The European Central Bank’s (ECB) independence should be limited only to its monetary policy, a senior bank official has admitted.
Yves Mersch, a member of the ECB’s executive board, said “the supervisory function of the ECB is hard to reconcile with the principle of democratic legitimacy.”
In a speech in Frankfurt he said the central bank should be strictly limited in its independence to setting monetary policy.
The ECB came under fire this week from anti-corruption organisation Transparency International (TI). It alleged the ECB had stretched its mandate to “breaking point” during the negotiations with Greece over its bailout programme.
TI said the ECB’s independence had undermined democracy by placing too much political power in its hands in decisions which had massive implications for European citizens with little accountability.
The ECB is one of the “troika” of creditors in the Greek bailout negotiations which insisted on deep cuts to government spending in return for money which prevented the country from dropping out of the euro.
Mersch accepted the independence of the bank is “an exception in a democracy”, and said it should only apply to setting monetary policy aimed at stable inflation.
He said “It [independence] has to be seen narrowly and cannot be applied to an ever-widening area of responsibilities without due adjustments in accountability for the new tasks.”
The setting of monetary policy could conflict with the ECB’s broader role in protecting financial stability, he said, by causing the central bank to pursue inefficient policies.
Mersch said: “If monetary policy seeks to stabilise the financial cycle, it may take actions which are detrimental to its primary objective of achieving price stability."
The central bank's governor Mario Draghi is under investigation by the European Ombudsman over a complaint his membership of a group of bankers from around the world undermined his supervisory role. The Ombudsman noted the ECB's power as a bank regulator had increased since the financial crisis.