The Making Of The Statute Of The European System Of Central Banks

September, 2018: The complete book – updated version – will be online soon. See: http://rozenbergquarterly.com/the-making-of-the-statute-of-the-european-system-of-central-banks/

Do you find it difficult to understand why the European Central Bank is restricted in its assistance to EU countries which have difficulty borrowing from financial markets? And do you find it interesting to learn what the tools are of the ECB, compared to the Federal Reserve System, and why the monetary part of the Economic and Monetary Union is so much more successful than its economic leg? These questions are answered in the book The Making of the Statute of the European System of Central Banks, which first appeared as a dissertation in 2004. It describes the economic, political and legal discussions behind every article of the statute of the ESCB, which rules its behaviour and which restrict the options for politicians to intervene in the policy of the ECB. After you have read this, you will find it much easier to understand and predict the behaviour of important actors, like the decision-making body of the ECB and politicians, and the tensions between them.

Checks and balances
The phrase ‘checks and balances’ is most known for its use as a description of the American system of government. The essential feature is that the departments (branches) of government are not just separate from each other (i.e. having their own functional jurisdiction and the absence of personal unions), but also exert limited control over each other, to the extent necessary for preventing departments (branches) from assuming authority in areas for which other branches are responsible. This philosophy was based on the experience that especially the legislature if left to itself could expand its powers in the field of the executive and in extreme cases even taking on judicial powers.

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The Making Of The Statute Of The European System Of Central Banks ~ Contents & Readers’ Guide

Contents

List of Acronyms and Abbreviations
INTRODUCTION
Chapter 1: Introductory Chapter
Zur Thematik
Organization of the book
Methodology and sources
Descriptions of the main documents, committees and historical setting

Chapter 2: Integration Theory, Federalism and Checks and Balances
Integration and transfer of power
Federalism
Checks and balances

PART I
Cluster I (Checks and Balances between the ESCB and the Public Authorities)

Chapter 3: Introduction to Cluster I
Basic Community structure
Independence
Accountability Read more

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The Making Of The Statute Of The European System Of Central Banks ~ Preface

This study explores the genesis of the most important parts of the Statute of the European System of Central Banks (ESCB). This genesis and a comparison with the national central bank laws at the time of the drafting of the ESCB Statute can contribute to a better interpretation of the ESCB Statute and therefore a better understanding of the functioning of the ESCB. This is a first study covering in full detail the genesis of the ESCB Statute.

The study also shows the significant influence which the governors of the central banks have had on the design and formulation of the statute by comparing the texts of the Delors Report (April 1989) up till the final outcome of the Intergovernmental Conference (IGC) in December 1991. The governors’ text went almost unscathed through the IGC process, especially because the governors had appreciated from the beginning the importance of incorporating checks and balances in the draft ESCB Statute.
The governors knew the European central bank had to be both independent and accountable. This study shows independence and accountability are not opposites, but they are complementary to make for a balanced system of checks and balances. In this sense the study purports to contribute to the increasing amount of literature on central bank independence.
The governors were also careful in designing a balanced internal structure, i.e. they opted for a federal system within which neither the new European Central Bank nor the existing national central banks would be dominant.

To be more specific the study is, like Gaul, divided into three parts: the first covering the ESCB’s external relations, the second covering the intra-system relations between the ECB and the NCBs, and the third covering the internal relations within the Governing Council (i.e. between the Executive Board and the national central bank governors).
The study is based on publicly available documents. Some new material has been made available for research purposes, including the draft versions of the Delors Report. The study is basically an intertextual and chronological comparative analysis. Comparisons with the Federal Reserve System are also included, as the FRS is also a federally structured central bank system and because the Federal Reserve Act is full of checks and balances. Read more

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The Making Of The Statute Of The European System Of Central Banks ~ Chapter 1 – Introductory Chapter

Zur Thematik
The creation of the Economic and Monetary Union (EMU) is one of the most profound steps in the monetary history of Europe, which has significance not only for professionals, politicians and academics, but also for everyday life. Among the accomplishments that stand out are the establishment of a federally structured European System of Central Banks (ESCB)[i] and the introduction of a single currency. The opinions and decisions of the European Central Bank (ECB)[ii] are almost daily topics for the national newspapers, discussions on its accountability (or perceived lack thereof) are recurrent topics in the European Parliament and political and academic circles. In short, the ECB has become a reality for almost everyone within a couple of years since its establishment. Technically it has been successful: the transition from national currencies to a single currency, the euro, has been a remarkably smooth process despite the gigantic scale of the operation. Though it is too early to evaluate how effective the ECB is in implementing its mandate, for the Monetary Union as a whole inflation rates are lower than they were during a large part of the nineties.

