such as whether the ECB should publish the minutes of meetings of the Governing Council and whether the names of the individual participants behind the decisions which are being taken should be visible in the minutes. It is important that the transparency of the ECB's objectives is matched by the transparency of its decision-making processes. An academic study to compare the transparency of six central banks placed the Bank of England top, with the ECB in second place.[100] We are not contesting that the ECB is opaque, rather we examine whether there are ways in which its transparency could be enhanced.

161. In this section we first set out the current reporting arrangements for the ECB, describing the different communication tools that the bank uses to explain its monetary policy decisions. We then examine the two most common communication tools employed by other central banks: publication of minutes of the decision-making body and publication of the votes within that body. We analyse why the ECB rejects these tools and if it is right to do so. Finally, we scrutinize the way in which people are appointed to the Executive Board of the central bank and ask whether that process is adequately transparent.

The current reporting arrangements for the ECB

162. Under the EC Treaty, the ECB is accountable to the European Parliament. Under Article 113(3), the ECB is required to submit an annual report on the activities of the ESCB and on the monetary policy of the previous and the current year to the European Parliament, the Council and the Commission. The President of the ECB has to present the report to the Council and to the European Parliament, which can hold a general debate on it. The President of the ECB and the other members of the Executive Board can be asked to appear before the Committee on Economic and Monetary Affairs of the European Parliament (EMAC) at the request of the Board or the Parliament. In practice, the President appears before EMAC four times a year. A verbatim account of these meetings can be found on the European Parliament website. In the same way that the President of the ECB has four monetary dialogue meetings per year with EMAC, the Chairman of the Federal Reserve System meets four times per year with a committee of the American Congress and the Governor of the Bank of England appears four times per year before the Treasury Committee of the House of Commons.

163. Additionally, Article 15 of the Protocol requires the ECB to publish reports on the activities of the ESCB "at least quarterly". These reports are to be made available to interested parties free of charge. In practice, the ECB publishes monthly reports.

164. Mr Volcker, who was Chairman of the Board of Governors of the US Federal Reserve System from 1979-87, considered interactions between the American Congress and the Federal Reserve to be "somewhat more rigorous" than those between the European Parliament with the ECB, partly because the European Parliament does not yet enjoy the same level of authority as the American Congress. This sentiment was shared by several other witnesses. Professor Thygesen agreed that whilst the quarterly testimonies of the ECB President to the EMAC have not yet have reached the prominence and stature of the similar hearings with the Chairman of the Federal Reserve in the US Congress, the meetings seem to be improving in the nature of the give and take, which has been increasingly apparent. For Miss Pepino, Vice-President, Economic and Policy Research at JPMorgan, the European Parliament did "a very good job of holding the ECB to account, with Committee members asking "well-informed and penetrating questions" (QQ 82, 127, 134, 171, 180; pp.25, 87).

165. Central banks should be subject to the scrutiny of a democratically-elected body. For the ECB, this accountability needs to be in a form which does not put its independence at risk. It is a popular misconception that, unlike the Bank of England, the ECB is not accountable to parliament. The ECB is accountable to the European Parliament, and we remain of the view that it would not be practicable, or even desirable, to make the ECB also directly accountable to national parliaments.[101]

166. The President of the ECB and other members of the Executive Board regularly appear before the Committee on Economic and Monetary Affairs of the European Parliament. Ever since the establishment of the ECB, we have said that we would expect these hearings "to be televised and to become a prime means of [the ECB] communicating with the people of the euro zone countries."[102] We are disappointed that this is still not the case.

Contacts with academics

167. Since 1999 the Center for Financial Studies (CFS) organises an annual conference of ECB watchers. The ECB itself regularly intervenes in the conference meetings. The bank took this decision at the outset of its operations, when it decided to participate in order to establish quickly "active channels of debate with the market, academic, and press communities."[103]

168. The ECB disseminates its own research findings by publishing Working Papers and Occasional Papers by members of its staff. The central bank also organises academic conferences, seminars and workshops. Professor Thygesen was impressed by the fact that the ECB did not work in isolation. He admired the way in which it listened to ideas and suggestions from academics and engaged them in discussions. The Government and the Bank of England both also praised the ECB for having "shown a willingness to listen to the academic debate" and "engaged actively with academics and other members of the economics profession." (QQ 65, 213, 217, 224; p.84)

Inflation projections

169. In November 2000, the ECB announced that it would publish the Eurosystem's internal economic projections to improve the market's understanding of its monetary policy and dispel criticisms of excessive secrecy. The European Parliament had been calling for this to be done for some time; it regarded the publication of forecasts as a necessary part of transparency, without which it was difficult to hold the ECB properly to account.

