European Union

Since 2010, the EU’s political institutions have often been slow to respond to the challenges of the sovereign debt crisis, banking crisis and economic recession in much of the EU. In this context, the European Central Bank (ECB) has attempted to compensate for the political inertia with the adoption of a range of new unconventional monetary policies. This approach has, however, generated problems of its own, notably by undermining the ECB’s legitimacy: it has resulted in the ECB stretching its mandate, has led to an increasing politicization of the ECB’s decisions, and has undermined the transparency of both the ECB’s monetary policy and national macroeconomic policies.

Elections are not the only source of legitimacy
In democratic systems, legitimacy can stem from (at least) three different sources: First, it can stem from the participation of citizens in the election of political elites or the formulation of policies (input democracy). Second, it can be derived from policies that serve the general good (output legitimacy). And third, throughput legitimacy can come from the ‘quality of EU policymaking processes, judged by their efficacy, accountability, transparency, and inclusiveness’. This third concept is particularly relevant for non-majoritarian technocratic institutions (like central banks), that by nature perform poorly in terms of input legitimacy.

But what are the conditions of legitimacy in the case of an institution like the ECB? In the case of delegation to non-majoritarian institutions like the ECB, the mandate and powers of the institution should be clearly and narrowly defined and its policy-making should be characterized by a high level of ‘expertise, procedural rationality, transparency and accountability by results’. Similarly, Moravcsik finds a high level of ‘insulation’ of EU policy-making acceptable provided that the policies are regulatory, economic and fairly depoliticized. Before the sovereign debt crisis, academics often felt that the ECB’s precise mandate and policy output generated sufficient legitimacy (Majone, Moravcsik, Tallberg). The ECB could be criticized for lacking operational transparency, as its accountability to European institutions and national governments had been limited to ensure its independence. However, it could compensate for this by creating more transparency in national macroeconomic policy-making through its low-inflation policy, which prevented governments from using inflation as a tool to hide economic problems.

In the course of the sovereign debt crisis, many of these conditions for legitimacy were eroded. Specifically, the unconventional monetary policies of the ECB led to three problems.

Mandate stretching
The ECB’s policies stretched its original mandate in two respects. First, the mandate of the ECB as set out in the Maastricht Treaty defines the pursuit of low inflation (price stability) as the bank’s primary goal. Second, the Maastricht Treaty prohibits the monetization of member state debt and the ‘bail-out’ of one member state through another member state.

The inflationary effects of the ECB’s unconventional monetary policies became the subject of intense disagreement. This concerned especially the impact of the ECB’s liquidity boosting measures (notably, the purchase of covered bank bonds) and the ECB’s Securities Markets Programme (SMP) — specifically the purchase of sovereign debt on secondary markets of those euro area member states most at risk of default and facing high bond yields. Prior to mid-2012 euro area inflation remained well above the 2 per cent target and the ECB was frequently unable to neutralize the inflationary impact of its sovereign debt purchases. In Germany, in particular, the perceived departure from the ‘low inflation’ focus exposed the ECB to widespread criticism.

Second, the ECB pursued a course that arguably contradicted the treaty prohibitions on the monetization of sovereign debt and government bailout. Four nonconventional policies have had significant fiscal implications: the SMP, the Long Term Repurchase Operations (LTRO), the announced but yet to be activated Outright Monetary Transactions (OMT) Programme and, most recently, Quantitative Easing (QE). With the exception of the OMT Programme, these policies undermine both the transparency of national fiscal and macroeconomic policy and the strength of national structural reform efforts.

Under the SMP (2010-2012), the ECB bought sovereign bonds in an effort to bring down debt yields, thus enabling governments to fund themselves at lower rates. The SMP was widely criticized for breaking the ban on the monetary financing of debt and transforming the ECB into, de facto, a ‘lender of last resort’.

