The Making Of The Statute Of The European System Of Central Banks. Chapter 4B: Selected ESCB Articles

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Article 7:

Article 7: Independence
“In accordance with Article 107 of this Treaty, when exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and this Statute, neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State of from any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks.”
(to be read in conjunction with Article 2 (Objectives); Article 10.2 (Voting procedure); Articles 11.2, 11.3 and 11.4-ESCB (Executive Board); Articles 14.1 and 14.2-ESCB (NCBs and their governors); Article 107-EC (Independence); Article 109-EC (Exchange rate policy); Article 109b-EC (Relation with Ecofin Council, Commission and European Parliament))

I. Introduction
I.1 General introduction
For the ESCB this is one of the most important articles of the Statute. It defines the institutional independence of the system: it is not allowed to take instructions from its political masters, neither from the executive nor from the legislative branch (both national and communautaire).[See also section I.1 of Article 2-ESCB and chapter 3].  The Treaty even prohibits political bodies or persons to seek to influence the ESCB, though sanctions in case they do are lacking. Therefore, de facto we are talking of self-restraint, and at occasions politicians will cross the borderline. These politicians risk that the Governing Council of the ECB will feel that it has to postpone certain measures in order to prove its independence.[Two possible cases which come to mind are the interest rate reduction the ECB decided to early 1999 only after the resignation of Oskar Lafontaine (who had pressured the ECB to lower interest rates) and the interest rate reduction in May 2001, a few weeks after the Belgian minister of finance (in his capacity of chairman of the Ecofin Council) had stopped publicly encouraging the ECB to do so.] Attempts to influence members of the Governing Council can also be made behind the screens. This should be prevented. We will make a recommendation in this respect in section 4 of Chapter 5.

At the same time the Treaty specifies ways in which the ECB and the political authorities could and should communicate. The dialogue with the ministers of finance takes the form of the presence of the chairman of the Ecofin and a member of the Commission in the meetings of the Governing Council of the ECB and the presence of the president of the ECB in the Ecofin Council whenever this Council discusses matters relating to the objectives and tasks of the ESCB.[They have the right to speak (and even the right to submit a motion – which has until now never happened), but not the right to vote. See Article 109b-EC] This allows the ministers of finance to take best possible informed decisions in their field of responsibility. [There are many more channels of communication between the ECB, the central banks and the Treasuries, one example being that both central bank board members and high officials of the Treasuries are member of the Economic and Financial Committee, a committee which delivers opinions (asked for and unasked for) to the Ecofin Council (Article 109C(2)-EC)]

Apart from this, the president and other members of the Executive Board of the ECB may be heard by the competent committees of the European
Parliament. The first president of the ECB, Wim Duisenberg, has introduced the tradition to appear at least four times a year before the Committee on Economic and Monetary Affairs of the European Parliament to discuss with the committee members the policies of the ECB.
This is part of the efforts of the ECB to increase visibly its democratic accountability, even though the European Parliament has no decision-making competences in monetary matters. [This will not change if in the future Treaty amendments were to need the assent of the European Parliament, because such assent would extend only to changes, and not – retroactively – to for instance the establishment of the ESCB. At present the ‘monetary’ power of the EP is limited to (1) its specialised committees having the right to hear members of the ECB’s Executive Board and (2) holding a general (plenary) debate on the ECB’s Annual Report which is presented to the EP by the president of the ECB (Art. 109b(3)-EC). There are also two instances in which the EP’s assent is necessary: (i) when the Council of Ministers would use the simplified amendment procedure to amend the ESCB Statute, which is possible for a few non-essential, technical articles (Art. 106(5)-EC); (ii) when the Council of Ministers would want to confer ‘special tasks’ in the supervisory field to the ECB (Art. 105(6)-EC). The fact that the EP has a role here is mostly due to last-minute efforts of the Dutch presidency to increase the role of the EP.]

In that sense the position of the European Parliament differs from that of the US Congress, which is endowed by the American Constitution with monetary competences, but has delegated them by law (the Federal Reserve Act) to the Federal Reserve System (see below).
(The EU Treaty only specifies the dialogue at the European level. It is up to the national governors to appear or not before their national parliaments.) In these appearances – whether public or in restricted sessions – the Governing Council members governors are bound by the confidentiality regime of the ECB, implying they are not allowed to give details about the discussions within the Governing Council (see Art. 10.4) nor indications about intended
policy measures.

As mentioned before in Chapter 1 many authors on the issue of central bank independence distinguish institutional, personal, functional and financial independence. [See also Smits (1997), p.155] Institutional independence means that the institution is not subject to instructions by third parties.
However, independence of instructions is insufficient to guarantee real independence. Other provisions in the Statute ‘give it practical effect by determining the functional, operational and financial conditions which need to be met so that the System can act with the necessary degree of autonomy.’ [Quote from the Commentary with the draft ESCB Statute of 27 November 1990]
Personal independence is based on safeguards against dismissal. In the case of the ESCB this is guaranteed by ensuring that the members of the Governing
Council (also the central bank governors) cannot be dismissed at political will, and by assuring a term of office which is sufficiently long. [Artt. 11.3 and 11.4-ESCB (Executive Board) and Art. 14.2-ESCB (NCB governors)] Functional independence implies that the use of instruments is not subject to the approval of third parties either. This form of independence (sometimes called operational or instrumental independence) is guaranteed by giving the ESCB all the powers it needs to wield all the monetary instruments a modern central bank is supposed to have at its disposal without the need for permission by political authorities.
The ESCB relies on indirect instruments, i.e. the price of money – see section I.4 of Art. 2 above. Indeed, relying on direct instruments (i.e. instruments not based on market principles, like credit controls, capital controls or interest rate caps) is not recommended, because the use of these instruments usually requires approval by, or consultation with, the executive and legislative branch, making for a dependent relationship. It would also contravene Art. 3a-EC, which obliges the ESCB to respect the principle of an open market economy with free competition. An important element of operational independence is also that the central bank is not obliged to finance the government, i.e. to grant credit to the government or to buy newly issued debt of the government. The latter is different from open market operations by the central bank in the secondary market, which can be used to influence the liquidity in the markets. The ESCB Statute not only guards the ESCB from obligatory monetary financing, it even forbids the ESCB to take part in any form of direct monetary financing (see Art. 21-ESCB).
Financial independence is achieved by ensuring that the ECB is not dependent on budgetary appropriations by a national or supranational government. The ECB’s income and expenditures do not fall under the Community budget (which would have given and the Commission and the Council of Ministers and possibly also the European Parliament an instrument to put pressure on the ESCB). [Article 27.1 ensures the books of the ECB and of the NCB’s are audited by external and independent private sector auditors, while Article 27.2 allows the European Court of Auditors to form itself an opinion on the  “operational efficiency of the management of the ECB”. See Article 27-ESCB]. We note that the NCB’s traditionally fund their expenditures out of their seigniorage.

For Germany independence was a sine qua non for surrendering monetary sovereignty to a new institution. The independent Bundesbank had guarded over one of the most important economic post-war successes of Germany: the stable Deutschmark. Price stability was considered a social good (see also Article 2-ESCB) and an independent central bank was considered the best guarantee for price stability. The degree of independence of the Bundesbank was unique in Europe, as can be seen from the table 2.2 presented at the end of this sub-paragraph.

The ESCB is granted full independence, but only for a narrowly defined overriding purpose:
to maintain price stability. This raises the question of whether all ESCB tasks, as formulated in Artt. 3.1 and 3.2 are related to price stability. For monetary policy, this is self-evident. For the tasks related to managing foreign reserves and the exchange rate, this is also true, as buying or selling operations in foreign currency do affect the liquidity in the system and could be counterproductive to the monetary policy intentions of the ECB.[See Article 3.1-ESCB, second and third indent and Article 109-EC] This backdoor had to be closed, to make the ESCB meaningfully independent. As regards financial stability, the health of the financial system is also clearly relevant for the ESCB: when the financial system breaks down and the financial markets come to a halt, the normal monetary transmission mechanisms break down too and monetary policy loses a good deal of its effectiveness. This creates good grounds for giving the ESCB the task “to contribute to the smooth conduct of policies by the competent authorities [in these areas]”.[See Article 3.3-ESCB] The other tasks of the ESCB are advisory tasks (Article 4-ESCB), a task in the field of the collection of statistics necessary for the ESCB to perform its tasks (Article 5-ESCB) and the participation in international monetary institutions (Article 6-ESCB).

The foregoing justifies that the independence of the ESCB extends to the tasks mentioned in Art. 3 and the undertakings necessary to perform these tasks. This raises the question, however, whether this independence applies also to non-System functions of NCBs, which functions they are allowed to perform unless the Governing Council decides these functions interfere with the objectives and tasks of the ESCB (Article 14.4-ESCB). As regards the financial and personal independence the answer should be obvious: these elements may not be put in jeopardy. For instance, a central bank should not take on undue financial risks which might make it dependent on budgetary means. Also, it should not be possible for the government to dismiss board members for badly managing non-System functions, not going beyond serious misconduct as specified in Art. 14.2-ESCB; neither should the remuneration of board members depend on the performance in these non-System areas, as it might make them indirectly vulnerable to outside pressure. It would also seem desirable for an NCB to take on board only well-defined functions which can be performed without detailed or frequent instructions from the government, lest the central bank be hindered to act as an independent institution, even if these tasks do not per se interfere with monetary management. [Or, as René Smits puts it, ”The distinction between competences exercised in complete independence and functions which are subject to a higher degree of political involvement may have a bearing upon the acceptability of such other functions being entrusted to the monetary authority.” (Smits (1997), p. 158.)] This also implies the NCB should be given a reasonable degree of functional independence in these non-System areas.

The following table shows the unique position of the Bundesbank among the other European central banks as regards its legal independence before the Treaty of Maastricht.

Table 2.2 Independence (situation in 1989) [Sources: see note with table 2.1 (Art. 2)13]

– Austria: “In determining the general directives on monetary and credit policy which the Austrian National Bank is to observe in this field for the purpose of performing the functions incumbent upon it, due regard shall be had for the economic policy of the Federal Government.” (Art. 4 Nationalbankgesetz 1955)
– Belgium: Monetary policy is run at the initiative of the Bank under the political responsibility of the Government.
– Denmark: Monetary policy is determined in – an informal – cooperation between the Government and the Bank. The Government cannot issue directives to the Bank.
– Germany: ”Without prejudice to the performance of its functions, the Deutsche Bundesbank shall be required to support the general economic policy of the Federal Government. In exercising the powers conferred upon it by this Act it shall be independent of instructions from the Federal Government.” (Art. 12 BBankG)
– Greece: The Bank is responsible for implementing guidelines for monetary policy which are set by the Government. The Bank is consulted when monetary policy is formulated.
– Spain: “The Bank of Spain … conducts monetary policy in accordance with the general objectives determined by the government, while using the means it considers most adequate for achieving these objectives, in particular the safeguarding of the value of the currency.” (Loi du 21.6.80, art. 3)
– France: “The Bank helps to prepare and takes part in the implementation of the monetary policy that has been decided by the government, with the assistance of the Conseil National du Crédit, according to its terms of reference.” (Article 4 de la Loi de 1973)
– Ireland: Considerable degree of formal autonomy, but in practice broad monetary policy is defined by the Minister of Finance.
– Italy: An interministerial committee defines the guidelines for monetary policy and the Treasury sets the discount rate, but due its technical competence the Bank of Italy has a significant influence on monetary policy.
– Netherlands: The minister may give directives to the Bank. A serious disagreement would have to be discussed by the whole Cabinet and would be published formally. A directive has never been give. The heavy-handed procedure has assured the Bank has considerable autonomy.
– Portugal: No autonomy.
– UK: Monetary policy is formulated by the Treasury.

I.2 Relevant features of the Federal Reserve System
The typical characterisation of the Federal Reserve System of the United States is that it is “independent within the government”. [Expression used by Allan Sproul, president of the New York Fed, during Congressional hearings in March 1952 on the meaning of the independence of the Fed. Congress had been unhappy that the Treasury had dominated the Fed during the wars (the Fed had kept interest stable at a low level to help the government finance its war efforts). Sproul’s complete statement went as follows: “The Fed’s independence does not mean independence from the government but independence within government.” According to Sproul the Federal Reserve System was an agency of Congress set up in a special form to bear responsibility for that particular task which constitutionally belongs to the legislative branch of the government. (Moore (1990), The Federal Reserve System – A History of the First 75 Years, p.113.)] The Constitution has vested in Congress – and not in the Administration – the nation’s monetary power – “to coin Money” and “to regulate the Value thereof”. Congress has delegated the job to the Fed with a broad grant of discretion and independence.[Kettl (1986), Leadership at the Fed, p.3. Section 8 of the Constitution of the United States of America: “The Congress shall have the power [….] To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standards of Weights and Measures;”] For instance, the members of the Board of Governors are appointed for a term of 14 years (non-renewable). [The term of office used to be 10 year, when the Board (i.e. before 1935) consisted of two Treasury people and five appointees by the president. The ten years terms of the five presidential appointees were staggered, implying a president could in any one term appoint a few members, and not a whole new board. In 1922 the number of appointive members was raised to six (allowing for representation of agricultural interests – Cushman (1941), p. 518), and in 1933 their term of office was raised to twelve years (J.T. Woolley (1984), p. 37; Cushman (1941), p. 745.) Following the 1935 Banking Act the size was reduced to seven members again, and the two Treasury people were replaced by two additional presidential appointees. Their term was increased to 14 years, upholding the check-and-balance that as a rule a president can only appoint one member every two years. Fourteen year is long by any standard; it is only surpassed by the fifteen-year term served by the head of Congress’ General Accounting Office and the lifetime appointments of federal judges. See also Article 11.2, section I.2, infra.]

The President of the United States appoints new members, but the Senate has to approve. Through presidential appointment of the members of the Board, the framers of the act hoped to avoid a system that had even the appearance of a monopolistic institution, likely to fall victim to partisan politics as had the First and Second Banks of the United States.[Dykes and Whitehouse (1989), p. 228] Once appointed, the governors are not responsible to the president, who has no official channel of communication to the Fed and no legal power over the Fed’s policies. The governors can only be dismissed for personal malfeasance. The official formulation is that the governors serve their full term ‘unless sooner removed for cause by the President’ (FRA, Section 10), a standard never tested.[Kettl (1986), p.4] In the early years two of the seven seats in the Federal Reserve Board were occupied by the Secretary of the Treasury (chairman) and the Comptroller of the Currency. The 1935 Banking Act discontinued their ex officio membership of the Federal Reserve Board (then also renamed into Board of Governors).[According to Marrines Eccles (Beckoning Frontiers, New York, Knopf ,1951, p.216n) it was at the insistence
of senator Glass (a former Treasury Secretary) that the membership of the Secretary of the Treasury was dropped, because Glass knew from own experience “the Secretary of the Treasury had too much influence upon the Board, and I do not think he ought to be there.” The membership of the Comptroller ended at the same time, because then Secretary of the Treasury Morgenthau did not like the idea he had to leave while a subordinate of his was allowed to stay. See Friedman and Schwartz (1963), p. 445n. Eccles was Fed chairman from 1934-1948] [The Fed was housed in the Treasury until 1937! See Dykes and Whitehouse (1989), p. 240/1] The FRA of 1913 also stipulated that ‘no Senator or Representative in Congress shall be a member of the Board of Governors of the Federal Reserve System or an officer or a director of a Federal reserve bank.’ (FRA (1913), Section 4.13), trying to create some distance between Congress and the Fed.