170. The staff of the Eurosystem make inflation projections for the euro area economy over 1-2 years. These projections are published twice a year - in the June and December editions of the ECB Monthly Bulletin. The projections are updated quarterly (in March and September) by the ECB staff, but these updates are not published, being kept instead for the ECB's internal use. The projections assume that key variables, such as interest rates and exchange rates, will remain at recent market values for the forecasting period. The ECB stresses that these studies do not constitute inflation forecasts but are projections of economic variables if the variables remain unchanged. The projections are one input to the Governing Council's decision-making process, which includes analyses made by academics or by those in the private sector.[104] The projections have become key elements in the bank's justification of its monetary policy decisions.

171. We welcome the publication of economic projections by the ECB, but the bank should increase the frequency of their publication to four times per year, as there can be significant change in the economic outlook over six months. More frequent publication would help the Bank to provide clearer and more transparent explanations for their monetary policy decisions.

The President's press conferences and the ECB Monthly Bulletin

172. At the conclusion of each meeting of the Governing Council where an interest rate decision is made, the ECB immediately puts out a press release, giving the details of the decision. Shortly after each of these meetings, the President holds a press conference, which starts with the President reading out a prepared introductory statement, which is then followed by a question and answer session with journalists. A copy of the statement is put on the web immediately and is followed shortly by a transcript of the questions and answers. The ECB Monthly Bulletin is published a week after the meeting of the Governing Council and includes a description of the economic and monetary developments in the euro area that informed the Governing Council's decision. The bulletin's 'editorial' broadly reflects the President's introductory statement to the press conference.

173. The ECB's decision to hold press conferences to explain its monetary policy decision 'in real time', rather than several weeks later, was unprecedented in 1999; no other central bank produced such timely explanations of its monetary policy decisions. In contrast, the minutes of the Federal Open Market Committee (FOMC) of the Federal Reserve are only made available after an interval of six weeks; whilst the minutes of the MPC of the Bank of England are published after two weeks.

174. The President's press conferences after meetings of the Governing Council provide a most timely opportunity for the ECB to present and explain its monetary policy decisions. We would welcome it if the incoming President, Mr Trichet, continued this practice.


175. Mr Smith, Chief Economist at KPMG, cautioned that the press conferences should not be seen as a substitute for publication of the minutes of the meetings of the Governing Council; the two were fundamentally different. The press conferences provided ex post transparency, in that they explained what the Governing Council had done and why it had done it. The minutes of the MPC of the Bank of England and the FOMC of the Federal Reserve, on the other hand, provided a form of ex ante transparency, where discussions of what might happen under various contingencies were presented, as well what the committee members considered were the risks to price stability (Q 6).

176. Professor Goodhart also disagreed with the ECB's position that the press conferences were at least as good a communication tool as minutes. His experience of being part of the MPC was that the exercise of taking part in the discussions was a tiring one; it was difficult after a thorough and involved discussion to extract immediately all the various nuances of the argument. To put a President, however able, up before a group of journalists almost immediately after such a long and tiring discussion, without much time to reflect and prepare was, he said, "really quite dangerous." Many of the ECB's presentational problems had arisen as a result of statements made at that press conference which, if the President had been somewhat fresher and had had more time to prepare, would have been better delivered. Professor Buiter agreed that the press conferences were "counterproductive […] and certainly no substitute for minutes, attributed or not" (Q 57). Mr Codogno also complained that the press conferences sometimes did not deliver a clear message and only created confusion. Crucially, they relied entirely on the personality of the President and his or her ability to explain clearly the decisions of the Governing Council and the different aspects of the debate within the Council (p.82).