In early August 2011, the ECB extended bond purchases beyond the three ‘Programme countries’ — that is the euro area member states that were subject to macro-economic policy programmes monitored by the ‘troika’ of the European Commission, the ECB and the International Monetary Fund — to two countries (Spain and Italy) that were not subject to ‘troika’ monitoring. Thus, the ECB acted as de facto ‘lender of last resort’ without the quid pro quo of fiscal / macroeconomic policy constraint, despite ECB’s claims that the SMP was adopted to restore the effective transmission of its monetary policy throughout the euro area.

LTRO involved lending to commercial banks at a very attractive 1 per cent fixed rate with unlimited access to central bank liquidity subject to the provision of adequate collateral. Collateral requirements were in turn eased a number of times and the maturity of LTROs was lengthened. The principal impact of LTRO was that euro area banks — especially those in the periphery — borrowed funds to purchase sovereign debt with higher yields — notably that on the periphery. In addition to contributing very directly to the dangerous sovereign debt-bank doom loop, the ECB’s LTRO operations effectively helped to lower sovereign debt yields by increasing demand, thus allowing the cheaper financing of governments.

Third, the OMT Programme consists principally in a promise to conduct unlimited interventions in secondary sovereign debt markets to purchase the debt of a country on the condition that the member state government concerned accepts the conditions of a European Stability Mechanism (ESM) programme. In effect, OMT allowed the ECB to act potentially as a ‘lender of last resort’ in government bond markets.  It also amounted to a significant form of ‘slippage’ in terms of the potential fiscal policy powers that the ECB assigned itself — albeit via the ESM.

Finally, on 22 January 2015, the ECB launched its QE programme with the purchase of up to €1.1 trillion in mostly government bonds. Officially, the ECB sought to diminish the risk of euro area deflation and bring the inflation rate up closer to target (ECB 2015). In practice, the desired and real effect of ECB policy was to lower government bond yields — albeit this time throughout the euro area — although the impact on different government debt varied, with yields on bonds already at historic lows.

The politicization of ECB policy-making
With the stretching of the ECB’s mandate, its decisions became increasingly politicized, in the sense that they attracted vocal internal and external criticism. Politicization took three main forms. First, dissent within the Governing Council and the opposition of the German Bundesbank and other Northern European Governing Council members to the ECB’s decision to engage in emergency bond buying exposed deep divisions over policy approaches. Northern European members argued that nonconventional monetary policy reduced the pressure on euro periphery governments to introduce much needed reforms.

Second, the tendency of governments to question ECB policy intensified. Government criticism focused on the ECB’s role in the Troika, but its unconventional monetary policies also attracted vocal criticism from the German government and especially Finance Minister Wolfgang Schäuble.

Third, the public took a greater critical interest in ECB policy-making and national political debate intensified. Public awareness of the ECB rose from 71 per cent in the autumn of 2007 to 85 per cent in the spring of 2015. In the meantime, public trust in the ECB declined from a high of 53 per cent in the Spring of 2007 to a low of 31 per cent in the Spring of 2014. The European Parliament also expressed concerns (ECB Annual Reports 2011 and 2012) over the ability of the ECB’s unconventional monetary policies to achieve their goals as well as over the risk of unintended consequences.

Non transparent monetary policy
In the course of the crisis, the ECB undertook a number of measures to improve its process legitimacy as it realized the increasing salience of its policies. For example, it moved to improve transparency through the publication of summaries of its meetings from 2015 onwards. However, at the same time, unconventional monetary policy arguably had the effect of creating less transparency on the ground. ECB unconventional monetary policy — by lowering bond yields — has undermined structural reform efforts in member states, thus directly contradicting stated ECB preferences on structural reform and the explicit objective of the Maastricht Treaty of avoiding the possibility of ‘fiscal dominance’. Furthermore, ECB monetary policy has undermined the transparency-inducing effects of EMU at the national level that Erik Jones vaunted.

