Winter 2020
Monetary Policy in the European Union

Monetary Policy in the European Union


Prompt for Discussion

Contributors:  Annelise Riles, Marco Goldoni, Joana Mendes, Jens van’t  Klooster,  Brigitte Young, Jamee  Moudud, Jeremy Leaman, Sebastian Diessner, Agnieszka Smolenska and Will Bateman

The European Central Bank played an important and powerful role in the management of the eurocrisis. Today, in the midst of the COVID-19 pandemic, the ECB once more emerges as a crucial actor. With its Pandemic Emergency Purchase Programme it is taking decisive steps to address the fallout from the crisis – not only attempting to safeguard financial stability, but also to prevent massive unemployment. As the ECB becomes an indispensable actor in crisis management, as its private and public sector bond purchase programmes become ever more far-reaching and larger in volume, it attracts more and more attention. A vibrant debate amongst legal and economic experts and with civil society actors confronts ECB practice with important questions of legality, democracy and policy.

Questions of legality include the following: Is the ECB still acting within its mandate? Can quantitative easing programmes – such as the public sector purchase programme or the pandemic emergency purchase programme – be qualified as monetary policy measures; or are they really economic policy measures that remain within the competence of member states? Is the ECB acting in violation of the prohibition of monetary financing (Art. 123 TFEU) when it purchases public sector bonds in such large quantities and with the aim of ameliorating refinancing conditions of member states?  Is the ECB pursuing with its crisis measures the primary objective of price stability (as mandated by Art. 127 TFEU) or are the ECB’s policy decisions not only informed, but guided by other – secondary – objectives? These questions have been at the heart of two constitutional complaints before the German Federal Constitutional Court (FCC) against two ECB quantitative easing programmes (OMT and PSPP) which triggered a confrontation between the FCC (doubting the legality of the programmes) and the Court of Justice of the European Union (adopting a quite lenient standard of review and confirming their legality).

Apart from debates of legality, questions of legitimacy, democracy and social justice take center stage: Given that the ECB is such a powerful actor and given the distributive consequences of its policy measures, shouldn’t it be subject to greater democratic control? Should monetary policy be democratized? What would it mean to democratize ECB policy? Here, too, views are divided. They are divided as concerns the empirics – the effects of QE programmes on social inequality, the actions of corporations and capital concentration. They are also divided as concerns democracy and democratization: Should central bank independence from politics be safeguarded and in return monetary policy powers be reined in and subjected to strict judicial review (this appears to be the view of the FCC)? Or should the conduct of monetary policy – in recognition that monetary policy cannot be neatly separated from non-monetary economic policy – be “politicized” and become more transparent and inclusive.

Finally, policy considerations are heatedly debated: If the ECB has such powerful policy instruments at its disposal, might it/must it employ them to address pressing public concerns such as climate change, social inequality and structural imbalances between member states?  Suggestions for the (re-)deployment of monetary policy abound: to selectively support green industry; to engage in more outright monetary financing to support the budgets of member states; to start a programme of peoples’ QE, inter alia to promote social cohesion. Yet, can monetary policy make up for the “design flaws” of European monetary union with its separation of monetary policy (as an exclusive EU competence) from fiscal/economic policy (remaining largely a competence of the member states)? Can “more money” – even if directed with precision towards social objectives – be a solution to the current existential crises or does it fuel a growth spiral that is co-responsible for the social and ecological crises we are in?

While the ECB currently addresses some of these questions in its Strategy Review 2020, we wish to join the debate with this roundtable. Our aim is, ideally, to forge a transatlantic debate. We hope to address common concerns raised by central bank monetary policy and in particular quantitative easing – once considered unconventional monetary policy and today widely used by the ECB, the Fed and other central banks around the world. We also want to identify the specificities of ECB monetary policy that result from the particular institutional design of the European monetary union when compared, for example, to the United States system of government.


February 26, 2021
The Hegemony of Central Bankism and Authoritarian Neoliberalism as Obstacles to Human Progress and Survival
Jeremy Leaman, Loughborough University

February 18, 2021
Opening up ECB’s Black Box and Painting it Green- the Monetary Policy Mandate in the Age of New Challenges and Uncertainty
Agnieszka Smoleńska, European Banking Institute

February 10, 2021
The Distributive Impact of Central Banks’ Quantitative Easing Program
Brigitte Young, University of Münster

February 3, 2021
Money and the Debunking of Myths
Jamee K. Moudud, Sarah Lawrence College

January 25, 2021
Post-Crisis Central Banking and the Struggle for Democratic Oversight in Europe – a Trilemma and a Paradox
Sebastian Diessner, European University Institute and London School of Economics

January 18, 2021
The ECB, the climate, and the interpretation of “price stability”
Jens van’t Klooster, KU Leuven

January 12, 2021
Beneath the Spurious Legality of the ECB’s Monetary Policy
Marco Dani, University of Trento, Edoardo Chiti, Sant’Anna Scuola Universitaria Superiore Pisa, Joana Mendes, University du Luxembourg, Agustín José Menéndez, Universidad Autónoma de Madrid, Harm Schepel, University of Kent, Michael A. Wilkinson, London School of Economics

January 4, 2021
Rekindling Public Trust in Central Bankers in an Era of Populism
Annelise Riles, Northwestern University

December 28, 2020
Quantitative Easing, Quasi-Fiscal Power and Constitutionalism
Will Bateman, Australian National University


Link to Article



Rekindling Public Trust in Central Bankers in an Era of Populism

January 4, 2021

Annelise Riles, Northwestern University

In a recent interview with the Financial Times, Vladimir Putin declared “liberalism has become obsolete.”  By liberalism, Putin seemed to mean representative democracy, in which, authority is delegated by the public to representative officials, who in turn delegate authority to the experts—from immigration authorities, to the military, to the central bank.

