Abstract
The European debt crisis (Eurozone crisis) precipitated an unprecedented reconfiguration of the institutional architecture of the Economic and Monetary Union. At the core of such overhaul was the establishment of a financial assistance function specific to the Eurozone. From the outset, there has been a clear will to closely involve the European Central Bank (ECB) at all stages of the operation of this new function. The ECB, an institution endowed with a monetary mandate, has thus entered the field of economic policy. Against that background, this paper intends to investigate the legal and political accountability arrangements the ECB is subject to in that new context. Both the texts organizing the intervention of the ECB and its subsequent practice reveal, so the paper will show, that the ECB’s action in that particular context is mainly conceived as falling under its monetary mandate, and thus as being covered by its independence. The paper will argue that this situation is legally problematic, especially in view of the deep interpenetration between the economic and the monetary policy fields and the redistributive effects of the choices made. It will also claim that the ECB’s independence in that particular context, and the accountability structures it is subject to, should be adjusted.
Keywords
1. Introduction
The Eurozone crisis has dramatically expanded the scope of the European Central Bank (ECB) action. Programmes that many would have deemed blatantly ultra vires before the storm have been found legal, and the boundaries of what can now be legitimately understood as monetary policy have been pushed very far. The European Court of Justice (CJEU)’s broad and purposive reading of the ECB’s mandate now constitutes the new normal. The crisis has also brought about a novel relationship between the ECB and economic policy decision-making. It is the ambition of this article to contribute to the study of this relationship, its core features and the accountability logic that structures it. The ECB has successively used a wide diversity of channels to influence economic and fiscal choices in the European Union, 1 but in no other context than that of financial assistance to Eurozone Member States has it been able to directly, and formally, weigh in on economic policy decision-making. It is this process that my contribution wants to focus on. Section 2 offers some general remarks on the emergence of a financial assistance function for the Eurozone and the participation of the ECB. Section 3 provides an in-depth assessment of the scope and nature of the tasks the ECB has been endowed with in that context, and its interactions with the other relevant actors. Section 4 investigates the legal and political accountability arrangements it is subject to in that framework. Section 5 conducts a critical assessment thereof.
2. The financial assistance function and the involvement of the ECB
A. The crisis and the emergence of a financial assistance function in the Eurozone
There is here no need to dwell upon the financial assistance function within the Eurozone. The political and economic factors that led to its emergence, its genesis and subsequent evolution, and the legal challenges it gave rise to, are indeed well-known. Suffice it to say that long embodied by temporary, ad hoc arrangements (inter-creditor loan agreement, European Financial Stabilisation Mechanism, European Financial Stability Facility), this function is now represented by a permanent institution established under international law, the European Stability Mechanism (ESM). 2 The compatibility of such function with the constitutional foundations of Europe’s Economic and Monetary Union (EMU), and the principle of national budgetary liability as materialized by the no-bailout clause (Article 125 Treaty on the Functioning of the European Union (TFEU)), was a cause of concern in political and academic circles, but the CJEU, in the seminal Pringle ruling, 3 dispelled those doubts relying on the central notion of strict conditionality. It was indeed posited that the far-reaching loan conditionalities attached to the assistance agreements, and the supported Member State’s firm commitment to fiscal consolidation efforts and socio-economic structural reforms, would preserve the disciplining function of the no-bailout clause and avoid the emergence of moral hazard.
As a direct consequence of its consubstantial reliance on conditionality, the financial assistance function also brought about a new kind of economic governance through which far-reaching loan conditions touching a great diversity of policy domains are bilaterally negotiated between the Member State concerned and its creditors, and subsequently implemented nationally under intense international monitoring. There are many reasons such economic governance can be coined as extreme. Not only does it reflect the stark contrast with the standard and softer arrangements for economic policy coordination (the multilateral surveillance procedure set up by Article 121 TFEU, the excessive deficit procedure organized by Article 126 TFEU, the Stability and Growth Pact), but it also echoes the unprecedented level of constraint, scope, intensity and precision displayed by EU policy actions in that context, and the limited margin of manoeuvre retained by assisted Member States in implementing their conditionality-related commitments.