Conclusion
Over the course of the sovereign debt crisis, both the ECB’s policies and the public perception of these policies changed. As a result, many arguments that had been used to support the democratic legitimacy of the ECB’s policies became less obviously valid. For a start, EU monetary policy is no longer regarded as a purely technocratic matter with limited (re)distributive effects. The ECB’s unconventional monetary policies supported certain member states while creating difficulties for other member states — notably Germany, given the impact of low and then negative real interest rates upon the country’s savers, pensions and banking sector.

The European Central Bank is at a crossroads. Its original mandate was to be an independent technocratic institution, the legitimacy and credibility of which was set in terms of meeting its price stability mandate — output legitimacy. However, from the outbreak of the sovereign debt crisis, ECB unconventional monetary policies had a significant impact upon the direction of euro area member state macro-economic policies — and in a manner that contradicted the ECB’s terms of delegation as outlined in the Maastricht Treaty, thus also undermining its input legitimacy. In light of the political salience of these policies and their impact, it is questionable whether the independence of the ECB remains democratically viable. ECB policy-making has become problematically controversial and politicized. At the very least, the reinforcement of European parliamentary scrutiny over ECB policy making is more urgent than ever.

Based on A.L. Högenauer and D. Howarth. 2016. “Unconventional Monetary Policies and the European Central Bank’s Problematic Democratic Legitimacy,” Journal of Public Law/Zeitschrift für öffentliches Recht 71(2): 425–448.

The post Unconventional Monetary Policies and the ECB’s Problematic Democratic Legitimacy appeared first on Ideas on Europe.

On 19 September 2016, the Council, by common accord with the President of the Commission, Jean-Claude Juncker, appointed Julian King as the new commissioner for security union. The appointment applies for the remainder of the current term of office of the Commission which ends on 31 October 2019.

Julian King is a British national and has been UK ambassador to France since January 2016. He replaces Jonathan Hill who resigned on 25 June 2016.

UN General Assembly, New York

Sunday 18 September 2016
(local time)
17.00 Meeting with UN Secretary-General, Ban Ki-moon 

Monday 19 September 2016
(local time)
08.30 Opening ceremony of the High-Level Plenary Meeting on addressing large movements of refugees and migrants
09.30 Meeting with President of Egypt Abdel Fattah el-Sisi
10.00 Meeting with Prime Minister of New Zealand John Key
+/- 13.50 Speech at the High-Level Plenary Meeting
14.30 Meeting with Prime Minister of Kosovo Isa Mustafa
15.00 Meeting with Prime Minister of Norway Erna Solberg
15.30 Meeting with the President of the former Yugoslav Republic of Macedonia Gjorge Ivanov

Tuesday 20 September 2016
(local time)
09.00 Opening of the 71st UN General Assembly
12.00 Meeting with the Chairman of the Presidency of Bosnia and Herzegovina Bakir Izetbegović
12.30 Meeting with Prime Minister of Australia Malcolm Turnbull
13.15 Luncheon hosted by UN Secretary-General, Ban Ki-moon
15.30 Leaders' summit on the global refugee crisis
ttbc Address at the Leaders' summit on the global refugee crisis
19.00 Reception at the EU delegation to the UN

Wednesday 21 September 2016
(local time)
+/- 12.15 Address at the 71st UN General Assembly debate
15.30 Meeting with Prime Minister of Iraq, Haider al-Abadi
16.00 Meeting with Prime Minister of Bangladesh Sheikh Hasina
17.00 Meeting with Prime Minister of Republic of Moldova, Pavel Filip
17.30 Meeting with Prime Minister of Georgia Giorgi Kvirikashvili

The Subcommittee on Security and Defence and the Committee on Development held a public hearing to discuss the intertwined challenges of development and security and how to address them in a joined-up approach.
Location : Paul-Henri Spaak 5B001
Source : © European Union, 2016 - EP

On 30 June from 9.00, BUDG committee held a high-level joint hearing with LIBE, AFET and DEVE committees on the budgetary implications of the refugee and migration crisis. The keynote speech was given by Mr George Soros, founder and Chair of Open Society foundations. Other speakers included the Commission's Directors General for Budget, DEVCO and NEAR, Directors of Frontex and EASO, the UNHCR Europe Director, ECRE Secretary General and Oxfam representative.