Publication of minutes of the meetings of the Governing Council and the results of any votes taken

The position of the European Parliament

177. The European Parliament repeatedly called for the minutes of the Governing Council's meetings to be published in the form of a summary of the arguments discussed, including dissenting opinions. The European Parliament further proposed that the minutes should indicate, in an anonymous way, the balance of any votes in the Governing Council.[105]

Arguments for the publication of minutes and votes


178. The main criticism of the press conferences was that they did not explain fully enough the range of views that likely exist within the Governing Council. They did not give "the full flavour of the debate" but were often "too defensive": whilst there was some explanation of the reasons for the decision taken, insufficient weight was given to the other elements of the discussion, particularly any arguments put forward against the decision. Mr Walton said that whatever form of communication tool the ECB chose, it needed to "reflect to a greater extent" than the press conferences currently did "the shades of opinion within the Council" by giving "an indication of balance of risks" and the way the arguments were going. This could most easily be achieved in a set of minutes. There was not, however, a need for the ECB to publish detailed proceedings of the Governing Council's meetings. The important thing was to have a set of minutes that reflected in a serious way the range of issues under consideration, making it clear that there were disagreements about the policy decision. Professor Giavazzi said that publishing minutes was important, but the style of the minutes was crucial. He cautioned the ECB against adopting the model of minutes produced by the Federal Open Market Committee of the Federal Reserve; such minutes were not particularly helpful, as they did not expose adequately the different sides of the discussions (QQ 7-8, 49, 55, 74, 112, 118, 171; pp.85, 87). Mr Bootle agreed that the usefulness of minutes depended on the way in which they were written. Importantly, there should not be any concern about showing disagreements within the Governing Council:

"These are difficult issues and there should not be any worry about revealing that some members were extremely worried about deflation and others were not. We should see what the arguments and what the reasons are for decisions." (Q 117)


179. Mr Bootle argued that the ECB could demonstrate a more open approach to how it reached its policy decisions by publishing summary minutes of the meetings of the Governing Council. This move would in turn stimulate a better discussion between the central bank and commentators and experts outside the ECB. In the UK, the Government agreed that the publication of minutes by the Bank of England had made "a very useful contribution to the debate" (Q 227). For Mr Bootle, the Bank of England's monetary policy had been "greatly improved" by the decision to publish minutes:

"We understand much better the way the MPC is thinking and, dare I say it, I think also the MPC's thought processes are improved by having this sort of interchange. It is extremely healthy. What emerges out of that is a much stronger decision making process in which people can have much more faith and confidence." (Q 113)


180. Professor Buiter argued that in the UK publishing the voting record of individual MPC members improved accountability, because individual members had to be ready to justify their position before the Treasury Committee in the House of Commons. These benefits could equally be achieved with the ECB:

"With the votes in the open, the European Parliament can very easily call to account a governor whose pattern of voting clearly makes no sense from the euro area point of view, but makes perfect sense from a national point of view, so I think this is even more important than the minutes, the individually identified votes." (Q 57)

181. The members of the Governing Council were professionals who would want to pursue their duties sensibly and independently. That would particularly be the case as their reputation would be associated with their performance.[106] Professor Draghi agreed with this position and said that ideally he would support a move to such full transparency. The members of the Governing Council usually had lives with high ethical standards; they would understand that, once they sat in the Governing Council, they had to consider the interests of the euro area. They might therefore be reluctant to see their names associated with a narrow defence of their national interests: "publishing names could help the case for transparency and could make these people glad to be viewed as champions of Europe" (Q 195).


182. Professor Giavazzi explained that it made a big difference if a monetary policy decision was a marginal one (say 10 for and 8 against) or was taken by a large majority (such as 17 for and 1 against, or 18 members voting unanimously): "if we know the vote, we know what they think around the table. […] We would learn a lot. […] The market would have a lot of information, knowing whether the last decision was marginal or unanimous." That information on the last decision would inform commentators' views about the likelihood of a change of interest rates at the next meeting (Q 119). The BDI also wanted the ECB to conduct a formal vote on interest rate decisions and publish the result in an anonymous form in order to create more transparency in monetary policy decision-making, both for markets and the general public. (p.85)

Why is the ECB against publishing minutes and votes?


