The European Central Bank: Neutral Institution or Crony Capitalism?

Abstract

While the ECB maintains a neutral self-image of an independent bank that tries to reach the narrow mandate of price stability, this thesis argues that such a institutional arrangement is no longer tenable. Several moral frameworks are provided that help to think about why the conduct of the ECB can be problematic. First, the libertarian argument argues that everyone should be able to issue legal tender and that the redistributive effects by ECB policies are unjust. However, actually implementing free banking brings with too much uncertainty, therefore no serious policy proposal can be grounded on libertarianism. Second, the framework based on egalitarianism shows that the ECB is complicit in exacerbating already problematic wealth and incomes inequalities. While officials of the ECB have tried to debunk criticisms by saying that the ECB should only strive for price stability, this answer no longer satisfies. Precisely because the ECB has stepped into the political realm by exacerbating inequality and implementing political purchase programmes. In addition, a lot of pre-GFC assumptions do not hold true anymore. The ECB has widened its mandate without democratic legitimization and it lacks the competencies needed for moral decision making which impairs quality of policy. Moreover, a problematic reliance on the financial sector has emerged in the last few decades and the ECB lacks a self-correcting mechanism which produces epistemological problems. In my view, it is time for a new paradigm for the ECB. This paper suggests several reform proposals that tackle the respective problems of inequality, dependency on the financial sector and problematic knowledge production. It is up to further research to determine exactly what kind of reform proposal can be implemented and what benefit and negative consequences they might accrue. For now, this paper has explored all the options, including maintain the status quo, by morally scrutinizing the ECB step by step.