MEPs discussed the past andpresent budgetary initiatives, solidarity and cost-sharing between MemberStates and the EU external actions' financing in relation to the crisis.

Location : Paul-Henri Spaak PHS 3C50 (3rd floor), European Parliament, Rue Wiertz 60, Brussels, Belgium
Programme
Draft Programme
Statement submitted to the European Parliament Joint Hearing by George Soros on 30 June 2016
Interview - Refugee and migration crisis: the financial cost
Extracts from the Joint Hearing
Source : © European Union, 2016 - EP

Delegations

Source : © European Union, 2016 - EP

Plenary sessions : Managing global migration flows, trade relations between the EU and Latin American countries, and between both regions and China, plus the setting-up of an EU-CELAC Common Research Area, will be key agenda items at the ninth plenary session of the Euro-Latin American parliamentary Assembly (Eurolat) next week in Montevideo (Uruguay).

Source : © European Union, 2016 - EP

Plenary sessions : Managing global migration flows, trade relations between the EU and Latin American countries, and between both regions and China, plus the setting-up of an EU-CELAC Common Research Area, will be key agenda items at the ninth plenary session of the Euro-Latin American parliamentary Assembly (Eurolat) next week in Montevideo (Uruguay).

Source : © European Union, 2016 - EP

Plenary sessions : The debate on the state of the European Union with European Commission President Jean-Claude Juncker dominated the plenary session in Strasbourg taking place on 12-15 September. MEPs also exchanged views with Tibetan leader Dalai Lama and supported the Commission’s decision to order Ireland to recover €13 billion in illegal tax benefits from Apple.

Source : © European Union, 2016 - EP

Plenary sessions : The debate on the state of the European Union with European Commission President Jean-Claude Juncker dominated the plenary session in Strasbourg taking place on 12-15 September. MEPs also exchanged views with Tibetan leader Dalai Lama and supported the Commission’s decision to order Ireland to recover €13 billion in illegal tax benefits from Apple.

Source : © European Union, 2016 - EP

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Chaos. That’s the word to watch at today’s summit of European leaders in Bratislava. It is just one rhetorical flourish in the draft post-summit media statement, a promise that Europe will avoid the migration “chaos” of last year. But the dispute over it offers a glimpse into the dynamics of that summit room, and Angela Merkel’s considerable but waning clout in this EU club.

Read more

AMENDMENTS 1 - 307 - Draft report on the European Defence Union
Committee on Foreign Affairs

Source : © European Union, 2016 - EP

OPINION on the proposal for a regulation of the European Parliament and of the Council concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010
Committee on Foreign Affairs
Jacek Saryusz-Wolski

Source : © European Union, 2016 - EP

What links the US, China, Canada and Japan? No, it isn’t their membership of the G20, it’s their inclusion in an EU document that is in no way, shape, or form a draft of the EU’s new tax havens blacklist.

On Wednesday, the Commission published a “scoreboard” looking at aspects of non-EU countries’ tax systems. It makes for interesting reading:

The idea is that the information can help governments whittle down which countries might be included in a blacklist of “non-cooperative jurisdictions” that the EU is planning to draw up next year.

Read more

General : Journalist Can Dündar and fellow defenders of freedom of thought and expression in Turkey, the Crimean Tatar leader Mustafa Dzemilev, the Yazidi survivors and public advocates Nadia Murad Basee and Lamiya Aji Bashar as well as Uyghur scholar Ilham Tohti are this year's nominees for the Sakharov Prize. The Parliament awards the Sakharov Prize every year to honour exceptional individuals and organisations defending human rights and fundamental freedoms. The laureate is selected in late October.