183. Article 10.4 of the Protocol provides that "the proceedings of the meetings [of the Governing Council] shall be confidential. The Governing Council may decide to make the outcome of its deliberations public." The ECB is therefore of the position that its decision not to publish the detailed proceedings of the Governing Council's meetings is consistent with the EC Treaty. The European Parliament counters that publication of summary minutes is not ruled out by the Treaty.[107]


184. Article 10.2 of the Protocol states: "the Governing Council shall act by a simple majority. In the event of a tie, the President shall have the casting vote." The ECB argues that while the EC Treaty provides that the Governing Council should take decisions by simple majority, it does not exclude the possibility of consensus-building. Monetary policy decisions in the Governing Council are often, if not always, taken consensually. As votes do not occur, no results can be published.


185. President Duisenberg said that one of the reasons why the Governing Council did not vote but operated by consensus was that, like the Commission, it was a collegiate body. To move away from this position risked dividing the Council and losing its cohesive collegiate attitude:

"at all costs we want to preserve the phenomenon that the Governing Council's decisions are decisions by a collegiate body and that every individual member of that body will defend and describe the outcome of certain discussions as if he had been 100% enthusiastic about those decisions. They will be supported by the entire Governing Council. We do not want to undermine that attitude in the Governing Council."[108]

186. It seems unlikely that this situation is going to change in the near future. Mr Trichet, the in-coming President of the ECB, identified "collegial decision-making" as one of the three guiding objectives that he will pursue during his eight-year mandate.[109]


187. When making their interest rate decisions, members of the Governing Council are mandated to consider the performance of the euro area as a whole and not the situation in individual countries. The ECB was concerned that publication of minutes and voting records could lead to an unwanted nationalisation of the debate. It could invite political pressure on the individual NCB governors to vote along national lines rather than considering the appropriate interest rate for the euro area as a whole. President Duisenberg identified this as the principal reason for not changing the ECB's communication strategy. He consistently argued that if the bank published voting records,

"those who vote and whose votes could be identified and recognised would come under pressure from their national governments or parliaments to vote differently in future, for purely national reasons and considerations. One of the Governing Council's greatest assets is that it has always taken a euro-area-wide point of view, and I would hate to lose that."[110]

188. A number of our witnesses agreed with that analysis and opposed publication of attributed minutes and votes on the grounds that undue pressure, from politicians or the populist press, could be applied on individual members of the Governing Council in their own countries, particularly if there were a conflict between a country's immediate economic interest and that of the euro area. In such a situation, identifying individual opinions of Governing Council members could be "counterproductive", because it might make it more difficult for national governors to stick to an aggregate view of the required monetary stance for the euro area (QQ 58, 62, 81, 128; pp.25, 82).

189. Professor Buiter, however, strongly rejected this argument:

"I personally do not see the problem. I have never understood, I may be terribly naive, these terrible pressures that would be applied. The tabloids or the people that appointed me to the job are not going to take my family hostage. Really, any central banker who is seriously worried about what the tabloids write about his or her vote, should be looking for another job. It is not a consideration that plays a role. The truth of a particular proposition is not determined by the number of people who believe in it or the amount of voice that they can give to that particular view. I really think that the issue of pressure is probably overstated." (Q 60)

190. Mr Smith agreed that the concern that members of the Governing Council might deviate from a euro-area perspective as a result of national pressure in their own Member State was "somewhat overdone." He accepted that, if attributed minutes and voting records were published, more national pressure could be applied on individual central bank governors, but he suggested that equally within the Governing Council itself there would be a lot of peer pressure for the members to maintain a euro-area perspective. He was not convinced that it was "such a big issue as people suspect it might be." (Q 10)


191. Our witnesses pointed out that if the ECB's main concern about publishing attributed minutes was that it could lead to members of the Governing Council deviating from a euro-area perspective, an easy and straight forward solution would be for the central bank to adopt the UK system, where a whole range of views were represented, but without attributing them to individuals. Professor Draghi considered that this was certainly "the very least" that the ECB should do to improve the transparency of its decision-making process. Mr Weale agreed that if the minutes referred to the situations in particular countries in a way that obscured the identities of those making the points, it would be "a very valuable contribution to transparency". Care would have to be taken in the drafting of the minutes, however, to preserve the substance of anonymity as well as the form of anonymity (QQ 8, 57, 195).

