"Populism is a Reality we Need to Face"

SAFE Policy Lecture: Rosa María Lastra from Queen Mary University calls for better judicial control for central banks

In recent years, central banks have come under pressure from different sides. The European Central Bank (ECB), the U.S. Federal Reserve or the Bank of England have been attacked for stretching their mandates or for an alleged wrong monetary policy. The rise of populism in different countries has intensified this debate, and the independence of central banks has been put into question more than just once. Rosa María Lastra from the Queen Mary University of London argues that a specialized chamber within the European Court of Justice could improve the legal control of the ECB and, thus, be an answer to populism.  At a SAFE Policy Lecture on 26 April, she presented her ideas about populism and central bank independence. "Having dedicated specialized judges with expertise in financial and monetary matters when adjudicating cases related to the ECB would enhance the legal framework of ECB accountability in light of the significantly expanded mandate of the ECB," she said.

Populists see central banks as a part of the "political establishment," Lastra said. They wanted faster growth and, at the same time, called for protectionist measures, such as limits to immigration. Furthermore, she added that inequality fed popular discontent. "Those who feel disenchanted, with little to lose, will vote, rebel or protest against the ´political establishment`," Lastra argued. She said that populist attacks on central banks have damaged the “social legitimacy” of central banks. "Populism is a reality we need to face," Lastra said.

Also, the mandate of central banks has become "fuzzier, broader and more complicated" in the last years, as Lastra pointed out. She said that central banks had gone beyond their original mandate and widened their scope of action. This increases the pressure on the debate of who is responsible for the interpretation whether a central bank abides by its mandate and who holds the central bank to account. Although Lastra believes that parliamentary accountability remains important, she is not convinced that politicians are properly performing this function right now. Instead, a better judicial control of central banks could help boost public confidence in central banks. With regard to the European Union, she proposes to set up a specialized chamber within the European Court of Justice where specialized judges would deal with central bank-related issues. Lastra also pointed out that central banks need to communicate more effectively with the public. "They were not very good at communicating in the past, much more has to be done," Lastra said.

Rosa María Lastra is a Professor in International Financial and Monetary Law at the Centre for Commercial Law Studies, Queen Mary University of London. She has served as a consultant to the International Monetary Fund (IMF), the ECB, the World Bank and the UK House of Lords, among others.