B. The rationale behind ECB participation to financial assistance
From the outset, there has been a clear political will to closely involve the ECB in the operations of the financial assistance function of the Eurozone, side by side with the European Commission (Commission). 4 The financial and administrative support of the International Monetary Fund (IMF) was also systematically sought in every assistance programme. Jointly these institutions formed the famous Troika (the ECB, the IMF, and the European Commission). 5 The association of the ECB to the activities of the Troika may first seem counterintuitive. Why involve a monetary institution entrusted with a narrow mandate geared towards price stability, in the negotiation and implementation of a financial assistance package and its attached economic conditionality? After all, the EMU construct was designed in the Maastricht Treaty as a pillar-based structure, and the ECB was expressly confined to the monetary pillar. For this reason, it was entirely absent from the various governance arrangements making up the economic pillar in the Treaties. 6 The rationale behind the participation of the ECB to the Troika has never been explicitly spelled out, although a few reasons immediately come to mind. The ECB’s reputation, along with its well-established expertise in monetary, fiscal and financial matters, certainly played a role. Its Eurozone-specific DNA may also have constituted a guarantee, especially in view of the participation of an international organization such as the IMF. Finally, the ECB’s exposure to fiscal developments in certain Member States (such as Greece or Cyprus) may have prompted the ECB to push for participation in the Troika.
Of course, such involvement of the ECB did not come without doubts and concerns. The main fear was that it would sit uneasily with the ECB’s constitutionally consecrated mandate as a strictly monetary one geared towards price stability. 7 To many, it was doubtful whether the kind of interventions in the economic and fiscal field that its belonging to the Troika would necessarily require could be considered as merely supportive of the general economic policies in the EU (Article 127(1) TFEU). What is more, in a similar fashion as with regard to its involvement in financial supervisory functions under the Single Supervisory Mechanism, commentators seemed particularly troubled that the ECB’s participation in the Troika, and its consequent incursions in the field of economic policy, would expose the institution to clear risks of conflicts of interest, undermine the effectiveness of its monetary policy, and potentially put price stability into jeopardy. In an influential study from 2013, Pisani-Ferry, Sapir and Wolff identified several sources of potential conflict of interest. 8 Such worries were also echoed by Advocate General Cruz-Villalon in his Opinion in Gauweiler with specific regard to the Outright Monetary Transactions (OMT) programme. 9 However, the CJEU did not seem to share these concerns, and found such institutional borrowing perfectly compatible with EU law. 10
While this issue obviously lies beyond the scope of this contribution, 11 it must be acknowledged that over the past few years, practice has revealed deep interconnections between, on the one hand, the use of the conventional and unconventional monetary tools at the ECB’s disposal, and on the other, its Troika-related tasks and the financial assistance function it serves. A closer look at ECB action throughout the Eurozone crisis indeed shows that it has often been linking the mobilisation of these tools, either de jure (as in the case of the OMT programme) or de facto (as in its provision of emergency liquidity assistance to the Irish or the Cypriot banking sector, its decisions on the eligibility of Greek bonds as collateral, 12 or in its application of the ‘Securities Market’ programme to Italy), to strict economic conditionality and, in certain cases, to the state concerned requesting financial assistance and entering an adjustment programme. In a number of instances, the ECB has thus been pushing the boundaries, and instrumentalized its monetary policy action so as to force a certain course of economic policy action at the national level, either directly or indirectly.
3. The tasks of the ECB in the financial assistance context
A. Formality and continuation
When overviewing the tasks entrusted to the ECB under the various financial assistance mechanisms successively set up during the crisis, two findings emerge. The first finding is continuity. Notwithstanding certain minor adjustments, the functions currently performed by the ECB under the ESM Treaty (as complemented by Regulation No. 472/2013) are roughly similar to the ones it already carried out in 2010, under the ad hoc Greek inter-creditor loan agreement. As things currently stand, it appears that continuity would be further preserved under the future European Monetary Fund (EMF). 13 The second finding is progressive formalization. The role of the ECB in the financial assistance context and more specifically, in the functioning of the Troika, first developed incrementally as a praxis, but it was progressively formalized in legal instruments, gaining detail and specificity.