192. Mr Smith suggested that if the ECB started publishing anonymous minutes and the balance of the vote, it would not be very difficult for people to find out who had voted which way. Professor Goodhart explained though that the reason why the press in the UK had become good at guessing who said what was because although the minutes were anonymous, the votes were actually identified (QQ 10, 58).


193. Many of those witnesses who considered that it might be unwise at present to publish attributed minutes and votes of the Governing Council recognised that the situation could change over time. Professor Draghi argued that as the ECB became more self-confident, and its track record on monetary policy more established, the institution would become less hostile to the idea of publishing minutes and votes. Gradually, these issues would become less controversial and the central bank would become more open to the ways in which it could increase transparency of its decision-making processes. Dr Schmieding agreed that the more the ECB acquired its own gravitas and track record, the easier it would find it to open up and to publish minutes: "Over time the arguments for more transparency will become more forceful." (QQ 74, 195)

194. Reform of the Governing Council would open to door to much greater transparency, as it would render irrelevant many of the current arguments against the publication of minutes and votes. As Mr Codogno remarked: "An independent Governing Council, not formed on the basis of country representation but exclusively on professional grounds, would change the current debate on communication and transparency." In the current set-up, where the Governing Council was composed of NCB governors, Professor Giavazzi was against publishing identified votes because of the potential press reaction the next day; taking this step would not be a concern if the ECB had a MPC where the members were appointed as individual experts. If members of the Governing Council participated exclusively in a personal and independent capacity - and not because they were the governor of a NCB - there would be less suspicion that they would be influenced by national interests. With this type of Governing Council, it would be much easier for the ECB to change its communication policy and publish attributed minutes and votes without concern. For this to happen, individual positions would have to be fully de-linked from perceived national interests. Dr Schmieding thought that the ECB should be told to move towards greater transparency in a series of stages that would lead eventually to attributed minutes and votes. It could start by publishing unattributed publish minutes, and then later add the balance of votes, if there were votes; the next stage could be to publish attributed votes and then finally attributed minutes. Although the bank should only move towards this goal step by step, it was "a legitimate demand of the public" that it should eventually get to that stage (QQ 74, 119; p.82).


195. On the basis of the evidence received, we accept that it would not be appropriate for the ECB to publish minutes of the meetings of the Governing Council which are attributed and contain full voting records: to do so would run the risk of exposing individual members of the Governing Council to criticisms or pressures from their own countries, and thus of impairing, or at least appearing to impair, the independence of the ECB itself.

196. However, the ECB's communication strategy will need to develop and evolve over time. The bank should, by a series of incremental steps, gradually move towards greater transparency of the Governing Council. The first step could be taken without further delay by announcing that the central bank is to publish records of the meetings of the Governing Council in which the various arguments and reasoning would be spelled out clearly but not attributed. Such a move would enhance transparency and understanding of the ECB's decision-making processes and win wide public support, both in the press and with commentators and the markets. We see no reason for the bank to delay in providing more detailed information about the arguments used in the meetings of the Governing Council, whilst protecting the identity of those participating.

197. If it were to be decided that the ECB's interest-rate decisions should be taken by a Monetary Policy Council where the non-executive members were appointed as individual experts (see above paragraph 157), the publication of attributed minutes and the balance of votes within the Monetary Policy Council could be given further consideration.

Appointments to the ECB Executive Board

The current process for appointing members of the Executive Board

198. The ECB Executive Board has six members: the President, the Vice-President and four other members. The EC Treaty provisions for appointing the members of the Executive Board require that those appointed are persons of recognised standing and professional experience in monetary or banking matters. Under Article 112(2)(b) TEC, the President, the Vice-President and the other members of the Executive Board of the ECB shall be appointed "by common accord of the Governments of the Member States at the level of Heads of State or of Government, on a recommendation from the Council, after it has consulted the European Parliament and the Governing Council of the ECB. Their term of office shall be eight years and shall not be renewable."

