Proposals

#15 Periodic democratic review of the ECB mandate

When the creation of the euro was decided in 1992, governments decided that the European Central Bank’s (ECB) main priority should be to achieve price stability. However, the economic, social and environmental context in which the ECB operates looks very different today than it did 20 years ago. Should price stability still be the only priority?

Political views on this are very divided, with some arguing that full employment or the environment should have an equal importance for the ECB. In fact, the ECB is also supposed to support the general objective of the EU, under the condition that doing so would not prejudice its primary objective of price stability.

Given that inflation has been too low for almost one decade, the idea that the ECB should give more importance to its secondary objectives is gaining momentum.

The ECB is currently carrying out its strategy review, which it aims to finalize by the second half of 2021. Through this process, the ECB wants to check that it is still using the right approach to fulfill its price stability mandate, and whether it should act on secondary goals such as climate change. However, this review cannot result in changes to the ECB’s mandate in itself.

Changing the ECB’s mandate is almost impossible today, because it is enshrined in the EU treaties, which can only be modified by unanimity of all Member States. This is why the legal mandate of the ECB has not changed since its creation in 1998.

The near-impossibility of changing the ECB’s mandate creates a lot of rigidity, at least in theory. In practice, some people argue that the ECB has evolved in the interpretation of its mandate. However, in the long run, this approach may not be sufficient to adapt the ECB to changing circumstances. 

To overcome such rigidity, one idea would be for a democratically elected body, such as the European Parliament, to review and update the ECB’s mandate every 10 years. This would allow elected representatives to reflect on the priorities of the EU’s economy, taking into account the concerns of EU citizens, in order to adjust or re-confirm the current formulation of the ECB’s mandate.

➕ Pros

• Accountability of the ECB would be strengthened because its actions would be more stringently scrutinised by a democratically elected body of the EU.
• ECB’s policies would be adjusted to the economic reality and priorities of EU citizens and the European real economy.
• It would create more trust in the ECB.
• It would reduce the risk of the ECB’s actions being legally challenged before the European Court of Justice.
• Clarity and regular re-confirmation of the ECB’s mandate would reduce the risk of the ECB hesitating in, and therefore delaying the adoption, of necessary policies because of legal uncertainty about its mandate and priorities.

➖ Cons

• There is a risk that powerful lobbies will try to influence the future role of the ECB.
• This proposal requires changing the treaty, which all EU Member States must also agree to. This is extremely difficult to achieve in practice.
• The principle of central bank independence could be undermined if politicians can change the ECB’s mandate too often and too easily.