The ECB'S quest to balance discretion, independence and legitimacy

: crises as a catalyst for increased power

Abstract

The European sovereign debt crisis prompted the European Central Bank (ECB) to implement a series of unconventional monetary policy measures to restore confidence in the euro. This crisis also led the EU to establish a Single Supervisory Mechanism, overseen by the ECB. Moreover, the response to the COVID-19 pandemic further widened the ECB’s unconventional toolkit, not to mention the subsequent Transmission Protection Instrument to support an effective monetary policy transmission following Ukraine’s invasion. In addition, new objectives, such as the fight against climate change, are likely to further extend the ECB’s powers. While some of these changes could be seen as necessary to preserve financial and economic stability in the euro area, they have also led to an increasing accumulation of power that may go beyond the ECB’s supposedly technocratic nature. Against this background, our main objective is to examine whether the ECB’s increasing scope for action, most notably after the sovereign debt crisis, may threaten its democratic legitimacy. To conduct this analysis, we initially concentrate on the concept of discretion. We demonstrate how specific policies of the ECB have led the institution to move beyond its technocratic realm. Then, in the following part, we consider whether the institution’s growing discretion may be influenced by the level of political experience of those involved in the decision-making. In this part, we also have a look at the implications of our findings for the independence of the ECB. At last, in Part 3, based on the concept of legitimacy, we discuss the main implications of the conclusions reached in Parts 1 and 2. We stress that discretionary judgements make it more challenging to justify delegating powers to independent central banks. Ultimately, we conclude that the ECB’s legitimacy depends on its limited discretion in the future.

Date of Award	28 Jan 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	André Azevedo Alves (Supervisor)