199. In practice, the appointment process currently works as follows:

·  the Ecofin Council recommends a candidate;

·  the Governing Council of the ECB and the European Parliament are consulted;

·  the ECB Governing Council issues an Opinion;

·  the Economic and Monetary Affairs Committee of the European Parliament (EMAC) holds a hearing with the candidate and issues a Report, which then goes to a plenary session of the European Parliament for endorsement; and

·  the Council's Recommendation is submitted for decision to the Heads of State or Government of the Member States that have adopted the euro.

Should the manner by which the Council selects candidates for appointment be made more transparent?


200. None of our witnesses questioned whether it was right that members of the Executive Board were appointed by the Council. As Dr Schmieding said, appointing the Executive Board of the ECB was a highly political decision; it was quite legitimate that senior politicians made this decision. It was in their interests "to take great care that they choose the right candidate because, given the independence of the ECB, they would then have to live with the consequences of that for a long time" (Q 80; p.25). The Commission said, however, that "it would be appropriate [for the European Council] to appoint the different members of the Executive Board by qualified majority rather than by common accord (i.e. unanimity)" as was currently the case. It explained that this proposition would be "particularly relevant in the context of an enlarged Union composed of 25 Member States and eventually even more." It reported that this view had "received support from many Member States", and the Commission therefore hoped that this change would be agreed in the IGC. (p.89)


201. The initial appointments to the Executive Board of the ECB, including the first President, Dr Wim Duisenberg, were made at the beginning of May 1998. They were appointed in a way that avoided their mandates all expiring at the same time. President Duisenberg, from the Netherlands, was to be appointed for eight years, Vice-President Noyer, of France, was appointed for four years and the other four members (from Germany, Spain, Italy and Finland) for between five and eight years. The Heads of Government also agreed that, "in future appointments to the executive board, appropriate weight and consideration would be given, according to a balanced system of rotation, to recommendations for nationals of member states not on the initial slate."

202. Prime Minister Blair reported that there were "very difficult" and "frustrating" negotiations over the presidency of the ECB. It was agreed that Dr Duisenberg, who had been head of the European Monetary Institute—the ECB's predecessor, would be the first President of the central bank. It was further agreed that his successor would be French (and it was expected that the French candidate would be Mr Trichet, as indeed was the case). There was disagreement, however "on the length and form of Mr. Duisenberg's tenure as president". What the Prime Minister referred to as "the argument about the presidency" centred on a split between the Member States as to whether, under the EC Treaty, the Council could stipulate a fixed date for Dr Duisenberg to retire. In the end, Duisenberg was appointed for the full eight years, but only on the understanding that he would voluntarily retire early after four years.[111]

203. A number of our witnesses described the manner of Mr Duisenberg's appointment as "unfortunate". It was discreditable because it seemed to be a "national contest"; the political horse-trading showed the force of national pride in connection with the ECB despite the "technical nature of the appointment". Professor Thygesen said that it would "certainly be desirable to avoid similar situations in the future." (QQ 79-80, 124; p.25)

204. The manner by which the first President of the ECB was appointed was regrettable and did not conform to the spirit of the Treaty. A situation of split mandates should not be allowed to happen again.


205. Professor Giavazzi complained that the procedure whereby the Council chose candidates for the Executive Board was shrouded in secrecy. No one knew how the Council came to its nomination for the candidate; the process was not subjected to any scrutiny. Who were the alternatives, for example, when the Council nominated Mr Trichet to replace Mr Duisenberg as President of the ECB? From which pool of people was he chosen? Professor Giavazzi also mentioned the recent replacement on the Executive Board of Sirkka Hämäläinen, the former governor of the Bank of Finland, by the deputy governor of the Bank of Austria, Gertrude Tumpel-Gugerell. Again, there was no discussion as to who might be the best candidate to replace Ms Hämäläinen, and no alternatives to Ms Tumpel-Gugerell were openly proposed:

"What was the process whereby the deputy governor of the Bank of Austria was chosen? Most likely she is the best candidate for the post, but I do not think there has been an open scrutiny. Because individuals are so important, the way they are selected is very important and here the political process falls down. It is not the fault of the bank. It is the fault of the way that the Council of heads of state, which is responsible for the appointments, comes to a decision."