B. An overview of the tasks
The ECB is involved in each stage of the granting of financial assistance to Eurozone Member States in need. 14 First, the ECB participates in the assessment of support requests from Member State, and gauges their eligibility 15 and urgency. 16 Second, following a principled decision to grant stability support, the ECB contributes to negotiating the Memorandum of Understanding (MoU) and, most importantly, the loan conditions to be attached to the financial assistance programme. 17 Finally, the ECB monitors the Member State’s compliance with the loan conditions enshrined in the MoU, and the effective implementation of the policy commitments attached to financial assistance. 18 The further disbursement of aid will depend on the outcome of such monitoring. The ECB also assumes specific tasks with regard to precautionary financial assistance 19 and secondary market support facility. 20 For the sake of completion, it should be noted that the ECB is represented within the various decision-making organs of the ESM. 21
C. The division of labour with the European Commission
The process leading up to the granting of financial assistance in the Eurozone is thus marked by a continued presence of the ECB, and its active involvement at each critical juncture. However, it is notable that the ECB is generally not endowed with self-standing prerogatives or powers. 22 Indeed, in the conduct of its tasks, the ECB is systematically paired with other institutional actors, namely the European Commission and, wherever possible, the IMF, under the Troika format. Even more importantly, the relevant instruments, when allocating functions to the ECB, only do so in an oblique or indirect way. The phraseology varies over time: ‘the European Commission, in liaison with the ECB’ or ‘the European Commission, in consultation with the ECB’, 23 but echoes the same logic. Taken at face value, these formulae suggest that the ECB is to remain confined in an ancillary, supportive role in the financial assistance provision, and that the core of the tasks at stake are primarily conferred on the European Commission. 24
The relevant legal sources do not provide any more details on the interaction between the ECB and the Commission in that specific context. Moreover, despite repeated calls to this effect, the two institutions have so far failed to conclude an agreement formalising their collaboration, and delineating their respective responsibilities. It is thus difficult to find out how the Troika, and more specifically, the ECB-Commission tandem, operate in practice, as their interactions and working methods remain obscure and, seemingly, governed by informality. 25 This general lack of transparency has been repeatedly deplored by the European Parliament, 26 the European Court of Auditors 27 and, to a lesser degree, by the IMF 28 and the ESM’s independent evaluator. 29 This issue would even remain broadly unaddressed under the EMF framework. Indeed, the Commission proposal, as in many other regards, does little more than consolidate the status quo, and fails to bring much needed clarity on the exact contours of the respective powers and prerogatives of the actors involved. 30
The view of the ECB on its own role in the context of financial assistance is a very textual one. The ECB’s part within the Troika configuration would be limited to that of a mere ‘junior partner’, 31 primarily tasked with providing technical support, expertise and assistance on issues directly connected to its legal mandate (pertaining to financial stability and the proper functioning of the transmission mechanisms of monetary policy) to its institutional counterparts. 32 The ECB would thus be in the back seat, while the Commission would be steering the process. 33 Such a limited, advisory role 34 would be the direct consequence of the ECB’s constitutionally consecrated independence (Article 130 TFEU). The ECB is also keen to recall that more generally, it forms part of an institutional grouping – the Troika format – which does not formally enjoy formal decision-making powers. In the provision of financial assistance, each key decision is taken directly by, or on the behalf of, the aid-providing institution (the ESM or the European Financial Stability Facility (EFSF)) through its managing organs (in the case of the ESM, its Board of Governors). Moreover, the discretion enjoyed by the Member States concerned when implementing the policy conditionalities agreed on in the MoU is repeatedly emphasized by the ECB.
Such minimalist reading finds support in the various legal instruments organizing financial assistance in the Eurozone and, to a lesser extent, in the case law of the CJEU. 35 However, in practice the part played by the ECB within the Troika probably is less marginal than it wants to portray. Looking below the surface, one is indeed quick to discover that deliberations and programme-design within the Troika are much more collegial and horizontal than a priori suggested by the texts. Concurring sources indicate that the best way to characterize the Troika, and its operations on the ground, is ‘co-equal partnership’. 36 An important IMF study, drawing upon interviews conducted with staff from the European Commission, the ECB, the ESM and the IMF, concluded that all Troika partners were perceived as ‘having a veto power on actions, which forced them to find collectively an approach that each of them could accept’. 37 The Commission has also emphasized the importance of collegiality and consensus-building with the Troika, 38 and complained about ‘the tendency of external observers to underplay its other partners’ (including the ECB’s) role. 39 It is thus fair to assume that the ECB’s role within the Troika is more decisive than suggested by the texts and official accounts. Not only does it provide crucial input on a broad range of policy issues, pertaining to monetary and financial stability, and more generally, to fiscal consolidation, debt stability and socio-economic structural reforms; it also plays a significant role on an equal footing with its Troika partners in programme designing and monitoring. 40 Moreover, although the Troika does not enjoy autonomous decision-making powers in the financial assistance process, its actual prerogatives combined with its authoritativeness allow it to substantially steer the action of the ultimate decision-makers.
