The European Central Bank lacks transparency and accountability, a major anti-corruption watchdog warned on Tuesday.
In its report on the bank, Transparency International said that the institution has gained a significant amount of additional power in the financial crisis but its code of conduct has not kept up with its new clout.
It pointed out that the ECB had purchased of trillions of euros in securities and is now responsible for supervising the most important banks on the continent.
One of the most important recommendations is that the central bank should release all of its decisions and recommendations to the public. It also recommended that top central bankers disclose their assets and financial interests to avoid conflicts.
“The increase in ECB power means that it should satisfy much higher standards than before when it comes to accountability and transparency,” said Leo Hoffmann-Axthelm of Transparency International.
He argued that when the euro was introduced, the main goal was to protect the ECB’s independence. No one at the time predicted what a strong political role the ECB would assume in the euro crisis.
Burkhard Balz, a member of the European Parliament for Germany’s center-right Christian Democratic Union, “the ECB’s independence is a precious asset, but it cannot be misused as a fig leaf for a lack of transparency.”
He said that for many people, the central bank’s monetary policy remains a black box. Hans Michelbach, who represents the conservative Christian Social Union on the financial committee of the German parliament, the Bundestag, was even more critical. In his view, the ECB is currently acting like “a state within the state, without any controlling body.”
Mr. Michelbach stressed that he does not wish to attack the central bank’s independence, but added that the ECB’s current decisions on monetary policy are “completely nontransparent.”
Financial experts like Sven Giegold, a Green Party member of the European Parliament, have long warned against conflicts of interest between monetary policy and bank supervision.
The ECB is primarily accountable to the European Parliament. President Draghi reports every three months to the Committee on Economic and Monetary Affairs of the European Parliament, in a meeting broadcast on the internet. The ECB also answers letters from European Parliament members as part of the monetary policy dialogue.
“The ECB is a large organization with many different areas, where inconsistencies are not always noticed right away”
Former U.S. Federal Reserve Chairman Alan Greenspan put the central banks’ traditional approach to transparency in a nutshell when he said: “If I seem unduly clear to you, you must have misunderstood what I said.” This attitude is changing worldwide – and, for many, not soon enough.
Imposing higher accountability rules on the ECB would require an amendment of the European Union treaties. This not only calls for the consent of all euro countries, but also of all the current 28 EU member states.
ECB President Draghi accepted the report and said in a statement that “good conduct and governance are essential for securing public trust. It is the duty of European institutions to further strengthen their legitimacy both by reinforcing their democratic accountability and by showing that they meet the objectives they’ve been entrusted with.”
But the statement went on to say some recommendations in the report fall outside the ECB’s mandate or are not foreseen in the Treaty. Some other of the recommendations have already been implemented, such as publishing decisions, opinions and recommendations as well as providing information on meetings with industry representatives.
The bank has already taken steps to address the issue. In 2015, for example, ECB Executive Board member Benoît Cœuré had hinted to investors at a private dinner that the central bank could bring some of its bond purchases forward. But investors who had not attended the event only learned of the plans on the next morning. The incident prompted the ECB to soon afterwards disclose the appointment books of its Executive Board members. They include, for example, meetings between top ECB officials and bank representatives.
But Transparency International argues that there is still a long way to go. The organization is calling for whistleblower rules, for example, to enable ECB employees to anonymously report abuses. “The ECB is a large organization with many different areas, where inconsistencies are not always noticed right away,” said Mr. Hoffmann-Axthelm, noting that the central bank currently has no clear rules to effective protect whistleblowers.
Another weak point in the process involved when ECB top executives move to the private sector. Former Italian ECB Executive Board member Lorenzo Bini Smaghi is now the chairman of French bank Société Générale, and former ECB director, Jose Manuel Gonzalez Paramo, is a member of the board of major bank BBVA. Most ECB employees are subject to a six-month cooling off period when switching to the private sector, while the period for Executive Board members is one year.
Members of the European Commission, on the other hand, are required to wait two years. Because the ECB is an independent organization, lawmakers cannot force it to make such changes. Instead, they must come from the central bank itself.
Other proposals aim to make the central bank more accountable. One such suggestion is that the ECB Executive Board members should be appointed by the European Parliament. Transparency International argues that parliamentary hearing is the most effective way to evaluate integrity and competency. However, the proposal also shows how difficult it is to achieve such reforms, since it would require Treaty changes.
The issue of central bank ethics has been at forefront of everyone’s minds after deputy governor of the Bank of England Charlotte Hogg stepped down for violating the code of conduct of the central bank where she worked.
Ms. Hogg did not disclose that her brother works for major British bank Barclays: a situation that could have led to a conflict of interest. In her resignation statement, she said: “We as public servants should not merely meet but exceed the standards we expect of those who are not public servants.”
If Ms. Hogg had been working for the ECB, she may not have had to resign, as the ECB’s code of conduct for its top executives is far less detailed than that of the Bank of England. Little wonder Transparency International believes it is time for change.
Jan Mallien covers monetary policy for Handelsblatt out of Frankfurt. Frank Drost is an editor in Berlin, covering financial supervision and banks. To contact: firstname.lastname@example.org and email@example.com