206. Professor Giavazzi contrasted the appointment procedure for members of the ECB with that for posts in the European Commission,

"where the top administrative jobs, notably recently the appointment of the Director General for economic and financial affairs, Mr Regling, happened through a process of committee. The Commission, in the case of Mr Regling, had appointed a committee which included both insiders from the Commission and outside experts. These people went through a list of potential candidates and came back to the Commission with a list of three candidates who were deemed suitable for the job."

207. That type of process of selecting candidates was "far ahead" of what happened for the Executive Board. Professor Giavazzi suggested that for these candidates too the Council should adopt a procedure with a nominating committee. The European Council could appoint a committee and individual countries could come up with suggested names, but then the nominating committee would have a procedure whereby the alternatives were discussed and compared. The committee would then present the European Council with a list of three or four people for it to decide on a nomination. Professor Giavazzi recognised that it would be difficult to set down operating rules for this committee, but the fact that it was not easy did not mean it should not be attempted. Having a committee that would openly compare candidates would be "an enormous step" forward (QQ 100-02, 105).

208. Other witnesses agreed that the appointment procedure could be improved and made more transparent by the Council being presented with a list of possible candidates. Dr Schmieding suggested that an initial list of candidates could be drawn up publicly by the Commission. He further added and that perhaps the Council should only pick candidates to which neither the ECB nor the European Parliament had objected. Mr Codogno's view was that "a special commission of the European Parliament or the EU Commission" should propose candidates "purely on technical grounds." (Q 80; p.81)

Should the European Parliament have the power to reject candidates for the Executive Board?

209. At the moment, the European Parliament is only consulted on the Council's recommendation. As was seen in the recent decision to amend the voting modalities of the Governing Council - where the European Parliament was consulted and rejected the proposal, but this rejection did not affect the decision of the European Council, which adopted the proposal regardless - a process whereby the European Parliament is only consulted allows the Council to disregard the European Parliament's opinion. The European Parliament is concerned that its voice carries little weight in these matters, and it therefore wants the power to confirm the appointment of the Council's nominations. This would mean that rather than just offering a view on a the Council's nomination, Parliament would have the right to veto the candidate. EMAC argued that this would increase the accountability of the appointment process:

"a key element of accountability [for the ECB] could materialise when new members of the ECB board are designated. Even if the treaty gives some leeway on the matter, the European Parliament claims the right to confirm their appointment in the same manner as the American Senate with the Federal Reserve. Board members have a particular responsibility: they are responsible for the day-to-day management of the ECB in key areas and have a particular duty to represent all the Europeans. That's why the Parliament should designate them through a clear and democratic procedure. Far from being a threat to their independence, this confirmation would give them added credibility."[112]

210. The European Parliament wants the new constitutional Treaty to give it the capability to confirm appointments to the Executive Board and is pushing for this issue to be considered at the IGC. A substantial number of witnesses supported amending the Treaty to give the European Parliament (on the advice of EMAC) the power to veto the candidates. Mr Bootle argued that for the EMAC hearing to be constructive, the Committee had to have "some teeth". With the power to overturn an appointment would come responsibility. Mr Volcker added that the extra responsibility could have a positive knock-on effect and might change the psychology of other meetings between the two institutions, making the ECB's regular monetary dialogues with EMAC "potentially more meaningful" (QQ 105-07, 134; p.87).

211. Professor Giavazzi further argued that if the European Parliament had the power to reject the Council's candidates, the introduction of this discipline could improve the prospects of the Council adopting a more open procedure for nominating candidates based on a nominating committee, because such a procedure would allow the Council easily to demonstrate that it was putting forward good candidates (Q 109).

212. Professor Draghi agreed that ideally the European Parliament should be given the power to hold formal confirmation hearings, which would include the power to reject the candidate nominated by the Council. Such a move would increase the democratic accountability of the ECB, which was a very important institution that was necessarily run by unelected officials. The question was whether now was the right time to make such a move. Professor Thygesen considered that the current system of hearings in the European Parliament was already "a reassuring practice" and at the moment it was enough that EMAC issue an opinion and raise critical questions. Mr Trichet testified to the European Parliament that "an official confirmation procedure would be indispensable in a totally federal political structure." He said that "should political Europe evolve in this direction" official confirmation hearings would "become necessary."[113] The Commission and the UK Government were against modifying the existing roles of the different institutions involved in the appointment process of the members of the Executive Board and would not be pursuing amendments in the IGC (QQ 79-80, 196-98; pp.25, 72, 90).