4. The ECB’s participation to the financial assistance function – which accountability?
This section takes stock of the various accountability arrangements the ECB is subject to in the framework of its Troika-related tasks and thereby seeks to find out whether the clout practically exercised by the ECB on the whole financial assistance provision process is matched with an appropriate level of answerability and external scrutiny. Legal and political accountability are examined in turn.
A. Legal accountability
The CJEU has had several opportunities to clarify the legal landscape in which the Troika operates. Its case law has evolved over time from initial closure to gradual awareness, signaling a progressive realization of the actual role played by the EU institutions, and by the ECB, in the financial assistance context. Its pronouncements have indeed contributed to spell out the accountability structure the ECB should be subject to, and align them with the reality unfolding on the ground.
First, a word must be had about the contours of the legal duties the ECB is bound to when it acts in the context of financial assistance. Whereas the various relevant instruments contain explicit ‘consistency clauses’, designed to guarantee the coherence of the conditionality imposed on a bailed-out state with the wider framework of EU ‘standard’ economic governance, 41 it has long been claimed by both the Commission and the ECB that in their capacity of Troika member, they were not bound by the rest of EU law, acting as organs ‘borrowed’ by international institutions, voluntarily established outside the EU legal framework. The CJEU’s rulings in Pringle and Ledra did not support such view, insisting that even in such unconventional capacity, the Commission and the ECB remain bound by the entirety of EU law, including EU secondary law. More specifically with regard to the EU Charter of Fundamental Rights, even if its applicability has initially been doubted, 42 it is now well-established since the Ledra ruling 43 that the Charter binds the Commission and the ECB in the context of financial assistance, and subjects them to a clear performance obligation with regard to fundamental rights-compliance 44 (and not to a vague best-effort duty as suggested by Advocate General Wahl in his Opinion in Ledra). 45 This duty to comply with EU Law, including the Charter, entails both negative and positive implications for the ECB. It imposes on the ECB to refrain from negotiating loan conditions that would contravene rules of EU law, and from persevering in monitoring the implementation of a condition found illegal by the CJEU. 46 It also requires the ECB to positively foster the observance of EU law, and actively promote fundamental rights compliance also with regard to Troika-related tasks. 47
Legal duties, however clearly delineated they may be, do not really matter if their holder’s actions cannot be subject to external scrutiny, and if they cannot be enforced by a judicial organ exercising review. Regarding the ECB, this task is allocated to the CJEU. In the case of its Troika-related tasks, the main difficulty encountered by litigants seeking to contest the ECB’s actions and to challenge the harsh conditionality it contributed to bring about, has lay in the fact that the main assistance mechanisms under which the ECB has operated are established outside the EU legal framework. As a result, the contested conditionality is included in instruments, the MoUs, that do not constitute EU legal acts. Despite the crucial role played by both the Commission and the ECB in the adoption and implementation of these instruments, litigants have, first, had a hard time finding their way to Luxembourg. Up until 2016, all attempts to directly or indirectly challenge the legality of these MoUs had indeed been unsuccessful, leading to a de facto impunity for the Commission and the ECB. By opening up a first judicial avenue to challenge conditionalities imposed on bailed-out states, the Ledra ruling acted as a catalyst. In this seminal decision, the CJEU, well-informed by a refined understanding of the actual influence enjoyed by EU institutions on the bail-out process, and further prompted by recent legislative developments, 48 agreed to examine the legality of the Commission and the ECB’s action in the framework of a damage action initiated by account owners who had suffered significant losses in the restructuring of the Cypriot banking system. 49 A year later, another breach was opened with the Florescu ruling 50 which, for the first time ever, found a preliminary ruling request on the compatibility of a MoU with EU law admissible, thereby creating an additional (indirect) avenue for legal accountability. 51 However, under the current system, the road of direct annulment actions against MoU formally concluded by the ESM remains blocked, as these instruments do not per se constitute EU legal acts. 52 Two temperaments are, however, in order. On the one hand, the macroeconomic adjustment plan mandated by Regulation No. 472/2013 does constitute a fully-fledged EU legal act, perfectly challengeable under Article 263 TFEU. On the other, the reincorporation of the ESM within the EU legal order as the EMF may occur soon, and would put an end to this entanglement. 53
