This Article analyses the judicial and political accountability of the European Stability Mechanism (ESM) in light of the seminal Mallis and Ledra cases (respectively, Court of Justice: judgment of 20 September 2016, case C-105/15 P, Mallis and Malli v Commission and ECB [GC]; judgment of 20 September 2016, case C-8/15 P, Ledra Advertising v. Commission and ECB [GC]). It seeks to determine to what extent the intergovernmental nature of the ESM has shielded its activity from the accountability mechanisms established within EU law. It then assesses whether the Proposal, recently issued by the Commission, to transform the ESM into an EU body, the European Monetary Fund (EMF), would improve the accountability of this body. It is argued that embedding conditionality policies in the European constitutional legal order constitutes a necessary, but not a sufficient step. To achieve this objective, it is necessary to couple a close judicial scrutiny by the Court of Justice with an equally substantial democratic oversight by the European Parliament.

The Accountability of the European Stability Mechanism and the European Monetary Fund

This paper analyzes the relationship between monetary policy and prudential supervision in the Banking Union. There is no uniform global model regarding the relationship between monetary policy on the one hand, and prudential supervision on the other. Before the crisis, EU Member States followed different approaches, some of them uniting monetary and supervisory functions in one institution, others assigning them to different, neatly separated institutions. The financial crisis has underlined that monetary policy and prudential supervision deeply affect each other, especially in case of systemic events. Even in normal times, monetary and supervisory decisions might corroborate each other, or get into conflict. After the crisis, some jurisdictions have moved towards a more holistic approach under which monetary policy takes considerations of financial stability into account, while supervisory decisions pay due regard to price stability. The Banking Union puts prudential supervision in the hands of the European Central Bank (ECB), the institution responsible for monetary policy. Nevertheless, at its establishment there was the political understanding that the ECB should follow a policy of meticulous separation in the discharge of its different functions. This raises the question whether the ECB may still pursue a holistic approach to monetary policy and prudential supervision, respectively. On the basis of a purposive reading of the monetary policy and supervisory mandates of the ECB, the paper answers this question in the affirmative. Effective monetary policy (or supervision) requires financial stability (or price stability). Moreover, without a holistic approach, the SSM Regulation is more likely to provoke the adoption of mutually defeating decisions by the Governing Board. The reputation of the ECB would suffer considerably under such a situation – in a field where reputation is of paramount importance for effective policy. As any meticulous separation between monetary and supervisory functions turns out to be infeasible, the paper explores the reasons. Parting from Katharina Pistor’s legal theory of finance, which puts the emphasis on exogenous factors to explain the (non)enforcement of legal rules, the paper suggests a legal instability theorem which focuses on endogenous reasons, such as law’s indeterminacy, contextuality, and responsiveness to democratic deliberation. This raises the question whether the holistic approach would be democratically legitimate under the current framework of the ESCB. The idea of technocratic legitimacy that exempts the ECB from representative structures is effectively called into question by the legal instability theorem. This does not imply that the independence of the ECB should be given up, as there are no viable alternatives to protect monetary policy against the time inconsistency problem. Rather, any solution might benefit from recognizing the ECB in its mixed technocratic and political shape as a centerpiece of European integration and improving its transparency, responsiveness, and representativeness without removing its technocratic character.

/pdf/united-in-diversity-the-relationship-between-monetary-policy-4c5rpl18ub.pdf

United in Diversity? The Relationship between Monetary Policy and Prudential Supervision in the Banking Union

markdownIn the context of the introduction of the Single Supervisory Mechanism ( SSM) as part of the
European Banking Union, the European Central Bank ( ECB) has been assigned specific supervisory
tasks relating to credit institutions established primarily in the euro area. One particularly remarkable
feature of this new legislation, notably when compared with the monetary policy tasks of the ECB, is
the introduction of an explicit accountability framework with a particular focus on the relationship
between the ECB and the European Parliament. 
It is this relationship, and mainly the so-called
supervisory dialogue, that form the focal point of this contribution, which offers an assessment of the
legal framework, as well as of the actual practice in these first years of the existence of the SSM,
against a clearly defined notion of accountability. With regard to the actual practice, the contribution
focuses on the exchanges between the chair of the ECB’s main decision-preparing body on SSM
matters, i.e. the Supervisory Board, and the European Parliament’s Committee on Economic and
Monetary Affairs.

Towards a meaningful prudential supervision dialogue in the euro area? A study of the interaction between the European Parliament and the European Central Bank in the single supervisory mechanism

This article analyses the new challenges that the ECB faces in implementing its monetary policy and asks to what extent judicial review can help address these. The ECB mandate provides no clear guidance for many of the ECB’s recent challenges, which include a sovereign bond market panic, technical limits to the efficacy of its tools, and questions concerning the environmental impact of its operations. For this reason, the ECB’s decisions suffer from democratic authorization gaps; it makes choices with far-reaching consequences for which there is no clear basis in the mandate. In this context, courts can either opt to accept choices made by the ECB, as the ECJ has mostly done, or, as the Bundesverfassungsgericht decided to do, itself weigh in on monetary policy. Neither approach, we argue, can improve the tenuous democratic legitimacy of the ECB in the absence of proper democratic guidance. There are, however, other ways the Member States and the EU’s political institutions can provide the ECB with guidance on how to deal with its new choices.

The ECB, the Courts and the Issue of Democratic Legitimacy After Weiss

In this chapter, democracy-relevant provisions of the Treaties, above all the principles of representation, participation and transparency, are examined in more detail and related to central bank action. Then, the principle of democracy enshrined in the German constitution (Grundgesetz) and the resulting requirements for an independent European administration in the view of the German Federal Constitutional Court will be examined and critically scrutinised. With a view to democratic legitimation and control, the mandate of the European Central Bank is then analysed in more detail, including the tensions arising from its changing role, in order to draw conclusions for current and future developments.

Democratic Legitimation and Control of Central Bank Action

In this chapter, the various tasks of the European Central Bank are examined with a view to independence as the decisive modus operandi. This will include looking at the relevant rules on independence, but also on democratic accountability, in the light of the functional specificities.

Dimensions of Independence in the Various Tasks of the ECB

This chapter first presents the institutional framework of the European System of Central Banks/Eurosystem and the provisions on central bank independence enshrined in the Treaties, with a special focus on functional independence. Then, emphasis will be placed on the principle of democracy in the European Union, in so far as it allows for a conceptualisation of a democratically legitimated European administration. The concept of democratic accountability in its political, administrative and judicial dimensions as well as the case law of the European Court of Justice on the democratic embedment of independent bodies are central to this.

Central Bank Independence and Democracy

In this chapter, the horizon is widened by analysing other autonomy guarantees of Union law that exist apart from central bank independence in the light of the functional peculiarities, in order to be able to conceptually grasp central bank independence even better. In this respect, the independence of the Union’s institutions, i.e. the Court of Justice of the European Union, the European Court of Auditors and the European Commission, but also of the European administration, will be addressed. The latter focuses on general provisions of independence as well as the Meroni jurisprudence of the European Court of Justice on the embedment of bodies established by secondary law, before examining the independence of the European Banking Authority in more detail.

Independence as a Structural Characteristic of European Union Law

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Democratic Legitimation and Control of Central Bank Action

Dimensions of Independence in the Various Tasks of the ECB

Central Bank Independence and Democracy

Independence as a Structural Characteristic of European Union Law