One of the seven governors is designated by the President, by and with the advice and consent of the Senate, to serve as Chairman of the Board for a term of four years (FRA, Section 10).
On purpose, this four-year term does not coincide with that of the president. In a few cases the chairman was not redesignated, while his term as governor had not yet ended. This was the case with Eccles in 1948 and Burns in 1978, in both cases because the president disagreed with their policy, while McCabe was clearly pressured to resign.[Kettl (1986), pp. 63-64, 74-75 and 169] Volcker had wanted to be reappointed, but apparently only under conditions of a fulsome declaration of support of Volcker’s stewardship by the president, which he needed, because his authority within the Board had dwindled (partly because of dissenting opinions of earlier appointees by the sitting president Ronald Reagan). Volcker did not receive this support and resigned. [W. Greider (1987), Secrets of the Temple, p. 712-714]

The most important decision-making body of the FRS, the FOMC, consists of the seven Board members and five vote-carrying presidents of FRBs. These presidents (and their possible replacements, the first vice presidents) are elected and appointed by their board of directors for a term of five years.[Congress has balked at this procedure several times, because part of the monetary policy-makers is chosen without their consent. This has led to a court case, in which the judge has declared that this procedure is. constitutional. (John Berry (1996a), ‘Is the Fed’s Power Legitimate?’, in Central Banking Vol. VI, nr 4, Spring 1996, p. 45.) The District Court referring to the rich history of private participation in U.S. central banking and in open market operations before the inception of the FOMC, pointed out it considered the current system to be] [The board of directors of an FRB can ‘dismiss at pleasure’ all executive officers (among which are the president and the first vice president) and employees (FRA, Section 4.4). This does not mean that the member banks determine the FRB’s policy. According to Eccles during hearings in 1938: “Ownership of stock by member banks does not enable the bankers to control the Federal Reserve System. It is more nearly in the nature of compulsory capital contribution than stock ownership.” (Cited in Louis (1989), p. 294.) A further factor creating some distance between the private sector and the FRS is that members of the Board of Governors are not allowed to be employed, or to have a stake in, financial institutions (FRA(1988), Section 10.4.)]
However, their appointment is subject to approval by the Board of Governors (FRA, Section 4.4.5), while the Board of Governors can also suspend
or remove them (FRA, Section 11(f)), making the Board all powerful. The level of personal independence in the FOMC is quite high, either because of their term (14 years – this applies to the governors) or because they are not elected by the Administration or heard by Congress (this applies to the FRB members of the FOMC). [Regularly this leads to questions by Congress members, who are outraged that the presidents of the FRBs are chosen by local bankers, business men and the like. See for instance, H. Reuss, ‘The Once and Future Fed’, in Challenges, March-April 1983, and The Economist of 25 October 1993, p.97]

As said, the Fed is not responsible to the Administration, nor does the Executive have the right to give directions or raise a veto on Fed decisions. Instead the Fed is responsible to, and must report to, Congress. Section 10 of FRA(1913) mentions that the Board ‘shall annually make a full report to the Speaker of the House of Representatives, who shall cause the same report to be presented for the information of the Congress.’ In the early seventies pressures  increased to improve the transparency of all government agencies. In 1977 the Fed’s regular appearance before the financial committee of the House and of the Senate was put into law.[The Federal Reserve Reform Act of 1977]
The ‘Full Employment and Balanced Growth Act’ (more popular called the ‘Humphrey-Hawkins Act’) of 1978 required more in detail that the Fed Chairman should make a written report to Congress twice a year in February and July, in which he is obliged to review economic trends, to sketch the objectives and plans of the Board and the FOMC with respect to the ranges of growth of money and credit aggregates and to explain how the Fed’s
monetary goals fit the president’s economic policy.[FRA(1988), Section 2A.]

The Fed is not held to its announced objectives for money and credit, if conditions change (provided that in subsequent consultation the Board shall include an explanation of the reasons for any revision to or deviation from such objectives and plans). In practice, the Fed started to present projections
for many variables, in the form of ranges, in order to keep hands free as much as possible. [Kettl (1986), p.150: ‘[Then-chairman Burns] deployed shields like multiple measures of money, with broad ranges for each, and technical jargon.’]
The HH-act did not require the Fed to follow specific policies nor did it require that the policies should aim at specific economic goals. Policy-making remained (and remains) in the remit of the Fed, acting as an independent government agency. The institutional independence was never really endangered. [A permanent difference though with the ESCB is that in the US the FRA can be changed by a simple majority in Congress, while an amendment to the ESCB Statute would require ratification by all EU Member States]
Nonetheless, attacks on the Fed’s policies are quite common.
To give one example: during the recession in 1981-1982 20 to 30 Federal Reserve reform bills were tabled in Congress. Usually these spontaneous reform bills lack substantive support. Kettl describes Congressional interest in the Fed’s policies is greatest when interest rates are highest. But this is counterbalanced by the fact that Congress is reluctant to take the seat of the Fed. Congress finds it is difficult to articulate what the Fed ought to do and
according to some Congress ‘preferred having the Fed as an institution to be scapegoated.’ [Kettl (1986), pp. 163 ff. See also Amtenbrink (1999), p. 293/4]

Neither can Congress use financial pressure on the Fed, for the Fed is financially independent. As banknote issuing institutions, Federal Reserve Banks generate seigniorage. They are allowed to pay their expenses, pay an annual dividend of six percent to their shareholders and build up a surplus fund (FRA(1913), Section 7). [Salaries paid by FRBs to directors, officers or employees are subject to approval of the Federal Reserve Board/Board of Governors (FRA, Section 4.22). The Board has the power to examine at its discretion the accounts, books and affairs of each FRB (FRA, Section 11(a))] Excess earnings are transferred to the Treasury.[To this end, the Annual Reports of the FRBs mention the following phrase (taken from 1999 Annual Report of the FRBNY, p. 49): “Reserve Banks are required by the Board of Governors to transfer to the U.S. Treasury excess earnings after providing for the costs of operations, payment of dividends, and reservation of an amount necessary to equate surplus with capital paid-in.” ]

The Board of Governors is entitled to levy semi-annually an assessment upon the FRBs, in proportion to their capital stock and surplus, to cover the projected expenses of the Board of Governors (FRA(1913), Section 10.3). The Banking Act of 1933 has added to this that ‘funds derived from such assessments shall not be construed to be Government funds or appropriated moneys.” (FRA(1988), Section 10.4.) Therefore, the Fed will not have to come to Congress for an appropriation. The 1933 amendment also meant that the General Accounting Office (the auditing arm of Congress, established in 1921) had to stop auditing the Fed.[Before 1921 auditing was carried out by the Treasury]
Instead the Fed hired private audit firms. In the early seventies Congress adopted a bill – much to the regret of the Fed – according to which the GAO would again audit the Fed.
Senator Patman, one of the driving forces behind the Congressional efforts, had aimed at having a full evaluation of how the Fed performed its core functions (the GAO had moved from narrow auditing of accounts to broader evaluation of federal programs).[Kettl (1986), p.153-159; Moore (1990), p. 144]
The Fed could not prevent the adoption of the GAO audit bill, but it succeeded, with the help of two Fed allies in Congress, in limiting the scope of the bill. The GAO was only to examine the administrative expenditures. Furthermore, the GAO was prohibited from auditing international transactions, monetary policy discussions and operations and FOMC activities, and safeguards were introduced to prevent the disclosure of information.[The Federal Banking Agency Audit Act (Public Law 95-320) amending the Accounting and Audit Act of 1950: “[prohibits] the GAO from auditing: (1) transactions conducted on behalf of or with foreign central banks, foreign governments, and non-private international financing organizations; (2) deliberations, decisions and
actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations; (3) transactions made under the direction of the FOMC including transactions of the Federal Reserve System Open Market Account; and (4) those portions of oral, written, telegraphic, or telephonic discussions and communications among or between members of the Board of
Governors, and officers and employees of the FRS which deal with topics listed in this Act. [….] Sets forth prohibitions on the public disclosure of certain information.”] The Fed feared that a full audit would probably lead to leakage of sensitive information and questions about the transactions with single market participants, which sometimes unavoidably make a profit.
Such would disrupt the Fed’s carefully cultivated relationship with government securities dealers. (In case of the ESCB the European Court of Auditors is only allowed to conduct an ‘examination of the operational efficiency of the management of the ECB’.) [See Article 27-ESCB. For examples of GAO reports on the Fed, see p. 160n]

Comparing the Fed and the ESCB
In the U.S. central bankers would stress the Fed is part of the government, denying such would trigger the wrath of Congress. In Europe central bankers would stress their independence of the government, that is both of the executive and the legislative branch. The difference is due to the fact that the US has a unique constitutional relationship between parliament and central bank: the Constitution gives Congress, not the Executive, the power to coin money and regulating its value. Congress has delegated these functions to a governmental agency (the Fed) protected as much as possible from party politics, which had led to the discontinuation of both the First and the Second Bank of the United States. In Europe circulation banks had usually received their charter from the sovereign [or the government], even though in many cases circulation banks were partly owned by private stockholders.[A nice historical example is taken from Viebig (1999), who quotes from a speech in March 1806 by Napoleon (just crowned emperor after having established the Banque de France in the first place in 1800 as First Consul), who wanted to reduce the influence of the shareholders in the Banque de France (‘La Banque n’appartient pas seulement aux actionnaires, elle appartient aussi à l’Etat puisqu’il lui donne le privilège de battre monnaie.’), though not completely: “Je veux que la Banque soit assez dans la main du gouvernment, mais qu’elle n’y soit trop.’ Cited from Introductory speech Jospin at ‘Bicentennial Symposium: Independence and Accountability’ (May 2000), Colloque du Bicentenaire, Banque de France, p. 45.)]
However, policy was not by the private sector stock holders, but by the government. Many of these governments abused their monopoly, leading to inflationary outbursts (quite often related to war efforts).

So, whereas the drafters of the FRA positioned the central bank outside the reach of partisan politics by delegating monetary powers to an autonomous governmental agency, the drafters of the ESCB Statute were more focussed on safeguarding the autonomy of the central banks vis-à-vis the government. For instance, it is striking that the Statute explicitly forbids the government to instruct or influence the ECB’s decision-making bodies, whereas in the US this was never considered necessary, because the Fed is not under government instruction, nor of Congress nor of the Administration.[In the latter case, one would expect Congress coming to the rescue of ‘their’ Fed, though in practice support had to be elicited – see e.g. Kettl (1986), p. 62-79 for the period 1945-1952. Situation Europe is quite different, where the European parliament has no monetary capacity, much to its regret, and where the European parliament is rather more inclined to criticize the ECB than to defend it against the ministers]

Nonetheless, the Fed values a good relationship with the Administration. During his (re)confirmation hearings in 1992 Greenspan explained he had
monthly meetings with the Council of Economic Advisors and with the Treasury.
Occasionally he would meet the president. It seems that the regular luncheons between the Fed chairman and the Secretary of the Treasury are more conducive to a good understanding and relationship than meetings between the Fed chairman and the president, because the president usually ‘wants something’ when he meets the chairman of the Fed.[This was the case under president Kennedy and Johnson. The chairman and the president would meet bilaterally or occasionally during meetings of the ‘Quadriad’. The Quadriad is composed of the chairman of the Council of Economic Advisers, secretary of the Treasury, chairman of the Board of Governors and the director of the budget, and is sometimes joined by the president. (Leibbrandt (1968), p. 91-92.) Under the Nixon Administrations (1968-1972; 1972-1974) the roles were reversed, with Burns at occasion lecturing president Nixon what the administration should do, though there was also a lot of pressure from the White House on Burns (see Kettl (1986), p 91-96; Greider (1987), p. 342-343; Moore (1990), p. 116 and 132)]
Havrilesky (1996) takes a statistical approach, counting Wall Street Journal articles mentioning
Administration desires on monetary policy (easing or tightening) to construct an index for signalling from the Administration to the FRS. He finds proof of episodically effective political arm-twisting, thought the effect increases in periods of intense legislative branch (Congress) threats to the Fed, or when the chairman is close to the Administration. He also finds that movements in the Federal funds rate can be partly explained by Senatorial remarks
(relatively small predictive power though), which he links to the Senate’s veto power over appointments to the Board of Governors, including the Board chairman’s reappointment.

In practice, the Fed has to live with considerable political risks.[Pressure may arise from the Administration (see e.g. Kettl (1986), p. 10, 111, 130, and Meyer (2000)) or from Congress (see few pages above)] As observed by Kettl, it is the principal responsibility of the chairman to recognize the boundaries on its decisions, beyond which lie political attack.[Kettl (1986), p.13] Of course, the Fed values independence as much as the ECB, but it has to tread at least as carefully.[In the case of the FRS there are also unique elements which help secure the independence from the body politique, such as the fact the Federal Reserve Bank presidents, who also vote – on a rotating basis – on the Federal Open Market Committee (FOMC), are appointed by their boards of directors – with the approval of the Board of Governors – and not by the US president. A further element strengthening the Fed’s independence is their relatively long term of office (14 years)] See for instance Alan Greenspan in a speech before a Congressional subcommittee on October 25, 1989: “.. independence enables the central bank to resist short-term inflationary biases that might be inherent in some aspects of the political process. The Federal Reserve must take actions that, while sometimes unpopular in the short run, are in the long run in the best interests of the country.”

Another threat to the independence could come from exchange rate policy. In practice the Treasury is responsible for exchange rate policy – if there is any – of the US (see also Article 109-EC). This could hinder monetary policy, as exchange rate agreements could imply the need for large-scale interventions affecting the liquidity in the money markets or even a preferred interest rate policy. However, most Administrations have tended to be non-interventionist as regards the exchange rate. Furthermore, it is standard practice of the Fed to sterilize the money market effect of any intervention in the foreign currency market.

II.1 History: Delors Report
Even before the Delors Committee started its deliberations, it was clear that the new institution was to be independent from national governments and Community authorities.
When Genscher wrote his famous ‘Memorandum für die Schaffung eines Europäisches Währungsraumes und einer Europäischen Zentralbank’ 43 , with which he surprised and annoyed the German Finance Ministry and the Bundesbank,[See Dyson/Featherstone (1999), p. 332 and Szász (1999), p. 104-5] he realized a European central bank would only be acceptable to the German public when that central bank would be independent, like the Bundesbank.[This view is also ventilated in Dyson/Featherstone (1999), p. 330: “the Genscher memorandum was an attempt to build the initiative around ideas acceptable to the Finance Ministry and to the Bundesbank, without drawing them into formal consultations.” For Genscher’s motives, see Dyson/Featherstone (1999), pp. 326-332 and Szász (1999), p. 214/5. Genscher was committed to European integration and was afraid French-German cooperation would suffer a serious setback when the EMS would break down.]