Liberalism, Putin asserted, has given way to nationalist populism. Raising the specter of multiculturalism in particular, he implied that the experts don’t share ordinary people’s values and can’t be trusted to do what ordinary people want. The legitimacy of delegated authority, mediated by expertise, no longer holds, Putin seemed to suggest. 

The European Monetary Union is certainly one site where the legitimacy narrative of delegated authority mediated by expertise seems to be in crisis.  In many corners of Europe—as in Japan, the U.S., Turkey and elsewhere—central bankers and central bank independence have emerged as targets for populist politicians.

Why is this the case? In the old legitimacy narrative, the zone of politics and the zone of expertise were clearly different things. Take for example, the building of a bridge. Where the bridge should go, or if there should be a bridge at all, was a matter of politics, to be decided by elected representatives who were accountable to the voters. But what kind of concrete or steel reinforcements should be used was a matter for the engineers. You wouldn’t want the politicians meddling in that. The literature on central banks from the 1990s was all about making this point: eminent economists like Lawrence Summers wrote papers purporting to show that countries with more central bank independence had lower rates of inflation (back then, a good thing!) because the politicians stayed in their lane and let the experts do the job.

But since the financial crisis, the public has become wary of the idea that the zones of politics and expertise can be easily delineated. How wide the bridge should be, for example, might be seen as an engineering question, but it turns out to have implications for how many people can cross the bridge at rush hour, and how high the tolls or taxes to fund it will be.

Similarly, a new generation of citizen groups is raising concerns about the actions of central bankers. From Occupy Wall Street on the left to End the Fed on the right to powerful new NGOs like Positive Money, whose principal target is the European Central Bank (ECB), citizen movements are demanding that, if central banking is political, citizens should have a direct voice in its operation. And citizen groups are not the only threat to the experts at the ECB: large banks like UBS and JP Morgan and newer Fintech companies like Circle and Flywire are luring retail customers to forms of digital payment that circumvent the central bank altogether. The rise of digital currencies is, at its core, a challenge to the authority of the state and its expertise over the market. Although the rise of popular movements is exciting, let’s remember that this populism is not always something to cheer for.  The critiques of central bankers on Internet sites like Breitbart trade in familiar anti-Semitic conspiracy tropes and spin militarist fantasies, as well as just plain misunderstanding about such things as the possibility of returning to the gold standard.

Why does all this matter? It matters because the livelihoods of so many people will turn on the ability of central banks to manage the next great financial crisis, and managing the next great financial crisis will in turn depend on one critical element: public trust in the experts inside the central bank, which is in jeopardy.

Populist critiques of central banks exploit a contradiction: In neoliberalism, states should stay out of markets. But in the work of central bankers, markets and states are always mixed together.

Central banks are, at their core, tools of state intervention in the sustenance and governance of markets. In Japan, where I did my first fieldwork on central banks, market participants were so clear on this point that they had an adage: The Central Bank is our mother.  And if you know anything about Japanese mothers and sons, you know where the power lies in that relationship.

As experts, central bankers have always had two constituencies—the market and the public. What is interesting about this moment, however, is that the two are increasingly fused into one.  The push from social movements for a “Green QE” for example is a call for central bankers to pursue goals that are at once economic and social. A new kind of social actor is emerging—the “Financial Citizen” who participates in the spheres of the state and the market at once.  The Financial Citizen is a consumer of retail goods and services, but also a political activist who participates in social movements online and in person; an investor in financial products but also a voter who follows financial issues and a direct commentator on the actions of central banks and financial regulators.

This participation is enabled and fueled by new digital technologies. Consider for example, the twitter reaction to Bank of England Deputy Governor Bed Broadbent’s poorly chosen words about the economy “entering a menopausal phase”:  the comment unleashed a fury from commentators around the world far beyond the usual circle of central bank watchers who decried the words as “offensive,” an example of “ignorant prejudice,” and “pejorative tosh.”

In one sense, therefore, Putin is right: representative democracy doesn’t account for the relationship between central bankers and today’s financial citizens. The old delegation of power from citizens to elected officials and, in turn, to experts, is increasingly supplanted by technologies that do the mediating instead.  These technologies increasingly cut out the elected representatives, putting citizens in direct conversation with the experts.

Central bankers in general, and ECB central bankers in particular, have largely had their head in the sand about these changes. When they consider questions of legitimacy, the debate is mainly about whether or how to tweak the number of reports they give to political branches or whether there should be term limits for central bankers. Most think that engaging the public directly is dangerous at best and politically illegitimate at worst.  To her credit, ECB President Christine Lagarde has met with NGO representatives and done more to maintain a public facing presence than her predecessors by far.

But we need something much more revolutionary to reinstate public faith in representative democracy and the legitimacy of delegated authority to central banks.

We need an institutional configuration for public engagement and a legitimacy narrative that is widely shared. We need a story that matches the realities of our current world, and motivates experts and citizens to work together. It must be a story that enables us to make coherent distinctions between legitimate and illegitimate arguments, between better and worse options. The key element of this new narrative is not central bank independence but central bank interdependence.  Central banks do not do their magic alone. They never have. Their work depends on market participants and yes, on the political branches of government–and that interdependence does not stop at national boundaries. It requires trust, and new forms of mediation between conflicting constituencies and interests. This means that the skill of the expert includes an ability to listen and to collaborate, and that citizens have responsibilities to do their share in the collaboration.