  1. We see the hearings that the European Parliament holds with candidates for the Executive Board as an extremely valuable part of the appointment procedure. The hearings bring some openness and democratic legitimacy to the process. Over time the nature of these hearings may evolve and their significance will probably increase. At some later date consideration could be given to granting the European Parliament the power to confirm the Council's nomination for the Executive Board; but it is essential to prevent the process from becoming unduly politicised. We are strongly of the opinion that the time is not yet right to take the final decision on appointments to the Executive Board away from the Member States.

98   Government Responses (Session 2001-02, 2nd Report, HL 13), p.1. Back

99   The ECB itself stresses that the two terms are distinct and should not be used interchangeably. See the two articles "The Accountability of the ECB" and "Transparency in the monetary policy of the ECB", in the November 2002 edition of the ECB Monthly BulletinBack

100   'Is the ECB sufficiently accountable and transparent?' Lorenzo Bini-Smaghi and Daniel Gros, European Network of Economic Policy Research Institutes (ENEPRI) Working Paper no.7, September 2001. When using this statistic in its EMU study Policy frameworks in the UK and EMU, the Government cautioned that the ranking "should be seen as indicative only, as the choice of criteria cold affect the result" (p. 43). The six central banks examined were the Bank of England, the ECB, the Federal Reserve, the Bank of Canada, the Bank of Japan, and the Bundesbank. Back

101   See our earlier report How is the euro working? (Session 1999-2000, 18th Report, HL 124), paragraph 16. Back

102   The European Central Bank: Will It Work? (Session 1997-98, 24th Report, HL 112), paragraph 110. We repeated this call in our report How is the euro working? (Session 1999-2000, 18th Report, HL 124), paragraph 122. Back

103   'ECB Watchers Conference: The evaluation of the strategy', Opening remarks by Professor Issing, Frankfurt, 11 July 2003. Back

104   See Box 1 'The publication of Eurosystem staff economic projections by the ECB' on page 11 of the 2001 edition of the ECB Annual Report. See also the introductory statement of President Duisenberg for the Monetary Dialogue with the Economic and Monetary Affairs Committee of the European Parliament, Brussels, 23 November 2000. Back

105   See, for example, European Parliament resolutions of 2 April 1998 on democratic accountability in the third stage of EMU (OJ C 138, 4.5.1998, p. 177); 27 October 1999 on the 1998 Annual Report of the ECB (OJ C 154, 5.6.2000, p.60); 6 July 2000 on the 1999 Annual Report of the ECB (OJ C 121, 24.4.2001, p.456); 4 July 2001 on the 2000 Annual Report of the ECB (OJ C 65 E, 14.3.2002, p. 159); 3 July 2002 on the 2001 Annual Report of the ECB; and 3 July 2003 on the 2002 Annual Report of the ECB. Back

106   This position was shared by Chris Huhne MEP, who argued it forcibly within the Economic and Monetary Affairs Committee of the European Parliament (see, for example, his remarks in the hearing confirming Mrs Gertrude Tumpel-Gugerell's appointment as a member of the ECB's executive board, 29 April 2003). Back

107   See resolutions referred to in footnote 106. Back

108   'Presentation of the ECB's Annual Report 2001 to the European Parliament', Strasbourg, 2 July 2002. Back

109   Answer to the questionnaire drawn up by the Economic and Monetary Affairs Committee of the European Parliament for its hearing on 11 September 2003 on the appointment of Mr Trichet as President of the ECB. Back

110   Monetary Dialogue with the Economic and Monetary Affairs Committee of the European Parliament, Brussels, 10 September 2003. Back

111   Statement by Prime Minister Blair to the House of Commons, 5 May 1998 (Hansard, Column 563-65). Back

112   EMAC Report on the 2000 Annual Report of the European Central Bank, A5-0225/2001, p.14. Back

113   Answer to the questionnaire drawn up by the Economic and Monetary Affairs Committee of the European Parliament for its hearing on 11 September 2003 on the appointment of Mr Trichet as President of the ECB. Back

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