In his memorandum Genscher wrote: ‘Die Schaffung einer europäischen Währung würde die Notwendigkeit der Autonomie einer Europäischen Zentralbank und ihre eindeutige Verpflichtung auf Preisstabilität umso dringlicher machen.’
In this sense Genscher was more specific than Balladur in his memorandum of December 1987 (‘La Construction Monétaire Européenne’), in which Balladur had pursued the logic of creating a zone with a single currency and a central bank system after the Internal Market would have been completed in 1992. Balladur acknowledged the difficulties raised by proposals for an ECB and confined himself merely to listing a number of questions, one of them how to regulate the relations between the European central bank on the one hand and the political bodies of the Community and the national monetary authorities on the other. In this sense Balladur followed the Werner Report of 1970 on the realisation by stages of Economic and Monetary Union. The report had been concerned with coordination procedures between the monetary authorities and the centre of decision for economic policy, and not so much with the status of the ‘Community system of central banks’. [Dyson/Featherstone (1999, p. 162) make the interesting observation that domestic political reasons were the prime motivation behind Balladur’s letter. Balladur and then-prime minister Chirac, both members of the not-so-European RPR, were afraid to be outflanked on European issues by the Giscard’s and Barre’s UDF, which had a strong commitment to construction européenne (which did well in the polls). This explains the cautious approach in Balladur’s letter. Giscard had been active alongside Helmut Schmidt in the Comité pour l’Union
Monétaire de l’Europe which had started to meet in December 1986. The first time Balladur broached the issue of a future European central bank was in June 1987 (Szász (1999), The Road to Monetary Union, p.102)]

The German Finance Ministry was taken off guard and turned to the offensive with Stoltenberg’s Memorandum on the Further Development of Monetary Cooperation in Europe of 15 March 1988. The memorandum advocated that European political union should precede monetary union.[‘Als auf Dauer angelegte und alle Unterschiede in der Wirtschafts- und Währungsentwicklung ausgleichende Solidargemeinschaft mit einer einheitlichen Währung oder irreversibelen Wechselkursen [….] muss sie vor allem durch eine weitgehende politisch-institutionelle Umgestaltung der Gemeinschaft in Richtung einer umfassenden Union gefundiert werden.’ Stoltenberg-memorandum ‘Zur weiteren Entwicklung der währungspolitischen Zusammenarbeit in Europa’, 15 March 1988, in HWWA (1993), p. 311] On a future ECB it stated that it should be independent from ‘Weisungen der Mitgliedregierungen oder andere Gemeinschaftsorgane’.[Ibidem, p.312]

A press statement issued by the Bundesbank on 5 May 1988, following a discussion within the Zentralbankrat on monetary cooperation in Europe, was also quite clear: ‘Konsens besteht in der Bundesrepublik auch darüber, dass eine europäisches Notenbanksystem unabhängig sein sollte; unabhängig nicht nur von nationalen Regierungen, sondern auch von den Einrichtung der EG, also der Kommission und der Ministerrats.’ [Presseauszüge Bundesbank. An earlier internal position paper of April 1988 had been even clearer on this issue: ‘Die Verpflichtung der Zentral bank auf Preisstabilität ist durch deren personelle und funktionelle Unabhängigkeit von den nationalen Regierungen und den Gemeinschaftsinstanzen abzusichern. Die personelle
Unabhängigkeit der Organmitglieder wäre durch Berufung für eine mindestens 8 – 10 Jahre umfassende Amtsperiode ohne Möglichkeit der Abberufung aus politischen Gründen zu sichern.’ This position was repeated in the contribution of Pöhl to the Delors Committee (see part 2 of the Delors Report: ‘Collection of papers submitted to the Committee for the Study of Economic and Monetary Union’, p. 137)]

A similar position was taken by the representative of the German Finance Ministry, Hans Tietmeyer, in the Monetary Committee meeting of 3 May 1988. According to Tietmeyer the European Central Bank System should have the statutory objective to pursue price stability, should be independent from instructions of other Community institutions and of national governments and should have a federal character (a mixture of central and national elements). This position is very close to the wording of an internal working paper of the Bundesbank of April 1988, which speaks of: ‘personelle und funktionelle Unabhängigkeit von den nationalen Regierungen und den Gemeinschaftsinstanzen’, ‘Berufung für eine mindestens 8 – 10 Jahre umfassende Amtsperiode’ and ‘[e]in föderatives Aufbau der Zentralbank – etwa nach dem Muster des amerikanischen Federal Reserve System – wäre in Anbetracht der nach wie vor bestehenden nationalstaatlichen Souveränität angebracht und würde die Unabhängigkeit der Zentralbank absichern.’ [This would be repeated in almost exactly the same wording in Pöhl’s paper of September 1990 submitted to the Delors Committee (published in the Collection of papers annexed to the Delors report). The Germans did of course not mention that in Germany members of the government could participate in meetings of the  Zentralbankrat and could request for the postponement of decision for not more than two weeks (rescinded in 1997). This would be brought up by the French in their draft Treaty proposal of 26 January 1991 (published in HWWA (1993)), who had copied this element [-unknown to the Banque de France law-] from the German central bank law. See Art. 109-EC, sections I.1 and II.3, infra treated in this cluster.]

Therefore, even before the European Council of June 1988 decided to establish a working group under the chairmanship of Delors Germany had drawn a line in the sand. The first preliminary draft written by the rapporteurs of the Delors Committee (December 1988) contained wording close to the German position: [CSEMU/5/88, 2 December 1988, p.15-16]
“- the system must be independent of instructions from national governments and Community authorities.
[….] The Board members would be appointed for a term of office of [eight] years by the European Council.” [CSEMU/10/89 of 31 January 1989 (p.15-16) would contain similar wording, though the appointment of the Board members was now described as ‘for relatively long periods on an irrevocable basis’. Directors of the German Zentralbankrat were appointed for ‘eight years, or in exceptional cases for a shorter period, but not less than two years.’ (Bundesbank Law 1957, Art. 7(3).)]

The draft version of 31 March 1989 showed an additional sentence (italics by the author):[CSEMU/14/1989, p.19]
“ Status
– independence of instructions from national governments and Community authorities; this should be ensured by a Treaty provision stating that central bank governors in their position as members of the ESCB Council should act independently of their government.
– [….] tenure of Board members would be for five to seven years and would be irrevocable;”

During the meeting of the Delors Committee on April 11 and 12 the two sentences of the first indent were integrated into one, in order to best ‘secure the independence of members of the central banks system’.[Quote taken from report of this meeting by Hoffmeyer] As of now the independence would be clearly linked, not so much to the new institution itself, but to the members of the decision-making body of the new institution. This change was considered to strengthen the independence.

The fifth paragraph of section 32 of the final version of the Delors report would read:
“ Status
– Independence: the ECB Council should be independent of instructions from national governments and Community authorities; to that effect the members of the ESCB Council, both Governors and the Board members, should have appropriate security of tenure;”

– Delors Report April 1989

All in all the Delors Committee stayed close to the demand Germany had put on the table from the very beginning. It had even strengthened on it.[The Committee of Governors would even go further and would link the independence not only to the institutions, but also to the members of their decision-making bodies.]

II.1A: The Position on the Main Political Actors as Regards Independence 
At this place it might be interesting to look for evidence about the position of the German chancellor, the French president and of Delors himself on the issue of independence before and after the publication of the Delors Report.
Kohl always acted carefully, seldom taking a final position at an early stage. From conversations of Dutch diplomats with officers of the Bundeskanzleramt in May 1988 it becomes clear that Kohl neither wanted Genscher’s personal ideas to become leading nor could he ‘ignore’ Genscher’s memorandum. [Dyson/Featherstone (1999) also mention rivalry between Genscher and Kohl as to whom would be credited for the success of the German EC presidency (p.330). Kohl even distrusted Genscher and saw ‘the Genscher Memorandum as an effort to sow dissension and embarass the Chancellor’ at a moment the Chancellor was weakened by local electoral setbacks (p. 335). According to Dyson/Featherstone Kohl felt he retook the initiative by his proposal to appoint Delors as chairman of a committee while at the same time including all central bank governors, which deviated from Genscher’s proposal for a committee of five to seven ‘wise men’. As a source at the Bundeskanzleramt said: ‘Es gibt keine weisere [als die Gouverneure selbst’]. In a speech before the plenum of the Bundestag on 24 June 1988 Kohl touched upon the issues to be dealt with during the Hannover European Council summit. On EMU he mentioned the need to act carefully. A possible European central bank ‘muss am Ende des Weges eingebettet in einer europäisches Zentralbanksystem stehen’. At a very early stage he therefore opted for a federal central bank system. He said Hannover would be used to ask for a report on the conditions necessary for such a development. ‘Es ist selbstverständlich, dass wir in diese Diskussion unsere hervorragenden Erfahrungen mit der Bundesbank mit ihrer Unabhängigkeit, ihrer dezentraler Organisation und vor allem mit ihrer Verpflichtung auf die Geldwertstabilität einbringen werden.’

More than a year later, during a meeting of ministers of foreign affairs in Brussels on 18-19 December 1989, the acting minister for Germany (mrs Adam-Schwaetzer) requested to include in the minutes of that meeting the following unequivocal statement ‘on behalf of the German republic’ (which surely must have carried the approval and weight of Kohl):
“Protokollerklärung der Bundesrepublik Deutschland:
The German federal government considers the independence of a future European central bank system from national and Community institutions to be indispensable for the realization EMU. The government interprets the first sentence of the third point of the chapter on EMU in the conclusions of the European Council in Strassbourg in this way.”
[The first sentence of section III of the conclusions of the Strassburg summit of 8-9 December 1989 read rather differently: “The European Council emphasized, in this context, the need to ensure the proper observance of democratic control in each of the Member States.” The need for proper democratic control could be read as a corollary to central bank independence, but the latter element had been absent in the conclusions, which the Germand apparently regretted later.]

This must have been a clear signal in the direction of the French. There is no evidence Helmut Kohl ever indicated to the French the independence of the ECB was negotiable. Of course, Kohl also knew the independence was needed to ‘bind’ in the Bundesbank to a stage-by-stage process to EMU.[Dyson/Featherstone (1999), p. 349] Kohl was probably not so much committed to the independence of the ECB, as to the success of monetary integration, because Kohl had decided for himself that European integration, and the active participation in that process by Germany, was the condition for creating trust with the allies and their readiness to accept a re-united Germany.
Kohl saw the revival of the European integration process as one of his most important objectives, when he became Chancellor in 1982.[Helmut Kohl (1996), Ich wollte Deutschlands Einheit, p. 26-27] Since his first days as Chancellor (and before) Kohl had been convinced that further steps to European Union were required, before Germany could try to seize the new diplomatic opportunities which were emerging in Eastern Europe since Gorbachov’s appointment as General-Secretary of the Soviet Communist Party in 1985.[Dyson/Featherstone (1999), p.334. Kohl was confronted with EMU in discussions with the French Elysée. The issue would be raised by the French side. The first meeting at which Kohl gave a positive signal was at the Franco-German summit at Heidelberg on 26 August 1986. He then spoke of having problems with EMU but of being prepared to make sacrifices for Europe, implying he saw EMU as a German sacrifice, but a sacrifice he was willing to make.]
In 1988 Kohl was supportive of the Genscher initiative, but in the Bundeskanzleramt he made clear his stakes were higher than a European central bank: his aim was a real European community in the form of a federal state or a federation of states, which of course would have one currency.[According to sources at the Bundeskanzleramt in May 1988, as reported by Dutch diplomatic service.] In 1989 and 1990 developments in East-Germany accelerated and according to Kohl he and Mitterrand agreed German unity and European integration were two sides of the same coin.[Kohl (1996), p. 358] The proposal by him and Mitterrand early 1989 to call not only an IGC on EMU but also one on European Political Union, was again meant to show the Germans credentials. [Kohl (1996), p. 409]

Mitterrand’s position on the independence of the ECB is less clear. Mitterrand had been president of the French republic since May 1981. He never challenged the German wish for an independent ECB.[He would do so later, after the conclusion of the IGC, by stating in an interview for the French television, seen by the author, on the eve of the French referendum on the Treaty of Maastricht that the ECB had to work within the framework set by the European Council and ‘the technicians of the [European] Central Bank are charged with applying in the monetary domain the decisions of the European Council.’ Cited by Bernard Connolly (1995), p. 141/2, and later also commented upon by Szász in the following way: “Not very encouraging was the statement early September by president Mitterrand that even in the third stage the policy decisions would still be taken by the European Council, which ‘the technicians of the European Central Bank only would have to execute.’ “ (Szász (1993), p.150.)]
The French governor De Larosière signalled to Pöhl before the first major working meeting of the Delors Committee that he had persuaded Mitterrand to accept an independent ECB, mandated to achieve price stability, as a non-negotiable basic principle of EMU. [The meeting between De Larosière and Mitterrand took place on 1 December 1988 (Dyson/Featherstone (1999), p. 345). Mitterrand would give the same signal to the Dutch prime minister in a conversation on 3 April 1990 in Paris.] [The Trésor was kept uninformed. Bérégovoy had great difficulties with an independent central bank. He was
so angered by reading the conclusions of the Delors Report (which in the words of Trichet (then Trésor) was ‘too Germanic’ in content), that he summoned de Larosière to the Trésor on 27 April 1989. After de Larosière had pointed out he had worked on the basis of a negotiation position cleared with the president, Bérégovoy threw his support behind de Larosière, but after the meeting he would instruct his apparatus to find a strong EC political
mechanism for ensuring co-ordination of economic policy, which mechanism should ‘balance’ the new monetary power. To the outside world he would package this in terms of stressing the importance of democratic control and accountability. (Dyson/Featherstone (1999), p. 186; see also p. 181/2.) In the Ecofin Council of 11 June 1990 Bérégovoy intervened according to this line.]

According to Dyson/Featherstone, Pöhl trusted de Larosière, whom he supposed to be longing for an independent Banque de France.
Mitterrand’s interest for EMU dated from discussions with Roland Dumas, who in search of themes for the Mitterrand presidency had set out the idea of more concerted policy and, eventually, a European currency as the best protection against ‘external risk’, read: dominance of the US dollar.[The so-called Dumas memorandum of 1 June 1984. See Dyson/Featherstone (1999), p. 151-156] Europe needed a true European and international currency.

Mitterrand knew it was not opportune to press the issue too hard and publicly on the Germans. The key was to induce the Germans to take the initiative on EMU. Dumas relationship with Genscher was to be instrumental, for instance in succeeding to write a chapter on EMU in the Single European Act of 1986 (the amendment of the EEC Treaty on the completion of the Internal market by the end of 1992). Kohl had been persuaded too, but, after being briefed by a worried Tietmeyer, insisted at a late moment that the EMU chapter would have to confirm that progress on EMU would require resort to the full Treaty
amendment procedure of Article 236 (IGC), implying EMU could not be imposed by the Ecofin or the European Council.[See Article 102A of the EEC Treaty as amended by the Single Act (signed in 1986)] This was a disappointment for Mitterrand. He had been reminded of the power of the German Finance Ministry and of the Bundesbank.
In the end, the French would get their ECB, [Mitterrand had succeeded in attaining a fixed final date for stage 3. This had been his wish at least as early as October 1990. The IGC had gone as far as possible in scribing ‘irreversibility’ into the Treaty (including supportive procedures – an idea which had originated in the French Foreign Office and for which they had gotten Kohl’s support), but still without a date. Only in Maastricht, at the level of the Heads of State, the idea of a fixed date was tabled by the Italian prime minister Andreotti and agreed upon (the latest possible date being 1 January  1999). This implied Mitterrand had succeeded in gaining against all odds what was to him the ‘chief price’ over worries shared in many quarters that this would reduce the relevance of the economic convergence criteria and would thus be unacceptable to the Germans; this scepticism even existed among his closest associates, such as Bérégovoy. (Dyson/Featherstone (1999), pp. 202, 243-252, 442-448; Viebig (1999), pp. 401/2 and 512.)] but it would not be the political instrument they had wished themselves for the purpose of international monetary diplomacy and politics.[Indeed, while many would emphasis the euro as the currency belonging to and completing the Internal Market, the traditional French position is to stress the importance of the euro as a global currency. Even in May 2001, prime minister Jospin would in an introduction before the French National Commission on the euro describe the physical introduction of the euro in the form of banknotes and coins as of 1 January 2002 as ‘the condition for receiving full confirmation of the euro as a global currency.’ (Dutch newspaper Financieele Dagblad, 12 May 2001.)]

It is interesting to note that Delors himself swaggered a bit on the issue of independence of an ECB.[This could have been expected, because German style independence might have been contre coeur, though Delors knew this to be an essential element of the Delors Report. On the other hand, Delors must have realized that a unanimous report would create political momentum, and once that effect took hold it was far from certain whether events would follow the path described in the report (Szász (1999), p.119). Also, the Delors Report would not be ‘adopted’ by the Madrid European Council of 26-27 June 1989, because Thatcher opposed. The European Council would only conclude the report ‘fulfilled the mandate given in Hannover.’] In a restricted meeting of foreign affair ministers on 7 May 1990, he is said to have shown some liking for the model of independence of the Dutch central bank. This bank was in practice very independent, but in theory the government may give an instruction. The central bank may refuse, after which parliament will discuss the arguments – and in the Dutch constellation the government (mostly coalition cabinets) would probably not survive. The Dutch had internally concluded their model was not workable at the European level, because the Council of Ministers (the most likely body to give an instruction) could not be sacked,
implying a greater risk the Council would actually start using its right to give instructions.[This position was discussed in a published exchange of letters between the Dutch central bank and the Minister of Finance. (Press Notice Ministry of Finance, nr. 91/72 of 28 March 1991, also distributed to the
members of the Monetary Committee (doc. II/169/91).)]
In Delors’ proposal the Commission would become involved, when the ECB would refuse to follow an instruction given by the Council of Ministers: the Commission would have to defend the instruction before the European Parliament. If the parliament would side with the Commission, the ECB would be obliged to obey.