Source : © European Union, 2016 - EP

General : Journalist Can Dündar and fellow defenders of freedom of thought and expression in Turkey, the Crimean Tatar leader Mustafa Dzemilev, the Yazidi survivors and public advocates Nadia Murad Basee and Lamiya Aji Bashar as well as Uyghur scholar Ilham Tohti are this year's nominees for the Sakharov Prize. The Parliament awards the Sakharov Prize every year to honour exceptional individuals and organisations defending human rights and fundamental freedoms. The laureate is selected in late October.

Source : © European Union, 2016 - EP

Source : © European Union, 2016 - EP

Klyuyev v Council
External relations
The General Court of the EU confirms the freezing of funds of three Ukrainians, one being Viktor Yanukovych, former President of Ukraine, for the period from 6 March 2015 until 6 March 2016

We haven't come to Bratislava to comfort each other. Or even worse, to deny the real challenges we face. In this particular moment in the history of our community, after the vote in the UK, the only thing that makes sense is to have a sober and brutally honest assessment of the situation.

What we need today is an optimistic scenario for the future, no doubts. But it requires a realistic diagnosis of the causes of Brexit, and its political consequences for all Europe. One thing must be absolutely clear here in Bratislava: that we can't start our discussions tomorrow with this kind of blissful conviction that nothing is wrong, that everything was and is okay.

I am absolutely sure that we have to assure, here in Bratislava and also after our meeting, our citizens that we have learned the lessons from Brexit, and that we are able to bring back stability and a sense of security and effective protection. I hope that the so-called "Bratislava Roadmap" I will present tomorrow will be a first step in this direction.

It is true that Europe has recently been shaken by all kinds of crises but as the same time it is my feeling that the best motto for the Bratislava meeting is that we must not let these crises go to waste.

After my consultations with the leaders, as you may know I have talked to all of them in the last two weeks, I am absolutely sure that no-one thinks otherwise.

Written by Suzana Elena Anghel,

koya979 / Shutterstock.com

At three recent European Councils (December 2012, December 2013 and June 2015), the Heads of State or government have called for a deepening of the Common Security and Defence Policy (CSDP) namely by strengthening its crisis management dimension and further developing civilian and military capabilities. The June 2016 European Council reverted to security and defence policy with particular attention to the strengthening of the relationship with NATO, including on the development of complementary and interoperable defence capabilities.

But what are the achievements? Is there a way of measuring progress made over the past years? Is there a gap between intentions/declarations and deeds? What are the challenges and how to address them?

The European Parliamentary Research Service (EPRS) will address these questions at a roundtable discussion on ‘The European Council and CSDP: success or failure?’ on 27 September 2016, 13h30-15h00, in the European Parliament’s Library main reading room in Brussels. Participants at this roundtable debate are: Elmar Brok MEP, Chair of the European Parliament’s Committee on Foreign Affairs, General Jean-Paul Perruche, Former Director-General of the European Union Military Staff, Professor Alexander Mattelaer, Institute for European Studies, Vrije Universiteit Brussel (VUB), and Elena Lazarou, Policy Analyst, EPRS.

Registration
If you do not have an access badge to the European Parliament and are interested in attending the event, it is essential to register by Friday 23 September, using this link.

At the event the EPRS study on ‘The European Council and CSDP: Orientation and Implementation in the field of Crisis Management’ will be presented and discussed. This study assesses the planning, command and control of civilian and military CSDP missions and operations, progress made in developing civilian and military capabilities, particularly rapid response capabilities in the form of the EU Battlegroups, as well as challenges encountered during the force generation process, areas in which the European Council repeatedly called for further progress to be made.

 

Filed under: BLOG, Events, Policy Cycle Tagged: Common Security and Defence Policy (CSDP), CSDP, EPRS Events, European Council, events, security and defence, Study, Suzana Elena Anghel Gavrilescu