The CJEU has thus progressively opened up various judicial avenues to challenge the legality of the conditionality attached to financial assistance programmes, thereby contributing to strengthening the legal accountability of its progenitors. Certain obvious limitations remain. As an example, the threshold to win a case in the framework of a damage action stays very high, and it is most likely that plaintiffs suing the ECB for compensation will still lose on the merits of their claims, as best evidenced by the ‘Cypriot depositors’ saga. 54 In the framework of annulment actions, the well-known issue of overly strict conditions of standing is particularly pregnant in the financial assistance context. More generally, the CJEU’s rulings have proven highly deferential, and have so far failed to draw any red line that the ECB, and the Commission, may need to beware of when designing the MoUs. Nevertheless, the overall trajectory of the CJEU’s case law remains highly welcome, as it facilitates the correction of illegalities ex post, and can have a disciplining effect ex ante.
B. Political accountability
When it comes to political accountability, one can observe that the channels through which the ECB’s action (in the context of financial assistance) can be subject to external scrutiny, remain underdeveloped; they do not bring about the checks and oversight its actual influence on the process would call for.
The few existing mechanisms supporting accountability in the context of financial assistance have been introduced by Regulation No. 472/2013. One of its stated aims was indeed to enhance the dialogue between the institutions involved in the process and the European Parliament, thereby ensuring greater transparency and accountability (Recital 10 of Regulation No. 472/2013). However, strikingly most of the arrangements only concern the European Commission. 55 This should not come as a surprise, the formal understanding (although not confirmed in practice) being that the ECB’s role within the Troika framework is limited to that of a junior partner. As a consequence, the ECB is largely left out. The only relevant provision is Article 3(9), which foresees that in the framework of the enhanced surveillance procedure (subsequent to the granting of financial assistance, and the conclusion of the attached conditionality), the Committee on Economic and Monetary Affairs (ECON) of the European Parliament, and the national parliament concerned, may invite ECB representatives, alongside officials from the Commission and the IMF, for an economic dialogue. Such dialogues were held once in 2012 and once in 2013, and they mainly consisted in an exchange of views and a cross-questioning exercise with Members of the European Parliament (MEPs). The practice arguably remains weak: It comes very late – once the MoU has been entered into by the assisted Member State – and it seems underinvested by both the MEPs themselves and the ECB. Its real impact has therefore rightly been doubted by commentators. 56
The ECB was also invited to appear before national parliaments to discuss its action in the framework of a specific assistance programme. 57 In 2014, the ECB was asked to appear before the Irish Parliament (the Oireachtas), which had established an enquiry committee to look into the causes of, and policy responses to, the Irish sovereign debt crisis. President Draghi refused to appear, arguing that the ECB, as an EU institution, was primarily held to account by the European Parliament, and that, if it was ready to engage in informal exchanges of views on matters within the remit of its mandate, it could not subject itself to a parliamentary inquiry at the national level. 58
It is also interesting to note that other institutions have sought to investigate the action of the ECB as a Troika member. As already pointed out, the European Court of Auditors (ECA) has played an active role in that regard; it published a first general report on financial assistance in 2015, and a second in 2017 on the Troika’s intervention in the specific case of Greece. The second report ultimately only investigated the role of the Commission. It appears the ECB refused to cooperate with the ECA, questioning its mandate to audit the Bank’s involvement in the successive Greek adjustment plans on the basis of both its independence and banking confidentiality, and declined to provide the internal evidence necessary for the ECA to effectively report. 59
5. The ECB in a post-crisis era – the untenability of the economic/monetary divide and its impact on independence and accountability