If the parliament would not support the Commission, the Commission might have to step down.[Europa van Morgen, nr 16, 16 May 1990. (Europa van Morgen is a publication of the Representative Office of the European Commission in the Netherlands.) In the Ecofin of 11 June 1990 Delors would repeat the idea that the Commission, being the only institution accountable to the European Parliament, should take the responsibility to defend such a decision, even if taken by another body, before parliament. (This can be interpreted as an effort by the Commission president to create a monetary competence for the Commission, as the Commission would probably first have to make up her own mind whether or not to side with the Council of Ministers.)] A spokesman of Delors later said Delors had only intended to compare different possible models. [Dutch newspaper NRC Handelsblad, 8 May 1990]

There are more indications Delors was not per se in favor of complete independence of the ECB. In this respect it is relevant to know that Delors, who was not only president of the Commission, but had also retained the monetary portfolio for himself in 1985, had a hands-on style of leadership.[Dyson/Featherstone (1999), p.703]
All Commission papers on EMU, prepared for the Ecofin Council or the Monetary Committee, probably carried the approval of Delors himself. A Commission paper of March 1990 (‘EMU – the Economic Rationale and Design of the System’) called for ‘a large degree of independence [….] Factors determining the degree of independence include: – the freedom from obligations to take actions which would undermine the basic objective of stability’. Such a formulation raises immediately the question who would determine whether an action would undermine the objective of stability. An informal Commission paper of May 1990 (‘EMU – Institutional note’, prepared as a companion paper to the paper of March, which had been discussed during the informal ecofin meeting on 31 March 1990 in Ashford castle, Ireland) carried a more strict formulation: ‘In performing their responsibilities, the members of the Council shall be entirely independent and shall act in the general interest of the Community. The Member States shall undertake not to seek to influence the members of the EuroFed Council in performing their responsibilities.’ However, in that specific document monetary policy was said to have two objectives, apparently carrying the same weight, i.e. ‘to ensure price stability and to support the general economic policy adopted at Community
level.’ In August the Commission published another document (‘Economic and Monetary Union’), [European Commission (1990d), pp. 175 ff] which followed the line of the March document. The Commission draft Treaty proposal of December 1990 would leave less room for doubt, as it would follow the formulation of the Committee of Governors’ draft ESCB Statute in having a clear primary objective. [Commission’s proposal for a draft Treaty amending the Treaty establishing the European Economic Community with a view to achieving Economic and Monetary Union, Commission document SEC(90) 2500/2, 10 December 1990, Article 106a (see section II.3 below)]

Here we see that the prime motives were political, i.e. cementing European integration. For the French the dominance of the Bundesbank was a thorn in their side, but this in itself was not sufficient reason for Germany to surrender monetary souvereignity to the European level.
However, the oncoming trepidations in Eastern Europe were a reason for people like Genscher and Kohl to forge ahead, paving the way for German re-unification – in which indeed they were very successful. The main political actors, Kohl with Genscher, Mitterrand with Dumas and Delors, were less interested in the design of the European central bank system than in making sure it would happen. Because of the Bundesbank’s strong popular support in Germany Kohl sided with the Bundesbank’s demand (shared supported by the German Ministry of Finance) that the future ESCB should be protected from political influence. A federal structure in which all central banks would continue to exist was considered to enhance the acceptability to the Member States. This element had already been mentioned in an early stage (Balladur, Stoltenberg). The precise structure of the system, and its checks and balances, were left to the more ‘technical’ level of the central bankers and the Finance ministries. Nonetheless, two important benchmarks had been set: independence vis-à-vis the political authorities and the continued existence of the NCBs – against which the new central institution would have to be positioned. This would be the subject of the deliberations in the Delors Committee, the Committee of Governors, the Monetary Committee and the IGC – see also chapter 1.

II.2: History: Committee of Governors
The first draft for discussion by the Committee of Alternates[A document called ‘Legal foundations of the European System of Central Banks (ESCB)’ (dd 11 June 1990) prepared by the Secretariat of the Committee of Governors under guidance of Jean-Jacques Rey, chairman of the Committee of Alternates. Annex I of that document referred to the articles which should be embodied in the Treaty, Annex II to the articles to be embodied in the statute.] already showed wording close to the final outcome:
‘Article 12 – Independence
12.1 In exercising the powers and performing the duties conferred upon them by the Treaty and these Statutes, the ESCB and the members of its decision-making bodies may neither seek nor receive any instructions from Community institutions or national governments.’

– draft 11 June 1990

In the draft version of 3 July 1990 the words ‘or any other body’ appeared at the end of the sentence, probably to capture also the European Council, not yet being a Community institution. On 8 September Pöhl in his capacity of chairman of the Committee of Governors gave an elaborate statement in the informal Ecofin, in which he articulated the governors were convinced, based on actual experience in their countries, that the success of pursuing a
monetary policy in accordance with the primary objective of price stability hinged critically on safeguards against political pressures.[This was not disputed by the ministers, though according to Bérégovoy the question had to be answered who would be responsible for economic policy in the Community and who would set out the broad orientations for monetary policy. In July the Monetary Committee, in which both Treasuries and central banks were represented had finished a report to the ministers called ‘EMU beyond stage 1: orientations for the preparation of the IGC’-published in HWWA(1993). This report, which stressed the need for an independent ESCB, had been adopted by all members (including the French (Trichet)), except for the UK delegation. It is interesting to note that the report also mentioned that the members of the Governing Council should ‘not act as representatives of their
governments or central banks.’ (Emphasis added by the author.) This makes sense as the governors are not expected to represent their country or territory, but they are supposed to act as independent experts; while assembled as a group they bring together a broad spectrum of first-hand knowledge of the state of the economy and a broad range of views enriching the debate on what should be the right course for monetary policy. That the
governors do not represent their central banks means they do not travel to Frankfurt with a voting instruction of their board of directors. This would also paralyse decision-making in the Governing Council.]

This text was improved upon during the next months in the following way:
– a second sentence was added (at the advice of the legal experts group) saying that the political authorities should refrain from instructing or even influencing the ESCB
– the word ‘system’ was replaced by ‘ECB and NCBs’
– ‘duties’ was replaced by ‘tasks and duties’ in order to broaden the scope of the independence.

This resulted in the following final wording in the governors’ draft statute:
“Article 7 – Independence
In exercising the powers and performing the tasks and duties conferred upon them by the Treaty and this Statute, neither the ECB nor a NCB nor any member of their decision-making bodies may seek or take any instruction from Community institutions, governments of Member States or any other body.
The Community and each Member State undertake to respect this principle and not to seek to influence the ECB, the NCBs and the members of their decision-making bodies in the performance of their tasks.”

– draft 27 November 1990

It is interesting to note that the wording is largely based on the existing wording used to define the independence of the members of the Commission: [The commentary of the draft version of 8 October specifically mentions that the new second sentence finds its origins in Article 157 of the EEC Treaty, as amended by Article 10 of the Merger Treaty.]
“The members of the Commission shall, in the general interest of the Communities, be completely independent in the performance of their duties.
In the performance of these duties, they shall neither seek nor take instructions from any Government or from any other body. They shall refrain from any action incompatible with their duties. Each Member State undertakes to respect this principle and not to seek to influence the members of the Commission in the performance of their tasks.”

– Article 10.2, Merger Treaty 1967 (replacing Article 157(2) of the EEC Treaty)[Official Journal of the European Communities, No 152, 13 July 1967]

It must be said here this formulation, though strong on paper, has not been strong in practice.
There have been too many examples in which Commissioners clearly went out of their way to support the position of their national government. Therefore, the strength of Article 7-ESCB (the core article defining the independence of the ESCB) has to be tested in practice. As mentioned before, sanctions are lacking.

II.3 History: IGC
Most draft Treaty texts by national delegations tabled before, or during the IGC which started in December 1990, were in line with the outcome of the Delors Report, and therefore in line with the text of the Committee of Governors.
The draft by the French Finance Ministry was a bit of an exception.[Projet de Traité sur l’Union Economique et Monétaire, 25 January 1991, printed in HWWA (1993), p. 343 ff] The French had selected the first and not the fourth sentence of Article 10.2 of the Merger Treaty (relating to the reciprocal good behaviour of the political authorities).

Article 2-3(2)
“Dans l’exercice des missions qui lui sont conférées par le présent Traité, le SEBC ne sollicite ni ne recoit aucune instruction du Conseil , de la Commission, du Parlement et des Etats membres.”
Article 2-5(3)
“[….] Les membres du Conseil et du Directoire de la Banque exercent leurs fonctions en pleine indépendance dans l’intéret général de la Communauté.”
– French draft January 1991

On February 26 1991 the German delegation presented their draft Treaty text in an effort to regain the initiative in the IGC.[Dyson/Featherstone (1999), p. 408] Their draft Treaty text showed the imprint of the Economics Ministry in its emphasis that economic union should be based on free market principles and its dislike for the concept of a Community economic policy. The Economics Ministry’s aim was to stress the principle of subsidiarity in economic policy (economic policy was to remain with the member states). In that sense the German position was different from the position taken in par. 27 of the Delors Report, which spoke of both the need for binding rules in the budgetary field and other arrangements ‘to design an overall economic policy framework for the Community as a whole’, though at other places policies (par. 30-Delors Report) this framework boiled down to no more than a common overall assessment of the short-term and medium-term developments in the Community, which would facilitate a better coordination of national economic. Horst Köhler, State Secretary in the Finance Ministry and leader of the German IGC delegation, had to defend these principles and get them engrained in the Treaty. His real worry, however, was directed at the French who had proposed that the European Council could issue ‘grandes orientations’ for EMU. Köhler feared these ‘orientations’ could extend to monetary policy, and thus violate the ECB’s independence.[In the deputies meeting on 26 February 1991, Trichet defended the French position. He said the French accepted an independent ECB: according to the French draft texts, the ECB would be subject to no one. At the same time the European Council should be able to issue guidelines (not instructions) for monetary policy, like the ECB was free to give her advice on for instance wage policies. In reaction Köhler expressed himself strongly against any form of ex ante influencing via public opinion. Köhler’s opinion mattered a lot, as Köhler had privileged access to Chancellor Kohl and because Waigel put complete trust Köhler’s abilities to negotiate for a
technically viable and durable EMU. See Dyson/Featherstone (1999), p. 423-424]

These guidelines, however, received no support at all in the IGC.[The French draft also contained a proposal for guidelines (grandes orientations) relating to economic policy (and not EMU). The Commission’s draft Treaty text had contained the idea of multi-annual economic guidelines (Art. 102c of the Commission’s text). In the end these so-called broad economic guidelines would become part of the Treaty (Article 103-EC), however in the form of (non-binding) recommendations (Art. 103(2)-EC, third paragraph)] The French draft contained more inroads on the independence of the ECB through other articles, the most important one relating to the exchange rate policy – see Article 109-EC. Another example is the term of office for the members of the Executive Board, which the French put at five years, whereas Germany supported the Governors’ draft, which had mentioned eight years.[See under Article 11.2-ESCB] A further example concerned the French proposal that the president of the Ecofin should have the power to suspend for two weeks a decision of the ECB (their Article 4-3(1)).
Yet another example refers to the question who owns the capital of the ECB. Article 29 of the draft Statute of the Committee of Governors had expressed that the NCBs shall be the sole subscribers to and holders of the capital of the ECB. The French draft (Article 2-6(1)) stated that ‘le capital de la Banque centrale européenne est détenu par les Etats membres.’
As regards the use of guidelines and the role of the European Council, some strong encounters took place in the deputies meeting between Köhler and Trichet. During the deputies IGC of 29 January 1991 Trichet had noted that giving the European Council an important role in the determination of economic policy was a ‘core issue’ to the French negotiators. The Dutch (Maas), German (Köhler) and Irish representatives objected. Köhler wanted even to forbid the European Council to discuss economic policy without the Ecofin ministers being present.
Köhler also protested against a remark by Maas, who had suggested to include into the multilateral surveillance exercise a discussion of the policy mix. According to Köhler monetary stability is the foundation for sustained growth. ‘Monetary stability is a basic right, especially for the small man’ and should not be tinkered with via the surveillance procedure.
The ministerial IGC of 25 February 1991 saw a repeat of the French and German positions.

In its concluding document the Luxembourg presidency presented the following text for inclusion in the Treaty [UEM/52/91]:
“Article 107
When exercising the powers and carrying out the tasks and duties conferred upon them, neither the ECB, nor a central bank of a Member State, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a member State or from any other body. The Community institutions and bodies and the Governments of the Member States undertake to respect this principle and not
to seek to influence the members of the decision-making bodies of the ECB and of the central banks of the Member States in the performance of their tasks.”

– non-paper 12 June 1991

The presidency had replaced ‘Community institutions’ by ‘Community institutions or bodies’, the idea being that this formulation would also capture the European Council, which did not have the status of a Community institution.[Argumentation used by Yves Mersch, the Luxembourg chairman of the deputies IGC, during the deputies IGC of 4 June 1991. The European Council would retain a role in (i) the appointment of Executive Board members (Article 109a(2)-EC), (ii) the procedure for economic policy coordination (Article 103-EC), (iii) in receiving the Annual Report of the ECB (Article 109b(3)-EC) and (iv) in the procedures for deciding on the start of the Third Stage of EMU. A more general article (Common Provisions, Article D) states that the ‘European Council shall provide the Union with the necessary impetus for its development and shall define the general political guidelines thereof.’ (The European Council includes the Commission president, whereas the Council in the composition of the Heads of State and Government does not; the latter can take decisions, the former not.)]

The reference in the second sentence was now to the members of the decision-making bodies only, and not anymore to the institutions (ECB, NCBs) themselves.[Reasons unknown. Article 7 of the draft Statute was changed accordingly] One could argue that this specific modification opens the possibility for the Ecofin to influence the Governing Council or the institution as a whole, e.g. by expressing in public its opinion on what the ECB as an institution should do. On the other hand, influencing the institution should be regarded as influencing the members of its decision-making bodies, which is not allowed.

The Dutch presidency took over in July 1991. They presented a consolidated text on October 28th (UEM/82/91), which as regards Article 107 only showed minor editorial improvements.[Like changing ‘a central bank of a Member State’ into ‘a national central bank’] There was no further tinkering with independence – the battle had been fought in the early stages – and the text was changed no more. (The final text is shown at the outset of this paragraph.)

Article 10.4:
Art. 10.4 (Minutes Governing Council)
“10.4 The proceedings of the meetings shall be confidential. The Governing Council may decide to make the outcome of the proceedings public.”

(to be read in conjunction with Art. 109b-EC (Institutional dialogue); Art. 10.2 (Voting); Art. 12.2 (Executive Board prepares Governing Council))

I. Introduction
The formulation allows the Governing Council to publish the ‘outcome’ of the proceedings, not the proceedings themselves. By not being obliged to publish the proceedings the voting behaviour of the individual members of the Governing Council could be shielded from the public eye, thus preventing them from coming under national criticism or political pressure.
However, the word ‘outcome’ still leaves quite some room for interpretation. For instance, does ‘outcome’ only refer to the decision sec, or does it also include the arguments used or even to the number of votes for and against the decision? To explore what is possible, we first describe a number of existing and past practices. We distinguish between information released immediately after a decision is taken and delayed information in the form of minutes or a summary thereof. We will see at the time of the drafting of the ESCB Statute and the subsequent IGC there was a wide variety of practices, most of which were far less transparent than what would be proposed and adopted for the ESCB. We describe the procedures of the Bundesbank, the FOMC, the Bank of England and the ECB respectively as regards the release of immediate information and as regards the release of delayed information (minutes), followed by a comparative analysis.