The legal underpinnings of the System and its independence have been extensively studied, see e.g. Stadler (1996), Smits (1997) and also Endler (1998). Also, from a political angle, the degree in which the negotiations leading up to the signing of the so-called Treaty of Maastricht in February 1992 could be characterized as a success for the German or for the French negotiators has been analyzed, e.g. by Viebig (1999) and Dyson/Featherstone (1999). In many respects these authors have concluded that it was a German success. However, the ESCB is not a copy of an existing central bank, not even the Bundesbank. It has been established on the basis of a unique Statute.[iii] This Statute will guide the ECB, also in the future. But like many texts, the Statute is sometimes ambiguous. For a right interpretation of the texts it is important to know their genesis. Sometimes wording was copied from existing other texts, sometimes texts are a delicate compromise, sometimes texts have a difficult technical history.

What distinguishes this study from these other studies is that these studies analyzed the ESCB from only one perspective, i.e. either from a legal, political or economic point of view. This study aims to show how political, economic and institutional considerations were combined and have found their way into the (legal) wording of the ESCB Statute. To this end I focus on each article, describing the economic rationale behind it as well as its genesis, systematically using historical sources which until now have not been used for these purposes. The perspective I take in order to interpret, analyse and assess the Statute of the ESCB is that of checks and balances. We will identify and study the ‘checks and balances’ which have been introduced in the Statute of the ESCB. ‘Checks and balances’ are an important characteristic of any federally designed system. They are part of the ‘rules of the game’, which have to be taken into account by the components of the system, which rules should ensure the system’s stability and effectiveness. For instance, ‘checks and balances’ prevent the possibility of ‘winner takes all’, because this would mean the end of the federal character. A clear normative framework for checks and balances for federal central bank systems is not available, though there are general notions which any workable system of checks and balances has to accord with. Therefore, we will develop a framework to describe the checks and balances in central bank systems.

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The Making Of The Statute Of The European System Of Central Banks ~ Chapter 2: Integration Theory, Federalism And Checks And Balances

Integration and transfer of power
Economic and political integration has been studied by a number of European authors. These studies related to the desirability for economic integration (a.o. Tinbergen)[i] and to ways to achieve political integration, on a worldwide scale or a regional scale (Mitrany, Haas).[ii] And there were ‘practioners’ (Monnet and Schuman). As to the academic writers occupied with questions relating to political integration, they were especially concerned with the issue of the optimal form of international organizations – intergovernmental or supranational. The proponents of supranational forms have won, be it of course dependent on the areas to be covered. Specific attention for the institutional aspects of integration (e.g. which powers to transfer, which decision-making procedures) is usually reserved for writers specialized in law, especially those specialized in European law (Lenaerts, Kapteyn and VerLoren van Themaat and more typically Dutch scholars like Barents and Brinkhorst)[iii] or American constitutionalism (Vile, Boon).[iv] But usually their emphasis is describing and explaining how the institutions actually work (and possibly recommending improvements) rather than putting down an overall framework for the institutional arrangement of those institutions – probably also because many institutions are seen as sui generis or otherwise historically determined. Below we will touch upon relevant elements of the work of those who have written in this area and this will lead us to a description of the concept of checks and balances, which will enable us to develop a framework to assess the role of checks and balances in the framework of the European central bank.

Above we have mentioned Tinbergen. In his book International Economic Integration (1965) Tinbergen argues that a central agent is primarily needed where one government may adversely or favourably affect the interests of other nations. However, he does not deal with the institutional aspects of this agent. Other writers were more focused on the issue of political integration. In Beyond the Nation-State (1968) Ernst Haas deals with the questions such as ‘what kind of international organization is required in order to maximize a process of international integration’ (defined as a process of growing mutual deference and institutional mingling[v]). To answer this question Haas turns to study the dynamics of intergovernmental types of organizations. Intergovernmental organizations, which can only act on behalf of their members and within a limited technical mandate on behalf of themselves, had been recommended by Mitrany, the founder of the functionalist school, as a way to propagate international integration. According to Haas, intergovernmental organizations are only successful, as long as there is mutual trust between the participants, for the delegates remain representatives of their respective governments. Haas applies this approach to the International Labor Organization (ILO), which confirms him in his view that a process of international integration will only have a chance of succeeding when the central organizations are supranational, as opposed to international, in character – the crucial difference being that the supranational organ would be autonomous, having independent rather than intergovernmental powers within its own domain and would have the capacity and desire (or better: a natural propensity) to expand its activity into adjacent sectors.[vi]

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