The previous sections have shown that the accountability arrangements the ECB is subject to, with regard to its participation in financial assistance, closely resemble those applicable to its more traditional tasks in the field of monetary policy. This is clear when it comes to political accountability, which is merely organized on an ex post basis, and seems only to be pursuing explanatory and communication goals, in an effort to maximize the intelligibility of ECB policies. The ECB also remains in full control of the process, 60 and is even able to unilaterally exempt itself from external scrutiny, if it deems it too intense. The same is true for legal accountability. While the CJEU has progressively subjected the actions of the EU institutions in the framework of the Troika arrangement to its review, it has exercised a great deal of restraint in that framework, giving the Commission and the ECB a wide margin of appreciation when designing (and monitoring the implementation of) the conditionality programmes warranted to restore financial stability and fiscal sustainability in a Member State under financial assistance. This echoes the limited review (evidently relied on in the Gauweiler ruling) to which technical ECB decisions strictly pertaining to the monetary policy area are submitted. 61
With regard to monetary policy, a loose and weakly constraining understanding of accountability can be seen as the direct corollary of the ECB’s constitutionally entrenched independence (Article 130 TFEU). 62 It is crucial to recall that such independence was designed as a two-sided coin. Following a first rather negative dimension, the ECB is shielded from politics, such insulation being deemed necessary for the effective pursuit of its stability-oriented mandate. In a more positive sense, because this independence is so intrinsically linked to the narrow, anti-inflationary mandate of the ECB, and for the other (very Majonian) 63 reason that it remains an abnormal form of power legitimation, it is only tolerable within the limited realm of price stability-based monetary policy, and requires the ECB to stay out of politics, understood as policy areas implying non-technical, value-based and redistributive choices. 64 Under such a functional understanding, 65 ECB independence, and the limited accountability structure it is intrinsically correlated to, is linked to the pursuit of a predefined monetary objective (price stability), materialized in operational targets (an inflation rate below, but close to, 2%) 66 and attainable via a limited set of technical tools (the interest rate and open market operations).
The claim here is that these conditions are not fulfilled when the ECB participates in financial assistance as a Troika member. As a co-designer and co-guardian of economic conditionality, the ECB is pursuing a broad diversity of potential policy objectives (financial stability of the Eurozone, fiscal sustainability of national public finances, increase of competitiveness levels, restoration of growth, reduction of unemployment, and so on) between which it must find hard compromises and trade-offs. Such goals cannot easily be operationalized through indicators and quantifiable targets, and are to be pursued via an even wider range of policy instruments (supply-side vs. demand-side measures). More generally, in this context, the ECB is brought to act and make choices in a policy area well beyond the territory of pure monetary policy to which it was to remain confined according to the Maastricht compromise, into the field of economic policy, where decision-making is fundamentally value-based, redistributive and ultimately, political.
Against this background, it is not normatively grounded to simply transpose the ethos of ECB accountability as it was designed in Maastricht for pure monetary policy, to the field of financial assistance. In this context, the ECB assumes policy-making functions and is therefore not entitled to present its actions as those of an independent expert (as it currently is doing). The accountability logic it ought to be subject to in that capacity must be different, and cannot be derived from a strict understanding of institutional independence, which is not warranted in that field. Currently, there is an evident misalignment that ought to be corrected. I see two potential evolutions.
On the one hand, the ECB could retreat from the new territories it has ventured into, and go back to a narrower, more conventional and strictly monetary course of action. Current proposals on the economic and budgetary side of the EMU construct suggest a political will to reduce the overall pressure currently on the ECB. 67 On the other hand, the Eurozone crisis could have established the long-term untenability of the strict understanding of the economic policy/monetary policy divide on which the EMU is structured since its inception. Interpenetration, interdependence and synergy can be inevitable, and the future action of the ECB cannot be expected to remain rigorously confined at one end of the continuum. If this is the case, then there is a need to rethink ECB accountability in these new contexts, such as in the process of financial assistance, where the ECB moves along the spectrum, away from it most classic monetary tasks. It is urgent that the accountability arrangements applying to those sets of circumstances are refined, and substantially strengthened, so that the clout of the ECB in those policy fields, which are value-based and political in nature, are finally matched with an appropriate level of (political and legal) scrutiny and accountability. 68