Immediate information:
1. The Bundesbank (before EMU) issued press releases every time its governing board, the Zentralbankrat, changed (one of) its key interest rates.[Discount or Lombard rate.] The press releases were very short.
The explanation for the rate change was usually captured in at most a few sentences (in times of rising rates the ZBR usually underlined its determination to protect the internal and external value of the Dmark and/or the need to slow down the growth of M3.[The Bundesbank had never defined price stability. Every year it would announce a corridor (in earlier years: a point target) for the desired growth of the monetary aggregate M3, which corridor was based inter alia on a normative rate of inflation that it found acceptable in the medium term (since 1985 this was put at 2 per cent or less; before the figure had been higher (and had been called ‘unavoidable inflation’); see Houben (2000), p. 308] ) Press conferences were only used to inform the public about special topics.
2. Until 1994 the FOMC, which meets on average every six weeks, [According to the FRA, section 12A(a), the FOMC has to meet at least four times a year] did not even announce the outcome of its deliberations (i.e. the targeted level for the federal funds rate over the period until the next FOMC meeting): the markets had to gauge the outcome by looking at the open market operations of the New York Fed. Indeed – and this may surprise -, the FOMC is in no way obliged to publish immediately its proposed actions. The only obligation is for the Board of Governors to keep ‘a complete record of the actions taken by the Board and by the FOMC upon all questions of policy relating to open-market transactions and shall record therein the votes taken [….] in each instance’ and include this record in each year’s Annual Report (FRA, Section 10(10)). [Section 10(10) was inserted in the FRA in 1935 (Second Banking Act)]

The FOMC’s decisions were published after the following FOMC meeting, then usually four to five weeks later, in the form of a Record of Policy Action. The core of the FOMC decisions was and is its policy directive to the New York Fed, the executive arm of the FRS. Before 1975 the FOMC published its Record of Policy Action containing the directive with a 90-day delay. As a result of congressional pressure the FOMC reduced the waiting period to 45 days in April
1975. However in 1976 a federal district court concluded in the case R. Merrill v FOMC that the 45-day delay “cannot be equated with ‘promptness’ “ as required under the Freedom of Information Act. The federal district court found that the FOMC should publish its decisions within one business day after the Actions were adopted. At its next meeting (May 1976) the FOMC decided to publish its directives immediately after the next FOMC meeting, then usually four to five weeks later, while at the same time filing a notice of appeal against the ruling of the district court to publish within one day. It should be
remarked here that the directives could include directions like a bias to lower rates at the end of the period until the next FOMC meeting. The FOMC was of the opinion that such information could not be released before the period was over, as this would reveal the FOMC’s strategy of trading in the market for government securities, which would, in turn, allow the market to better anticipate its moves and thereby make its market operations more costly. This would be the argument – basically an argument that the government’s commercial interests could be harmed – on the basis of which the Supreme Court, to which the FOMC had finally appealed, remanded the case back in 1979 to the federal district court. In 1981 this court ruled in favour of the FOMC.[Marvin Goodfriend (1986), ‘Monetary Mystique: Secrecy and Central Banking’, Journal of Monetary Economics, Vol. 17, nr. 1, January 1986, p.63-92. In 1976 the FOMC also decided, out of precaution, to discontinue its ‘memoranda of discussion’ (sort of summarized transcripts), which it used to publish with a five-year delay. As formulated by Kettl (1986), p. 153: ‘[t]he Fed could not be forced [under the Freedom of Information Act] to release minutes that did not exist.’ See also next section on the publication of minutes.]
The Sunshine act of 1976 did have more consequences for the Board of Governors which is an ‘agency’ as defined in the act.

We take the following quotes from the board’s 1978 Annual Report: ‘Under the Government in the Sunshine Act [….] which became effective March 12, 1976, the Board opened more than a third of its meetings in 1978 to public observation, either entirely or in part. Items considered in closed sessions under exemptions in the Act related primarily to monetary policy [….] and to supervision of banks and bank holding companies [….] To aid the public in obtaining the maximum possible benefit from the Board’s open meetings, copies of most staff memoranda considered by the Board at open meetings are made available to the public and an agenda summarizing the issues to be discussed is provided at each meeting.’ Open to the public are for instance meetings dealing with proposed banking regulation. Under the Sunshine act publications may be delayed when premature disclosure would be likely to lead to significant speculation in currencies, securities or commodities.[Amtenbrink (1999), p. 312. A precise description of the exemptions can be found in US Code, Title 5, Part 1, Chapter 5, Subchapter II, Sec. 552b – Open meetings]
This argument has also been used by Greenspan: there remain ‘certain areas where the premature release of information could frustrate our legislative mission …. to open up our debates on monetary policy fully to immediate disclosure would unsettle the financial markets and constrain our discussions in a manner that would undercut our ability to function.’ [Cited in Krause (1999), p. 39]
The Sunshine act did not apply to the FOMC.[Compare the FOMC Statements of Policy and the FOMC Rules of Procedure, to be found in Federal Reserve
Regulatory Service, Volume IV (issued by the Federal Reserve Board):
– ‘[T]he FOMC does not fall within the scope of an “agency” or “subdivision” as defined in the Government-in-the-Sunshine Act [1976] and consequently is not subject to the provisions of that act.’ (FOMC Statements of Policy (3/94), Section 281.2 – Policy Regarding the Government in the Sunshine Act.);
– ‘There ordinarily is no published notice of proposed action by the Committee or public procedure thereon, as described in section 553 of title 5 of the United States Code, because such notice and procedure are impracticable, unnecessary, or contrary to the public interest.’ (FOMC Rules of Procedure (3/94), Section 272.5 – Notice and Public Procedure).
It should be added that in the wake of the Watergate scandal (Nixon resigned in 1974) strong support had developed for eliminating any possible ‘secrecy’ in government agencies. (See Moore (1990), p. 142 ff.)]
The described procedures changed in February 1994, when the FOMC began issuing an immediate press release every time it changed the federal funds target rate.[This procedural change was formalized in February 1995. For a history of changes in the FOMC’s disclosure policy, see Robert Rasche (2001), ‘The World of Central Banking: Then and Now’, in Reflections on Economics and Econometrics – Essays in Honour of Martin M. G. Fase, De Nederlandsche Bank, pp. 89-96. Rasche (p. 91) concludes that the experience with the immediate release of the content of the Directive since 1994 has negated a number of the historical justifications of the Federal Reserve for secrecy. For instance, he does not see evidence that the immediate release has interfered with the orderly execution of policies or has permitted speculators or others to gain unfair profits.]

Since May 1999, the FOMC issues a press release immediately after each meeting (whether or not it changed the funds rate).
These press releases included a ‘policy bias’ of the Committee for the inter-meeting period in terms of the most likely direction for the federal funds rate. As of February 2000 the FOMC has stopped publishing a policy bias, but instead each press release conveys whether the Committee sees the risk of higher inflation or of a weaker economy, i.e. a statement on the ‘balance of risks’.[The publication of the policy bias was felt to bind the hands of the FOMC too much, because it created specific expectations in the markets. (The ECB could learn from this, as the ECB sometimes uses the phrase ‘we don’t expect changes for the foreseeable future’ for the interest rates themselves, instead of for the monetary circumstances.)] An example of such a press statement is presented below in box 2, which gives an impression of the information content of a FOMC press release. Since March 2002 the press release also shows how each FOMC member voted.

3. The Bank of England is obliged by law (1998) to publish its decisions ‘as soon as practical after each meeting’.[Bank of England Act 1998, section 14(1). An exception is made for decisions to intervene in financial markets the publication of which would be likely to impede or frustrate the achievement of the intervention’s purpose. Such decisions will be published at a later ‘safe’ date. Ibidem, section 14(5)] In practice, this is the same day. The accompanying press notice contains a short economic background for the decision, usually covering real growth, wage developments, current and expected inflation (in a qualitative sense). There is no press notice if the rate is left unchanged.
4. The ECB’s Governing Council meets basically every fortnight. In the early years each meeting was followed by a press release (‘Monetary Policy Decisions’) with the Council’s decision (not changing interest rates is also a decision) but without arguments. Every first meeting of the month was also followed by a press conference by the president and vice-president of the ECB, during which the president of the ECB will comment on the considerations underlying the Council’s decision. The frequency of the monetary deliberations has been reduced to once a month (first meeting of the month) as of 2002, though in case of need meetings can be called at very short notice. (This lower frequency is an improvement, as follows from the arguments given in chapter 3.4 below.) If interest rates are changed when no press conference is planned, the press release will contain the most important considerations for the decision.[See for examples the press releases of 31 August 2000 and of 17 September 2001 – to be found on the ECB’s
website (] The press conference is usually opened by an extensive introductory statement by the president,[The text of the introductory statement is reviewed by the Governing Council before the press conference] which is followed by a Q-and-A session. The introductory statement basically only shows arguments supportive of the decision: it does not show whether there were tensions or a heated debate (in that sense it does not really reflect the deliberations of the council), whether some members would have preferred larger/smaller interest rate steps nor does it show the individual views.[Because the introductory statement does not show the flow of the arguments it cannot be called ‘minutes’ or
‘quasi-minutes’, though it does reveal a lot of the thinking of the Governing Council] [For a complete overview of the ECB’s communication efforts (including Annual Report, Monthly Bulletin speeches and appearances), see Issing, Gaspar, Angeloni and Tristani (2001), table 9.1 (p. 140)]
In a way this is understandable as the newly established Governing Council made an effort in trying to appear as a united body with converging views, which could not become a toy or a target for politicians.

Therefore in practice we see clear differences in transparency between central banks as regards the immediate announcement of interest rate decisions. At the time of Maastricht, one central bank (Fed) did not even publish the outcome of its decision. Most central banks only publish the information sec – without explanation or press conference. Only the ECB tries to explain immediately its decision in terms of its monetary policy strategy.[For the ECB’s monetary strategy, see under Article 2, section I. Preferably, central banks should explain their decisions in terms of their strategy. Without such a strategy, the markets will be at loss as to how the central bank will react to new information. Central banks are more effective if all players, or at least most, are aligned. While this is intuitively clear, it can even be argued that higher transparency leads to lower inflation variability – see M. Demertzis and A.H. Hallett (2002)]
Finally, some central banks (Fed) show a policy bias for the future (this is something the ECB tries to avoid, while the Fed has come back from a too clear policy bias).

Example of Federal Reserve press release:[Discount rate changes are approved by the Board of Governors. If such a decision is taken on the same day
(which usually is the case; to this end the FOMC meeting is adjourned for a few minutes to allow the Board of Governors to approve the requests of the FRBs after which the FOMC meeting is resumed), this decision is mentioned in the same press release.]
Box 2: Federal Reserve Press Release
(Release Date: June 28, 2000)
“The Federal Open Market Committee at its meeting today decided to maintain the existing stance of monetary policy, keeping its target for the federal funds rate at 6-1/2 percent. Recent data suggest that the expansion of aggregate demand may be moderated toward a pace closer to the rate of growth of the economy’s potential to produce. Although core measures of prices are rising slightly faster than a year ago, continuing rapid advances in productivity have been containing costs and holding down underlying price pressures.
Nonetheless, signs that growth in demand is moving to a sustainable pace are still tentative and preliminary, and the utilization of the pool of available workers remains at an unusually high level.
In these circumstances, and against the backdrop of its long-run goals of price stability and sustainable economic growth and of the information currently available, the Committee believes the risks continue to be weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future.”

Minutes (delayed information):
1. The Bundesbank keeps summary (not verbatim) minutes. These are kept secret for the public for 30 years.[Amtenbrink (1999), dissertation, p. 310]
2. As noted above, in 1976 the FOMC discontinued the memoranda of discussion (or ‘memoranda of understanding’) (sort of summary minutes), which it used to publish with a five year delay.[See also Amtenbrink (1999), dissertation, p. 312-3]
However, late 1993 staff of Congressman Gonzalez (a long-time critic of the Fed) more or less stumbled on to the fact that the transcripts of the audio tapes of the FOMC meetings, meant to be of help in preparing the minutes, had never been destroyed.
This had been known to Greenspan and at least one other Fed governor. The upshot was that the transcripts of each year’s meetings – lightly edited verbatim records of the deliberations, with redactions for sensitive information related to foreign governments or specific businesses or individuals – are again being released with a lag of five years. [John Berry (1996a), p. 44]
The reports on the FOMC meetings containing the policy directives to the New York Fed used to be called ‘policy record’ (officially: ‘Record of Policy Action’). These records, which since 1976 had been made available within a few days after the next regularly scheduled meeting, were not complete enough to be called ‘minutes’. In 1994 the character of these records changed somewhat (we quote Berry (1996) on this): ‘Beginning in 1994 the “policy record” became [more like] “minutes”, with much more detail about precisely who was present, the major points raised in discussing the state of the economy and the arguments supporting various policy options. However, one thing has not changed: no participant’s views are identified by name unless a member dissents from the committee’s policy decision.’ [John Berry (1996a), p. 44. Examples of dissenting votes and the presentation of their arguments can be found in most Annual Reports of the Board of Governors of the Federal Reserve System, which contain minutes of all FOMC meetings]
In other words, these summary records take the form of ‘non-attributed minutes’, i.e. minutes showing the information available to and the discussion
within the committee, but not showing who used which argument (‘non-attributed’). At the end of each meeting the committee always takes a vote on the instructions to be given to the FRB of New York, the executive arm of the FRS. The minutes show how each individual member has voted. These non-attributed minutes are published shortly after the next FOMC meeting.[For more details on how the FOMC comes to a decision, see Art. 12.2, section I.2, in cluster III]

Since March 2002 the votes are published earlier, viz. as part of press release immediately following the FOMC meeting. Apart from the votes there is no
obligation to publish. However, the FOMC does publish its Record of Policy Action, shortly after the FOMC’s next meeting. This Record mimics ‘the [Government in the Sunshine] act’s minutes requirements, in that it contains a full and accurate report of all matters of policy discussed and views presented, clearly sets forth all policy actions taken by the FOMC and the reasons therefore, and includes the votes by individual members on each policy action.’ [….] The timing of release of the Record of Policy Action is fully consistent with the act’s provisions assuring against premature release of any item of discussion in an agency’s minutes that contains information of a sensitive nature.’ [FOMC Statements of Policy (3/94), Section 281.2 – Policy Regarding the Government in the Sunshine Act]

After a short stint in the European Exchange Rate Mechanism (October 1990 – September 1992) the UK monetary authorities switched to a strategy of direct inflation targeting (applicable as of 1993). In order to gain credibility the monetary authorities decided to become more transparent about the decision-making process by publishing the minutes of the monthly meetings of the Chancellor of the Exchequer and the governor of the Bank of England with a six weeks delay, showing their positions and possible disagreements and the Chancellor’s decision.[In an interesting exercise Eijffinger, Hoeberichts and Schaling show that if the credibility problem of a central bank is large relative to the need for flexibility, optimal central bank institutions will be very open and transparent. The reverse is also true: if the credibility problem is small relative to the flexibility problem, society may benefit from uncertainty about the policymaker’s preferences, for uncertainty (non-predictability) leads to lower variance of output, under circumstances outweighing the costs due to more monetary uncertainty. See Eijffinger, Hoeberichts and Schaling (2000), ‘Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique’, in Journal of Credit, Money and Banking, Vol. 32, No. 2 (May 2000)] In connection with the newly established inflation targets, the BoE began publishing in February 1993 a quarterly inflation report which reveals both the current inflation and the prospects of inflation over the next 18-24 months. [See also Amtenbrink (1999), pp. 323-3. As of September 1993 the Chancellor announced that the inflation
reports no longer required the approval of the Treasury.] [At the time of writing the ESCB Statute the situation in the UK had been radically different. In these days to BoE was strictly subservient to the Treasury. Public justification both of the objectives of monetary policy and of its tactics for reaching such ends, lay with the Chancellor and the government (Blinder, Goodhart, Hildebrand, Lipton and Wyplosz (2001), How Do Central Banks Talk, International Center for Monetary and Banking Studies/Centre for Economic Policy Research, p. 84-85]
The Bank of England Act 1998 granted the BoE more independence. The act stipulates new rules for the bank’s communication policy: the minutes of the monthly meetings of its new decision-making body, the Monetary Policy Committee (MPC), have to be published before the end of the period of 6 weeks beginning with the day of the meeting. [Bank of England Act 1998, section 15. An exception is made for those parts of the minutes relating to decisions to intervene in the financial markets, the publication of which would be likely to counteract the proposed measure. These parts of the minutes are published with a safe delay.] The minutes are de facto made available on internet after two weeks. The minutes give an overview of the discussion, but do not attribute arguments to individual members referred to by name. The minutes do show how in the end each individual MPC member voted.
4. The ECB keeps summary minutes, which are kept secret for 30 years. The minutes on the monetary policy discussions are nameless, except for the names of the Executive Board members who introduce the topic.[In practice, the Executive Board member responsible for the monetary and economic analysis usually starts off with an introduction on the monetary, economic and financial environment and an interest rate proposal. (This is unlike the procedure at the FOMC, where Greenspan only formulates a proposal after having heard all committee members, and the Bank of England where the governor formulates a proposal at the end of the meeting.)] Both the president of the eurogroup and a member of the Commission are allowed – in a non-voting capacity – to attend the meetings, guaranteeing the policy dialogue with the political authorities is permanent and real-time.
Nonetheless, the eurogroup president and the Commissioner are bound to secrecy, even in their relations with their colleagues, as regards confidential aspects of the discussion (e.g. the individual views).

