Have central banks become too powerful? “Without the ECB, the euro area would have fallen apart”, said Sir Paul Tucker, Chair of the Systemic Risk Council, in a joint lecture of the Institute for Law and Finance (ILF) and LOEWE Center SAFE (Sustainable Architecture for Finance in Europe) on Tuesday at Goethe University´s House of Finance.
For Tucker, the former Deputy Governor of the Bank of England, for example the European Central Bank (ECB) is an “accidental political sovereign”. The core of Tucker´s interest is the delegation of power to technocrats or institutions which have no democratic legitimation and the consequences of such independence for these institutions. In his lecture, Tucker examined the arguments in favor of such delegations of power. One central consideration is expertise: Politicians give over decisions to experts which is supposed to lead to better results. In Tucker´s view, this is a flawed argument. “Expertise is not just inside independent institutions,” Tucker argued. Clearly, it would also be possible to separate expertise and policymaking, Tucker said.
With the same argument, other important competences like fiscal policy could be delegated from politicians to technocrats. “Maybe they would even do it better,” Tucker conceded. Technocrats would take a more long-term-orientated approach than politicians. However, one major problem of such delegations of power is the lack of democratic control, Tucker said.
He argued that two things are vital when delegating power to an independent institution. First of all, the design of policy making needs to be effective. Again looking at the ECB, Tucker said that the Governing Council of the ECB was too big to take decisions effectively. Also, the voting behavior of its members should be transparent to make them more accountable. Tucker also sees the ECB´s mandate of monetary policy and banking supervision critically. The problem of having two missions at the same time is that one receives more attention than the other, Tucker stated. Secondly, strict rules for the delegation of competencies are needed. Independent institutions should be accountable for their actions and monitorable for the public. “The worst thing independent institutions can do is to take action and not talk to the public,” Tucker said.
Therefore, delegation of power should be done with diligence. Otherwise “we would strengthen the argument that the government becomes undemocratic,” Tucker warned. Also, independent institutions like central banks should use their power with care. “They have the duty to do the least to deliver their missions,” Tucker argued. Looking at the current monetary policy, Tucker said that ECB and Fed should get back to their narrow balance sheets as quickly as possible. If politicians wanted that kind of policy, they should get democratic approval.
For Tucker, the most important thing is to maintain a democratic government. “We need to be very careful about non-elected people shaping our daily life”, Tucker concluded.