Therefore based on existing practices, we could devise the following spectrum of openness,
going from open to restrictive:
1) Verbatim (or sometimes edited) proceedings (taped material). Practised by: the Fed, with a five year delay.
2) Attributed minutes including individual votes. Not practised by any of the central banks mentioned.
3) ‘Non-attributed’ minutes (a de-personalized summary of the discussion showing the arguments pro and con) plus voting preferences of the individual members. Practised by: the FOMC and the Bank of England’s MPC. FOMC members who are outvoted have their minority view explicitly included in the minutes. These (summarized) FOMC minutes are published after the committees’ next meeting, the individual votes are published immediately.
4) ‘Non-attributed’ minutes, only showing the number of votes for and against the decision, but not the individual votes. Not practised by any of the central banks mentioned.
5) ‘Non-attributed’ minutes (presenting the exchange of arguments) and the decision itself without any reference to votes. Not practised by any of the central banks mentioned.
6) The decision and only ‘selected’ arguments, viz. mainly those supportive of the outcome Practised by: the Bundesbank in the past and now by the ECB, an important difference being the ECB’s regular press conference, which allows for more colouring of the decision made.
7) Presenting only the decision. Practised by: the Bundesbank.
8) Not even presenting the decision. Practised by: FOMC before 1994.
For some recommendations in this area, see Chapter 5.4.

Comparing the Fed and the ESCB
Though the Fed is usually characterized as an open and transparent institution, this is based on how the Fed behaves in practice, and not the Federal Reserve Act. At the time of drafting of the ESCB Statute, the FOMC did not even publish the outcome of its decisions immediately.
The markets had to gauge the outcome by looking at the actions by the New York Fed, which executes the open-market operations of the System. The openness required by the FRA is limited to ex post accountability: public and Congress must be able to judge how well the Fed has acquitted itself of its monetary tasks. The Fed has long had a preference hiding its intentions. Under Greenspan the Fed has become more open, though only gradually. In the
early years of his chairmanship Greenspan defended the Fed’s policy of not showing its hand.
Greenspan’s attitude however has changed since 1994, though there is no clear trigger for this change. In practice the markets understood pretty well what the Fed was doing. Nor has Congress asked the Fed to be more transparent (apart from the request to publish – with a delay – the transcripts which turned out to be still existing). Nonetheless, the Fed, the markets and politicians seem quite pleased with the change.[Blinder c.s. (2001), p. 66-70]
The ESCB has known a similar development. For its days the ESCB was designed neither as a conservative nor as a progressive institution in terms of openness and transparency.[Though for instance the coordination with the Executive branch (Ecofin) is more formalized in the case of the ESCB – see Art. 109b-EC – than in the case of the Fed, because in the ESCB’s case the chairman of the Ecofin (and a member of the Commission) formally attend the meetings of the Governing Council, while in the US contacts with the Administration are not based on legislation.] In practice, the ECB’s first president Duisenberg has taken several steps to increase the ECB’s transparency: he holds monthly press conferences, briefs the European Parliament on the monetary and economic situation at least four times a year (see Art. 109b-EC), while the ECB also uses its Monthly Bulletin to explain its policy stance. This is not to say transparency could not be improved.

II.1 History: Delors Committee
The Delors Committee touched upon the issue of accountability at several instances, though this did not lead to in-depth discussions. A first paper paying attention to this topic was a paper by Thygesen, expert member of the committee. In his paper, dated 31 October 1988 and called ‘A European central bank system – some institutional considerations’, he dedicated one section to ‘Autonomy and Accountability’.[A revised version (not including this section) was included in the Collection of papers submitted to the Delors Committee (which were attached to the Report)] He framed the need for accountability in terms of how to organize a constructive dialogue between the central bank system and the political authorities (while actually he should have focussed on forms of democratic legitimacy).
Thygesen saw four possible venues: (1) regular reporting to the Ecofin, inspired by the Humphrey-Hawkins hearings in the US; (2) a monitoring role for the Monetary Committee; (3) the right for the ESCB president and the president of Ecofin (and of the Commission) to be present at each others meetings; (4) six-monthly reporting to the Monetary Affairs Committee of the European Parliament. In terms of democratic legitimacy the last venue is the best, because these sessions would be public and European Parliament is a supranational body, while the Ecofin in fact is no more than an intergovernmental body, of which the members (the ministers) are responsible not to a European body, but to their national parliaments. The other venues are useful coordination mechanisms.
In the first version of the so-called skeleton report of 2 December 1988 it was signalled that ‘the system should be subject to democratic control and therefore accountable for its actions and policies; [How? Does the formulation of the mandate suffice? Should there be regular reporting? On what? To whom? Council of Ministers? Monetary Affairs Committee of the European Parliament? ]’ [CSEMU/5/88, p. 15]

In the final version of the Delors Report the sub-paragraph on accountability would read as follows:
‘- accountability: reporting would be in the form of submission of an annual report by the ESCB to the European Parliament and the European Council; moreover, the Chairman of the ESCB could be invited to report to these institutions. [….]’ [Delors Report, par. 32] Another paragraph contained proposals for a coordination procedure between ESCB and Ecofin.[This is treated under Art. 109b-EC]

We conclude that the Delors Report did not pay attention to the ESCB’s communication policy. There was no tradition in Europe of publishing internal votes or to release the minutes of the central banks’ decision-making bodies. (This is quite understandable for those countries which followed a hard-currency policy, as the markets could only get one message to prevent any attacks on the currency). The Delors Committee focussed its attention on balancing the ESCB’s desired independence with accountability in terms of reporting to the European Parliament and by institutionalizing a dialogue between the ESCB and the political authorities. Informing the public or the markets were not considered as topics in themselves.

II.2 History: Committee of Governors
The first reference to the confidentiality of the proceedings appears in the draft ESCB Statute of 22 June 1990.
“Article 9 – The Council
9.4 The proceedings of the meetings shall be secret. The Council may authorize the President to make the outcome of its deliberations public.”

– draft 22 June 1989

A comment was added stating that the following: “Confidentiality: With respect to Article 9.4, consideration should be given to the question of the releases of minutes following a certain time lapse.”[In English ‘proceedings’ could mean both the records of the meetings or the meetings themselves. In the
authorized French version this part reads: ‘Les réunions sont confidentielles.’ In German it reads: ‘Die Aussprachen in den Ratssitzungen sind vertraulich.’ These translations seem to indicate that individually expressed opinions have to be kept secret; this is also true for the English, otherwise the drafters could have written ‘the proceedings are confidential’. It is therefore not clear what the drafters had in mind when they wrote in their early commentary that minutes could be released after a certain period. Anyhow, there is only express authorization to make the outcome public.]

Late June the article was edited into: ‘[t]he proceedings of the meetings shall be confidential. The Council may decide to make the outcome of its deliberations public.’ The special external role of the president of the ECB was as of then captured in another article (Art. 7.3, later Art. 13.2). The governors did not discuss Article 9.4 during their meeting on 10 July (nor during their meeting in September and November). In the draft of 13 July, the specific comment which was quoted above had disappeared.

The final version of the draft ESCB Statute contained the following text:
“Article 10 – The Council
Art. 10.4 The proceedings of the meetings shall be confidential. The Council may decide to make the outcome of its deliberations public.”

– draft 27 November 1990

The accompanying Commentary does not spend a remark on Article 10.4. The phrase ‘transparency’ does appear in the Introductory Report, which was sent to the IGC together with the draft ESCB Statute of 27 November 1990. However, transparency was limited to regular reporting:
‘ (e) Democratic accountability of the System
Transparency is an important element of democratic accountability. To this end, the Statute calls for the preparation of an annual report which the President of the Council [of the ECB] shall present to the European Council, the Council of the European Communities and the Parliament. The transparency of the System is further enhanced in Article 15 by enabling the President of the Council of the European Communities and a member of the Commission to
attend meetings of the Council of the ECB. In addition, the ECB will report regularly on the activities of the System and will publish consolidated financial statements of the System.’

– Introductory Report accompanying the draft Statute of 27 November

From today’s perspective one might ask why the issue was not more discussed. The answer probably is that the European central bankers were used to convincing the financial markets without the votes of the their board members being published. In addition, governors might very well have seen the confidentiality of their discussions in the Governing Council as an important way to protect their personal independence, in other words to prevent the
recurrence of national pressures.[This argument is shared by Blinder c.s. (2001, p.50 and p. 63-64), though they recommend to publish the overall voting pattern without names. Their argument in favour of publishing the overall voting pattern, however relates to the optimal way to inform the financial markets, and not to the issue of democratic accountability.]

II.3 History: IGC
The article was not discussed during the IGC. No delegation raised the issue of non-publication of the minutes of the ECB’s Governing Council. (The only change was that ‘Council’ was replaced by ‘Governing Council’.) This might surprise as seen from today, but in those days monetary policy, especially for the members of the Exchange Rate Mechanism of the European Monetary System, was considered to be secretive business. Any openness creating ambiguity could trigger reactions in the foreign exchange markets. Also, there was no precedence in Europe of a central bank publishing how the members of its directorate voted, the emphasis lying on collegial decision-making and not on individual accountability.

Article 11.2 and 11.7: [Also contains a description of the genesis of Art. 11.1 (at the end of section II.2) and of Art. 50 (at the end of section II.3)]

Article 11.2 and 11.7: Executive Board
“11.2 In accordance with Article 109a(2)(b) if this Treaty, the President, the Vice-President and the other Members of the Executive Board shall be appointed from among persons of recognized standing and professional experience in monetary or banking matters by common accord of the governments of the Member States at the level of the Heads of State and Government, on a recommendation from the Council [of Ministers] after it has consulted the European Parliament and the Governing Council.

Their term of office shall be eight years and shall not be renewable.

Only nationals of Member States may be members of the Executive Board.”

“11.7 Any vacancy on the Executive Board shall be filled by the appointment of a new
member in accordance with Article 11.2”
(to be read in conjunction with Art. 7-ESCB (independence); Art. 10.2 (one person, one vote within Governing Council); Art. 11.1 (Executive Board composed of six persons); Art. 11.3-4 (conditions of employment and dismissal); Art. 11.5 (one person, one vote within Executive Board); Art. 14.2-ESCB (appointment NCB governors); Art. 109a2(b)-EC (reflecting Art. 11.2-ESCB); and Art. 50-ESCB (initial appointment))

I. Introduction
I.1 General introduction

The issue at stake here is the risk that the Executive Board members might start behaving like political appointees, trying to please their ‘appointeurs’. The non-renewability is one safeguard against this, though it does not protect against the risk that a board member aspires a political or civil service career after his term.[Some recommend that the term of office of the individual board members is set at such a length it will end with a compulsory retirement age (e.g. 70 years), with the appointment age set at a minimum of 45 and a maximum of 55 years. The chairman could be chosen for intervals of say five to ten years from among them. (Neumann (1991), Open Economies Review 2, p. 104-105; see also Endler (1998), p.436)] The non-renewability is a unique figure in the constitutional structure of the EU. Both the Commissioners, the Judges of the Court of Justice and the members of the Court of Auditors can be reappointed.[See Article 158(1), 167 and 188b(3)-EC respectively] The length of the term of office for the executive board members (8 years) is another ‘safeguard’, in that it contributes to a strong so-called ‘Becket-effect’, which stands for the phenomenon that people tend to start defending the interests of the organization they have entered rather quickly, especially when this organization is independent; in other words they lose very quickly their loyalty to their former employer.[See for a description Endler (1998, p.249). The phrase refers to Thomas Becket who became Archbishop of Canterbury after having served as the King’s Chancellor of the Exchequer and his adviser. When bishop he became a relentless critic of the King’s usurpation of power. (In 1170 he was killed by vassals of the King ….)] There is also no upper age limit, which could have reduced the length of their term. Their term of office is relatively long compared to that of the Commissioners (5 years)[Four years at the time of the negotiations. It would become five years with the Treaty of Maastricht. See Article 158(1)-EC (ex-Article 11-Merger Treaty).] and the members of the Court of Justice and the Court of Auditors (both 6 years).[Article 167 and Article 188b(3)-EC (ex-Article 206-EEC) respectively]. Salaries for the executive board members are such that they do not constitute an incentive for the members to leave mid-term for financial reasons. [The terms and conditions of employment of the Executive Board members are set according to a procedure laid down in Article 11.3-ESCB. The salary of a member of the Executive Board is about 10 per cent higher than the highest Director-General’s salary at the European Commission. The salary of the president is 40 per cent higher than the salary of an Executive Director. (Answer by the British PM to questions of the Commons (written procedure 17 May 1999). This can be calculated to be around euro 390.000 per annum.) According to the Guardian of 16 July 1998 Duisenberg promised the European Parliament to reveal his salary. The salaries of the EU central bank governors vary: in 1996 the salary of the Bundesbankpresident was estimated at DM 600.000 (around euro 300.000) (See Endler (1998), p. 437.)]

The appointment procedure contains three safeguards against the appointment of political ‘cronies’. First, the appointment decision requires unanimity among the governments of the participating Member States. Second, nominees have to be of a good professional reputation.
One could wonder whether a minister of finance without a previous banking or academic career in economics could be regarded as such. In this respect it is significant that the Luxembourg prime minister (and ex-minister of finance) Jean-Claude Juncker has said in public – in reaction to rumours he would succeed the ECB’s first president, Wim Duisenberg – that he did not consider himself qualified.[‘Der luxembourgische Premierminister meinte, ein Politiker, der kein Währungsfachmann sei, dürfe für den EZB-Spitzenposten ohnehin nicht im Frage kommen.’ (Article in the German newspaper Handelsblatt of 5 July 2001, based on interview with Juncker.)]
On the other hand, neither does it seem necessary to require that board members be recruited from among (ex) central bankers. See for instance the experience of the Fed: since the reform of the FRS in 1935 none of its chairmen had served on the Board previously and only Paul Volcker had first won his spurs as head of a regional Reserve Bank.[Majorie Deane (1996)] Nonetheless, a young organization could strongly benefit from previous central banking experience.[In this respect the ECB is fortunate that four out of the six first-appointed members of the first Executive Board have a central banking background: Duisenberg (ex president of the Nederlandsche Bank and of the European Monetary Institute), Hämäläinen (ex governor of the Finnish central bank), Issing (ex member of the Direktorium of the Bundesbank) and Padoa-Schioppa (ex vice governor of the Banca d’Italia). Noyer had made a
career in the French Trésor and Domingo Solans was an academic with banking experience.] 
Third, the ECB Council has to be consulted. (The fact that the board members are appointed by the Heads of State in itself strengthens their positions vis-à-vis the ministers of finance – compared to the situation in which the ministers would have appointed them.) There is also protection against so-called ‘personal unions’, i.e. a person serving at the same time in the legislative, judicial or executive branch (in our case: the central bank), as Art. 11.1-ESCB determines no board member shall be otherwise employed, gainfully or not, unless expressly approved by the Governing Council. (The Committee of Governors had already been proposed such a rule in Art. 11.1 of their draft ESCB Statute.)

Continuity of experience within the Board is guaranteed by the procedure of Article 50 which foresees staggered (non-overlapping) terms of office. However, this could be undermined by Article 11.7 (any vacancy, also mid-term ones, will be filled by new candidates appointed for 8 years). This could lead to some clustering in the terms of office. An alternative would have been to make persons who are appointed within a term, reappointable for the next full term, like in the US.

Traditions among member states varied at the time of the Delors Committee. The terms of office varied from unspecified (and no protection against dismissal) (Banque de France) to 8 years (Bundesbank) and in practice indefinite (the governor of Banca d’Italia).[According to the letter of the Italian bank law the term of office is ‘unspecified’. However, it is very difficult for the Italian government to remove the governor (see table 2-3)] In the meantime, i.e. after the signing of the Treaty of Maastricht, the statutes of the NCBs have been brought in line with the ESCB Statute, meaning that the term of office of each national central bank governor has been set at a minimum of 5 years, while at the same time they enjoy protection against politically motivated dismissal (see Article 14.2). Table 2-3 shows the situation of 1989: term of office, possibilities of reappointment and the procedure for, casu quo the protection against removal from office.
In order to complete the picture, table 2-4 shows the new situation of all present euro area NCBs. The table shows the names of the governors, their term of office, the end of their present term, the term of office of their colleague directors (which is sometimes different from theirs). The end of the term of office of the present Executive Board members is also shown to give a complete picture.

Table 2-3: Terms of office NCB governors before EMU (situation in 1989) [Sources: see footnote with table 2.1 (Art. 2). Length of term of office of the members of the Executive Board or Board of Directors/Governors was usually the same as that of the governor/chairman, with the exceptions of Belgium and Ireland. Dismissal procedures were usually more difficult in case of the governor.] Note 13: Danish central bank governors have never been removed from office. For instance, at the time of the Delors Committee Eric Hoffmeyer had been serving for 30 years as central bank governor (1965-1995). Note 14: Bundesbankgesetz (1957), Article 7(2): ‘[….] Die Mitglieder werden für acht Jahre, ausnahmeweise auch für kürzere Zeit, mindest jedoch für zwei Jahre bestellt. … Note 15: The directive is given by the Minister of Finance. There is the possibility of appeal to the Cabinet. If the Cabinet supports the instruction given by the Minister of Finance, the governor may be removed from office (section 23 Bank Act). The Bank’s objections and the government’s reasons for overruling these have to be published in the National Gazette, which would seriously harm the position of the government (usually coalition governments) in Parliament. Such instruction has never been given. One government is supposed to have come close, see Memoirs of Dutch central bank governor, J. Zijlstra (1992), Per slot van rekening, p. 215/6.

Each of the seven members of the Board of Governors is appointed for 14 years by the president of the US by and with the advice and consent of the Senate. [FRA (1988), Section 10.1] Each even-numbered year one seat becomes vacant on 31 January.[The term of office used to be ten years until 1935. In that year the number of presidentially appointed board members increased from five to seven (and two Treasury persons left the board). To uphold the two-year rule the term of office was increased to 14 year. See footnote in section I.2 of Article 7 above.] Reappointment is not possible, once a full term has been served (i.e. someone has been appointed within a term, can be reappointed for a full term).[FRA (1988), Section 10.2. See also the last page of section II.3 below]
The chairman and the vice chairman of the Board of Governors are designated for four years from among the governors by the president, by and with the advice and consent of the Senate; both can be reappointed for additional terms for as long as they remain on the Board.[FRA (1988), Section 10.2]
Laurence H. Meyer (former member of the Board of Governors) observed that the short, renewable term for the chairman enhances accountability and encourages a strong working relationship between the chairman and the executive and legislative branches.[L. H. Meyer (2000)]

This power of the President to designate (and thereby to dismiss) the chairman was introduced in the Banking Act of 1935, which abolished the ex officio membership and chairmanship of the Secretary of the Treasury. (This power has not been undisputed – see Cushman (1941), p.682-685, who interestingly mentions that the Interstate Commerce Commission and the Federal Trade Commission choose their own chairmen. According to some this power to designate the chairman injected presidential influence, if not dominance, in the ndependent Regulatory Commissions and would tend to undermine their independence.) Whenever a new chairman is appointed, the former chairman traditionally resigns from the Board of Governors, opening (another) seat for the President to appoint a new governor.[Akhtar and Howe (1991), p. 346] 

The presidents of the FRBs are appointed by each FRB’s own board of directors for terms of five year (renewable).[FRA (1988), Sections 4(4). The board of directors may dismiss its president ‘at pleasure’.] Their appointment needs the approval of the Board of Governors, which may also dismiss them. Five of the twelve FRB presidents are elected annually as member of the FOMC by the boards of directors of the FRBs based on a system using fixed groups of Federal Reserve districts.[FRA (1988), Section 12A(a). See for more details the penultimate footnote of section II.2 below and Article
10.2, section I.2 (in cluster III)] The chairman of the Board of Governors is traditionally elected chairman of the FOMC by the FOMC members during each year’s first FOMC meeting.

Other interesting details are that the President ‘in selecting the members of the Board, not more than one of whom shall be selected from any one Federal Reserve district, […] shall have due regard of the financial, agricultural, industrial, and commercial interest, and geographical divisions in the country.’[FRA (1988), Section 10.1. See for a background Art. 7, section I.2 (footnote [21]) above and Art. 10.2, section 10.2, section I.2 (cluster III)] ‘The members of the Board shall be ineligible during the time they are in office and for two years thereafter to hold any office, position, or employment in any member bank, except that this restriction shall not apply to a member who has served the full term for which he was appointed.’[FRA (1988), Section 10.2.] Salaries of the members of the Federal Reserve Board are relatively low compared to the private sector, which might explain that not all Board members finish their term.[In 1991 the salary of a Fed governor was $ 145,115 with Greenspan making only slightly more. This is considerably less (around 25 per cent) than some top notch officials of the Federal Reserve Banks, that are technically private corporations and set their own guidelines (though in principle subject to approval by the Board of Governors). A more recent figure for Greenspan, mentioned in a 2004 issue of Central Banking, is $ 172,000] The average actual tenure of members of the Board of Governors has been between five and six years over the last twenty-five years.[Laurence H. Meyer (2000)]
The average actual term of office of the chairmen stay is significantly higher, i.e. an average of eleven years when we take out the short term of office of Miller, whose tenure ended quickly, because he was appointed Secretary of the Treasury.[Years in office of Fed chairmen: Eccles 1934-1951; McCabe 1948-1951; Martin 1951-1970: Burns 1970-1978; Miller 1978-1979; Volcker 1979-1987; Greenspan 1987 – present]

Table 2-4: Terms of office members ESCB Governing Council (situation of January 2004

Table 2-4: Terms of office members ESCB Governing Council (situation of January 2004 Notes: 16. Sources: national central bank laws (available on web site ECB →publications → legal documents) as of 2002 (Ireland 2003). For national appointment procedures and references to NCB laws see table 2.5 (Art. 14.2). 17. The Bundesbank law has been adapted to the new situation by reducing the size of the Zentralbankrat, consisting before out of eight Executive Board members and nine Landeszentralbankpresidenten. The Finance Ministry’s proposal to discontinue the membership of the LZB presidents led to fierce opposition by the Länder. In the end, the Ministry’s proposal was passed by the Bundesrat, with a stroke of luck with a majority of one vote. 18. Presidential system. The president is assisted by two deputy governors (appointed for six years). A Monetary Policy Committee (governor, his two deputies and six other members (appointed for nine years) decides on (non-daily) operational issues. 19. Presidential system. The president is supported by a three-member Directorate. A Board of Directors (the Governor plus thirteen members (each appointed for five years)) is responsible inter alia for decisions on the Bank’s operational framework. The Board also decides on appointment and dismissal of the Governor and the (Deputy) Directors-General, which decisions have to be approved by the Italian president 20. In February 2002 the first President of the ECB, Wim Duisenberg, appointed for 8 years in June 1998, announced he would step down on 9 July 2003 in view of his age (when he would reach 68). In spring 2003 he was requested to stay longer to allow for the (hoped-for) acquittal of his expected successor Trichet from a court case relating to the period Trichet had been head of the Trésor and problems had started at the state-owned bank Credit Lyonnais, the scope of which became only clear much later. The positive outcome of the case allowed Trichet to take over the presidency as of 1 November 2003.

Comparing the Fed and the ESCB
An important element of the checks and balances in the US is that the constitutional prerogative of the President to appoint the U.S. government officials is counterbalanced by the requirement of senatorial consent and in case of positions requiring distance to (independence from) the Executive branch staggered appointments and/or long to very long tenures [United States presidents may not serve more than two full terms (rule introduced in [1948])] and restrictions for presidential dismissal.[See for methods of removal in case of independent governmental agencies Cushman (1941), p. 760]
In case of the Fed a balance was also found between the influence of the private versus the government sector (for which the private sector character of the FRBs was an important tool), while the chosen federal structure also prevented possible dominance by one region, e.g. the eastern (financial) states. In Europe there was no clear need to find a balance between public and private interests, nor between the different governmental branches (i.e. the Executive and Legislature), as the European legislature play(ed)(s) a relatively minor role.[The similarity though is that one did not want to create a dominant central institution: in Europe one wanted to preserve a substantial role for the NCBs, as they brought with them the connection with the banks and a lot of
relevant knowledge, while their continued existence might also have been seen as a way to enhance the credibility of the System vis-à-vis the financial markets. At the same time a large federal board is less sensitive to political pressure than a small board.] The drafters of the ESCB Statute focussed on finding a balance between the ESCB and the political authorities. They could have opted for appointment by one body and consent by another. However, this was unusual practice. Instead one choose for appointment by unanimity,[The requirement of unanimity was probably felt to add to the independence (or at least incontroversiality) of the appointees, especially if appointed by the Heads of State. Incontroversiality could also be attained by involving other branches/bodies in the appointment procedure. Indeed, this would imply a broader based, more ‘democratic’ procedure – we will come back to this in chapter 5.4] protection against dismissal, long and staggered tenures and profession-related eligibility criteria (professional experience in banking or monetary matters).

II.1 History: Delors Committee
One of the early drafts of the Delors Report [CSEMU/5/88, 2 December 1988] mentioned that the Board members should ‘be appointed for a term of office of [eight] years by the European Council.’ Eight years coincided with the term of office for Bundesbank board members. This formulation was in line with the paper submitted by Pöhl earlier to the Delors Committee in September 1988.[Reprinted in the annex of the Delors Report. The paper followed exactly the content of an earlier internal position written for the Zentralbankrat of the Bundesbank in April 1988. To be more exact Pöhl’s paper stated
that ‘the personal independence of the members of the respective organs [should be] assured by their being appointed to office for a period of at least eight to ten years without the possibility of their being removed from office for political reasons.]

However, during the meeting of the Delors Committee on 13 December Pöhl distributed another document (‘Outline of a Report to the European Council’), which was less strict than the Bundesbank’s earlier position. On the appointment it refrained from mentioning a specific number for the term of office – it only mentioned:
‘nomination of members of the Directorate for relatively long periods on an irrevocable basis.’

This formulation was taken aboard in the draft version of the Delors Report of 31 January 1989 [CSEMU/10/89, 31 January 1989, p.15]:
‘- appointment of members of the Board for relatively long periods on an irrevocable basis.’ [Pöhl’s December document would also be confusing as to the mandate of the ESCB, which was phrased in relatively vague terms and which he apparently had meant as a compromise.]
The draft version of 31 March [CSEMU/14/89] again specified a length for the term of office for the Board:
‘appointment of the members of the Board by the European Council on the proposal of the ESCB Council; the tenure of Board members would be for five to seven years and would be irrevocable.’ [For unknown reasons the governors dropped the 8 years. In general the need for a relatively long tenure was
shared among the governors, though some considered it to be for the political authorities to decide on the exact number.]
During the final long-lasting meeting of the committee on 11-12 April 1989 it was decided to strengthen the independence of the system by making clear that the personal independence extended not only to the Executive Board members, but also to the governors of the central banks. This meant the indents mentioning the governors and the board were integrated. As a by-product the number of years for the tenure of the board members again disappeared (as
indeed the tenure of board members and governors could differ). The text mentioned the need of appropriate security of tenure for both board members and governors:
‘- Independence: the ESCB Council should be independent of instructions from national governments and Community authorities; to that effect the members of the ESCB Council, both the Governors and the Board members, should have appropriate security of tenure.’ [The expression (‘appropriate tenure’) should probably be read as referring both to a minimum length of office and to protection against dismissal at will or for political reasons – see Art. 11.4-ESCB]
– Delors report, par.32

II.2 History: Committee of Governors
The first preliminary draft of the Statute of 11 June 1990 read as follows:
“Article 9.1 – The Board of Management
9.1 The Board of Management shall comprise, in addition to the President and the Vice-President, no fewer than [three] and no more than [five] members. ./.
The members of the Board of Management shall be selected for their monetary or banking expertise; their independence shall be beyond doubt. [The independence of the institution was dealt with elsewhere. Here, independence refers to their being independent experts.]
The members shall perform their duties on a full-time basis. [….]
9.2 The President shall be appointed by the [European Council] [Council of the European Communities], after the Council of the ESCB has given its opinion, which shall be confidential. The appointment shall be subject to confirmation by the European Parliament. If it is not confirmed, a unanimous decision of the [European Council] [Council of the European Communities] shall be required. Failing that, a new procedure shall be initiated.
9.3 The Vice-President and the other members of the Board of Management shall be appointed by the [European Council] [Council of European Communities] on a proposal from the [Council of the ESCB] [and] [the Commission, after the Council of the ESCB has given its opinion].
9.4 The members of the Board of Management shall be appointed for a period of [five] [eight] years. [They may be re-appointed once.] [They may not be re-appointed.]
– draft 11 June 1990

A footnote mentioned one Alternate had suggested the President should not necessarily be a member of the (Executive) Board, but could also be chosen from among the governors. [A complication would arise if the president was chosen from among the governors: would he then remain NCB governor as well? For those who favoured a strong centre this was not an attractive option, because it would weaken the board. (Internal note of the Nederlandsche Bank, BK078e, 27 June 1990). Furthermore, it would not be consistent with the requirement that the board members would perform their duties on a full-time basis. This idea would be dropped during the Alternates meeting of 29 June. (The members of the Court of Justice choose their president from among themselves for a period of 3 years, but of course the judges are full- time employed by the Court of Justice.)]
During the meeting of the Alternates on 18 June 1990 the Commission representative supported the chairman’s proposal to involve the European Parliament only in the procedure for appointing the president, and not in case of the other members, for fear of triggering political infighting in the European Parliament, if parliament were to be involved in giving an opinion or confirming all board members. During the same meeting Lagayette (the French Alternate) indicated he opposed (i) using different appointment procedures for the president and the other board members and (ii) giving a role to the Commission in this procedure.
During the 10 July meeting the governors would decide in favour of a term of office of eight years. They also decided board members would be re-appointable once, with the exception of the president. They also agreed on the proposal that the other members of the Board (i.e. not the president) should be appointed by the European Council on a proposal by the ESCB Council. Apparently they were afraid of the possibility of political appointments. [Hoffmeyer had even proposed to apply the same procedure, i.e. appointment ‘on the proposal of the Council of the System’, to the appointment of the president. However, others felt such proposal might raise (political) ‘difficulties’.]

However, during their meeting on 11 September it was agreed, at the suggestion of the chairman, that ‘in order to give due regard to democratic accountability, the other members of the Executive Board would be appointed by the European Council after consultation with, and not on a proposal from, the Council of the System.’[Minutes of 11 September 1990. No arguments shown] It was also agreed, at the suggestion of the chairman, to delete the issue of re-appointment for the president as well as for the other board members. [Reason unknown. Deletion clearly opened the door for re-appointment (even more than once). (See also Viebig (1999), p. 453.) One possible argument might have been that the governors feared it would render it difficult to attract qualified people in case of a short and not renewable term of office. But this would imply they considered eight years to be short. They may also have had in mind the tradition of e.g. the Bundesbank and the Nederlandsche Bank, with traditionally long-serving (and re-appointed) presidents.] During the meeting on 10 July 1990 it had already been decided that no member of the Executive Board, with the exception of the president, should hold office beyond the age of sixty-five.

By early September the new draft read:
“Article 10 – Executive Board
10.1 The Executive Board shall comprise the President, the Vice-President, and 4 other members.
The members of the Executive Board shall be selected among persons of recognised standing and professional experience in monetary or banking matters.
The members shall perform their duties on a full-time basis. [….]
10.2 The President shall be appointed for a period of 8 years by the European Council,after the Council of the System has given its opinion, and after consultation with the European Parliament.
10.3 The Vice-President and the other members of the Executive Board shall be appointed, for a period of 8 years by the European Council after consultation with the Council of the System.
[The comments accompanying this article, shown in the draft versions of 22 June and 3 July 1990, might shed
light on why the president was treated differently: the draft version of 22 June articulated that the special appointment procedure for the president mentioned in Article 9.2 was meant to give the president higher profile. The draft version of 3 July added that the profile of the president could be strengthened by according the president the right to be consulted on the appointment of other Executive Board members]
10.4 With the exception of the President, no member of the Executive Board shall hold office beyond the age of 65.”

– draft 14 September 1990

During the governors’ meeting on 13 November 1990 it was decided to have the vice-president appointed in the same manner as the president. The age limit was dropped at the suggestion of the chairman, because the term of office of other Council members (governors) was not be subject to the same restriction. There is also no age limit for judges and advocates-general of the Court of Justice.

Another issue deserves attention here. During the governors’ meeting on 10 July 1990 a general consensus developed to apply the principle of ‘one man, one vote’ (see Article 10.2-ESCB), though a definitive decision was postponed, mostly because of German reservations.[At that moment it was still an option that the ESCB would be created early during stage two of EMU, which made Pöhl hesistant to accept ‘one man, one vote’, for he feared not all central banks would by then already have become independent. Indeed, Leigh-Pemberton showed himself in favour of ‘one man, one vote’, while also de
Larosière did not seem unwilling. (Both the British and the French central banks were not the epitomes of central bank independence.) Pöhl might also have been hesitant to share equal voting rights with smaller countries, though there are no indications in this direction. It should be remembered that the smaller central banks were traditionally more stability oriented (i.e. focused on exchange rate stability) than the larger ones.] At the same meeting the governors decided on the number of Executive Board members: they agreed on a board of six members (including president and vice-president).[Art. 11.1-ESCB]
This number was a compromise (among the Alternates there had been support for both five and six).[Art. 11.1-ESCB] The proportion between the board members and the governors (1:2) was not used as a yardstick. This would have been impossible, as a number of issues were still unresolved.
For instance, it had not yet been decided whether all board members would have a right to vote ‘or only the president’. Likewise, it was still undecided whether there should be among the governors ‘a system of rotation along the lines of the Federal Reserve?’, an idea at that stage repeatedly mentioned by the Bundesbank and which would increase the relative weight of the board and, depending on the rotation system, possibly of the larger NCBs [Taken from comments to Article 9 (draft version of 3 July 1990). In the Federal Reserve’s FOMC, created in 1935, the number of votes is limited to 7 votes for the board members and 5 for the presidents of the twelve FRBs. These five votes rotate among the 12 presidents. Of these five the financially most important district
(New York) received a permanent vote in 1942 (see Appendix 1). The ratio of 7:5 had been deliberately chosen to ensure enough clout for the board – see Art. 10.2b-ESCB in Cluster III. The discussion in Europe was not burdened with these kind of considerations: governors and board members were expected alike to behave in the interest of the euro area, ‘taking a corporate, objective view of Community monetary policy’ (quote from Leigh-Pemberton during Committee of Governors meeting of 10 July 1990)]

All these elements would have influenced the proportion between the votes of the board members and the governors (had that been an issue – quod non). During the September 1990 meeting it was first agreed to extend equal votes to all members of the Council (‘one person, one vote’).

This led to the following final text:
Article 11 – Executive Board
11.1 The Executive Board shall comprise the President, the Vice President and four other members.
The members of the Executive Board shall be selected among persons of recognized standing and professional experience in monetary or banking matters.
The members shall perform their duties on a full-time basis. No member shall, without approval of the Council [of the System] receive a salary or other form of compensation from any source other than the ECB or occupy any other office or employment, whether remunerated or not, except as a nominee of the ECB.
11.2 The President and Vice-President shall be appointed for a period of eight years by the European Council, after the Council [of the System] has given its opinion, and after consultation with the European Parliament. ./.
11.3 The other members of the Executive Board shall be appointed, for a period of eight years, by the European Council after the Council [of the System] has given its opinion.”

-draft Statute 27 November 1990

II.3 History: IGC
During the IGC the UK would show the strongest resistance against an eight year tenure (it preferred five years). However, they did not prevail. In a late stage it was decided to introduce staggered terms of office for the executive board members to prevent that the board would be renewed in its totality every eight years.
The Commission stuck to a term of office of eight years for the Executive Board members, but proposed to have them appointed, not by the Heads of State, but by the Council of Ministers (which should decide by unanimity).[The European Council is not a formal decision-making body – see under Article 1-ESCB, section I.1. It does not have formal decision-making powers. The governors probably had in mind appointment by common accord of the governments. This Commission suggestion was criticized a.o. by de Boissieu (France), who – rightly – pointed out the members of the Court of Justice and the Commission (!) are also appointed through common accord of the governments of the Member States, and not by the Council of Ministers (IGC deputies meeting of 12 March 1991)]

“Article 107.3
After discussion by the European Council and after consulting the European Parliament, the President and the other members of the Executive Board of the Bank shall be appointed for a period of eight years by the Council, acting unanimously.”
– Commission draft, 10 December 1990

The French draft mentioned a 5-year tenure.
“Article 2-5
3. Sur proposition du Conseil et apres consultation du Parlement européenne, le Président et les autres membres du Directoire de la Banque sont nommés pour cinques ans par le Conseil Européen.”

– French draft 25 January 1991

The German draft did not refer to a specific tenure, but instead referred to the draft Statute of the ESCB, which would become a Protocol annexed to the Treaty.

During a first discussion of the monetary chapter of the draft Treaty by the deputies IGC on 12 March, the UK (Wicks) and France (Trichet) were the only ones to show a preference for a tenure shorter than eight years. During the ministerial IGC held on 18 March, Waigel and Bérégovoy both stated that the tenure should be either ‘eight years and non-renewable’ or ‘five-years and once renewable’.[Clearly, France and Germany had discussed this in advance, but had apparently not been able to agree]
Carli and Kok recommended to stay close to the text of the governors, i.e. eight years. During the same meeting the German finance minster Waigel
mentioned three elements, important for Germany, which should safeguard the democratic legitimacy of the ECB: (1) ratification of the Treaty by the national parliaments, (2) appointment of the Executive Board members by the European Council on a proposal by the Ecofin Council and appointment of the NCB governors by their own governments, (3) the Ecofin Council and European Parliament should be adequately informed by the ECB.
Bérégovoy supported the appointment procedure as proposed by Waigel.[Internal DNB report of the IGC meeting of 18 March 1991, BK034, 19 March 1991]
The term of office issue was discussed again by the deputies on 10 May 1991. Köhler considered five to be on the low side. Zodda (Italy) expressed a preference for eight years.
The UK, Ireland, Greece and Luxembourg preferred five years and renewable. Trichet, Belgium and Portugal were neutral. Spain preferred seven years. Maas sided with Köhler after having consulted the backbench (where the author advised him that ‘his bank would find five years too short’, though the author especially disliked the renewability feature, which however he guessed would be less convincing – and even antagonizing – in the direction of the ministry of finance). Chairman Mersch then tried to find a way out of the stalemate (at the same time there was a dispute over the number of executive board members: 5 or 6 or 7).
Mersch proposed eight-years (non-renewable) and six board members.[Art. 11.1-ESCB] This was accepted, except for the UK which made a reservation (five years). Therefore, square brackets were maintained around the eight years and the number of board members. During the ministerial IGC meeting on 10 June 1991 the Luxembourg presidency said it assumed tacit agreement on deleting the brackets around eight year. This was not opposed. The Luxembourg non-papers of 12 June 1991 would read (UEM/52/91):[During their meeting in Dresden in June 1991 the Ministers of Foreign Affairs would decide to delete the part of the sentence referring to the ‘proposal by the ECOFIN’. They probably viewed this as trespassing on their turf, because they usually prepare the meetings of the Heads of State. (The members of the Court of Justice and the Commission are formally appointed without a Council proposal.) The Dutch presidency ignored this and would continue from the non-paper of 12 June]

“Article 108
2. The President, the Vice-President and the other members of the Executive Board shall be appointed by common accord by the governments of the Member States meeting at European Council level, on a proposal from the Council [of ministers]
[Declaration nr. 3 of the Treaty of Maastricht mentions that the Conference (IGC) confirms that for the purpose of applying the provisions in Title VI on economic and monetary policy of the Treaty the usual practice, according to which the Council meets in the composition of the Economic and Finance Ministers, shall be continued. (The same applies to the articles relating capital flows and payments.)], after consultation by the European Parliament and the Council of the Bank, from persons of good repute with professional experience in the monetary or banking sectors.
There term of office shall be 8 years. It shall not be renewable.”

– non-paper 12 June 1991

On 28 October 1991 the Dutch presidency presented its first consolidated draft. It followed the Luxembourg presidency’s text of 12 June. It changed ‘on a proposal by the ECOFIN’ into ‘on a recommendation by the ECOFIN’ out of due respect for the Heads of State (which should not be asked to rubberstamp a decision).[The presidency had also substituted ‘at the level of the European Council’ by ‘at the level of Heads of State or Government’]
In the early days of December 1991, when more or less permanent last-minute negotiations took place at the level of the ministers of finance, a sentence was added to Article 11.2 stating that ‘only nationals of Member States may be members of the Executive Board.’[A similar provision can be found for the Commission: ‘Only nationals of Member States may be members of the Commission.’, Art. 10-Merger Treaty (1967)] (Here ‘Member States’ should be read as ‘Member States without a derogation’ – see Article 43.2-ESCB.)

During the legal nettoyage, following the agreement reached in Maastricht, a new Article 11.7 was added to Article 11.[This is the version which has been ratified by the Member States]
“Article 11.7. Any vacancy on the Executive Board shall be filled by the appointment of a new member in accordance with Article 11.2”
– final text 7 February 1992 (after legal nettoyage)

No conclusive history on this last change is available. It is also not clear how this relates to the important idea of having staggered appointments of the board members. This last idea is expressed in Article 50-ESCB:
“Article 50 – Initial appointment of the members of the Executive Board
[….] The President of the Executive Board shall be appointed for eight years. By way of derogation from Article 11.2, the Vice-President shall be appointed for four years and the other members of the Executive Board for terms of office of between five and eight years. No term of office shall be renewable. The number of members of the Executive Board may be smaller than provided for in Article 11.1, but in no circumstance shall it be less than four.”
[The last sentence was to placate the derogation countries. If monetary union would start with a small number, some seats could be left empty for late comers. In the end, monetary union started with a large first group (11 members), which was considered large enough to take up all board seats. These persons cannot be reappointed for a new term (Article 50)][During October 1991 the Dutch presidency and the Committee of Governors had been working in parallel on the Transitional Provisions for the ESCB Statute, while being in close contact. The Committee of Governors’ draft of 28 October contained the following article on the initial appointment: “Art. 43.3 The terms of office of the initial members of the Executive Board shall be staggered. The term of office of the President shall be eight years and no member of the Executive Board shall be appointed for less than five years.” – The Dutch presidency’s draft of 28 October contained a rather similar article]

The ratio behind Article 50 had already been mentioned by minister Kok during a ministerial IGC on 18 March. He had pointed out – during a discussion on the number of executive board members – that in the first round of appointments the terms of office of the board members should be different in order to prevent that the board would have to be renewed in its entirety after eight years. (This could disturb the markets as they would start guessing whether the
new board members would more or hawkish – or dovish – than the previous board. It would probably also lead to major political backroom dealings. Both are not conducive for the bank’s reputation.)
However, Article 11.7 seems to exclude that the new person is appointed to fill only the remainder of the vacancy. This is confirmed in the toilletage meetings held in Brussels on 14 and 15 January 1992, where the change was interpreted as to document that a vacancy shall be filled with an eight-year appointment (even after dismissal or death). Indeed, if otherwise, the Statute should have provided for the possibility for the appointment of another full term, which is not the case. The Federal Reserve Act is explicit on this situation: a person who is appointed during a term (because of a sudden vacancy) will first finish the term of the person he/she is replacing, after which he/she may be reappointed for a full term (14 year), which otherwise is not allowed. Also, in the case of the Court of Justice, the Court of Auditors and the Commission ‘mid-term’ appointments are for the remainder of the term. [According to some the Treaty does not seem to preclude that an incumbent board member moves up during his term to the position of president of the ECB, say for a remaining four years. However, the risk is that when he steps down after these four years, the procedure could be repeated by appointing another incumbent, who has
less than eight years to go. In this way the effective term of the presidency could be reduced permanently to less than 8 years. This could be seen as conflicting with the Treaty’s intention, also because those board members with a wish to become president might start behaving ‘politically correct’ to please the Heads of State.]
Below we summarize the arrangements for the Court of Justice, the Court of Auditors and the Commission. We include the dismissal procedures and the financial arrangements to arrange for a complete overview.

Box 2b: Appointment procedures for Judges, Auditors and Commissioners (including dismissal procedures and financial arrangements)

The procedure for the Court of Justice is as follows: their appointment follows a fixed timetable, like the model of the Fed: the thirteen judges [The number has increased since] are appointed for 6 years (by common accord of the Governments of the Member States) and every three years alternatingly 6 and 7 judges are newly appointed (Article 167-EEC). Furthermore, Art. 7 of the Protocol on the Statute of the Court of Justice provides that ‘a judge who is to replace a member of the Court whose term of office has not expired shall be appointed for the remainder of his predecessor’s term.’ Half of the first appointees were chosen by lot whose term would expire already after three years. (Art. 46-Protocol.) Judges are re-appointable. A judge can only be deprived of his office by his colleagues, i.e. ‘if , in the unanimous opinion of the Judges and Advocates-General of the Court, he no longer fulfils the requisite conditions or meets the obligations arising from his office.’ (Art. 6-Protocol.)

The procedure for the Court of Auditors is as follows (Art. 206a-EEC, later Art. 188b-EC):
the appointment of the members of the Court of Auditors follows a fixed timetable: twelve auditors [The number has increased since] are appointed for 6 years (by the Council of Ministers acting unanimously after consulting the European Parliament). When the first appointments were made, four of them were appointed for only four years. Auditors are re-appointable. An irregular vacancy shall be filled for the remainder of the member’s term of office. A member of the Court of Auditors may be deprived of his office (or of his right to a pension or other benefits in its stead) ‘only if the Court of Justice, at the request of the Court of Auditors, finds that he no longer fulfils the requisite conditions or meets the obligations arising from his office.’
In contrast, commissioners are appointed in one bunch. They were appointed by common accord of the Governments of the member States. Since Maastricht the procedure has changed slightly: first the president is nominated by common accord. Then the governments of the Member States  nominate, in consultation with the nominated president, the other members of the Commission. The whole body thus nominated shall be subject to a vote of approval by the European Parliament, after which all Commission members are appointed by common accord of the governments of the Member States. (Art. 158-EC) [The Treaty of Nice, once effective, will introduce new changes: the president is nominated by the Council, meeting in the composition of Heads of State or Government and acting by a qualified majority; his nomination shall be approved by the European Parliament. Subsequently the Council (by common accord with the nominee for president) shall adopt the list of other persons whom it intends to appoint as members of the Commission.
The whole body is subject to a vote of approval by the EP. (Art. 158-EC.)]
A sudden vacancy is filled for the remainder of the term. Commissioners are re-appointable.
‘If any member of the Commission no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct, the Court of Justice may, on application by the Council [of Ministers] or the Commission, compulsory retire him.’
(Art. 13-Merger Treaty (1967))
[In addition the Treaty of Nice provides for the following procedure (Art. 217(4)): ‘A Member of the Commission shall resign if the President so requests, after obtaining the collective approval of the Commission.’] A Commissioner may also lose his benefits if he does not respect the obligations arising from his high office. (Art. 10-Merger Treaty) The salaries are determined by the Council of Ministers. Art. 154-EC (post-Maastricht): ‘The Council [of Ministers] shall, acting by a qualified majority, determine the salaries, allowances and pensions of the President and members of the Commission, and of the President, Judges, Advocates-General and Registrar of the Court of Justice. [….].’


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