With the first ever nationwide strike by Irish nurses in full flight this may not be the ideal moment to open an article with a medical analogy, but here goes.
If you go to hospital for a check-up, you don't just want to be sent home afterwards with a prescription but no diagnosis. You want to know which tests were taken, which were important for the purpose of diagnosis given the prescriptions made. For example, if they haven't checked out your liver are you prepared to be ordered off the drink?
In the same way it is important for the public and the people in charge of monitoring the European Central Bank, the ECB, to know how the bank reaches its conclusions. Instead of just being informed about an action, or non-action, and a justification for that, we need to be assured that the ECB's Governing Council examines the situation from all possible angles.
The European Treaties confer on the ECB an unprecedented level of independence. It is guaranteed legal, institutional and financial independence. The duration of the single term of office of its senior officers and their conditions are guaranteed. It is prohibited by law from offering credit facilities to national or Community authorities. It cannot seek or take instructions from national governments.
Above all, its independence derives not simply from the statute law of a single state and its political institutions. Rather it is ensured by Treaty law, ratified by all member-states, and capable of change only by the unanimous ratification of all. Unprecedented independence as a counterpart demands commensurate commitment to openness, transparency and accountability as the sine qua non of the legitimacy of this new and powerful institution.
This week the European Parliament in Strasbourg will debate and vote on a report by the Liberal-Democrat rapporteur Chris Huhne. This is the first measure of the newly-elected parliament's attitude to governance and transparency in monetary policy affairs. The report argues for the publication of summary minutes from the ECB's Governing Council meetings. These summary minutes would give an account of the arguments for and against the decisions taken, as well as the reasoning used in reaching them. It would not have to identify the different Governing Council members by reporting "who said what" but give an account of the differing views within the council.
It is interesting to note that the ECB is now the only major central bank which fails to give a public account of the opposing considerations which need to be balanced in reaching decisions on monetary action. Both the US Federal Reserve Board and the Bank of Japan report both sides of arguments about monetary actions. So do the Bank of England and Sweden's Riksbank.
The European Parliament has the responsibility and democratic mandate to monitor the ECB. This it achieves by quarterly hearings on committee and a plenary debate on the bank's annual report. This task will be difficult to carry out properly without a full understanding of the policy reasoning of the bank.
More openness from the bank would also help the ECB to build up its credibility in the financial markets. A full discussion of the inflation outlook, including disagreements about prospects, demonstrates due diligence and enhances the market respect for the central bank's final judgments.
On the timing of publication, I believe the summary minutes should be published one full meeting after the one to which they relate. In this way, the market cannot infer imminent action from the minutes but will be better informed and more up to date in openly debating the general public interest at a stage when the deliberations of the Frankfurt-based bankers still hold residual public and media attention.
The rapporteur also proposes other measures that the bank should take to increase the transparency of its operations: the ECB should be available to be questioned in public at a hearing in the European Parliament at an early date after each significant policy action; it should publish twice annually an economic forecast of prospects in the euro zone and regularly publish reports of developments in each member-state on a comparable basis.
THE Liberal Democrat Group would also advocate the publication of the ECB's econometric model of the euro zone, as well as the votes on monetary actions by Governing Council members. The latter point is controversial within the European Parliament. The bigger political groups seem keen to keep the secrecy tradition of the old Bundesbank method.
My firm belief is that the world has changed since the 1950s, when the Bundesbank law was passed. Publication of votes has become international best practice and is done by other leading central banks, including the US Federal Reserve and the Bank of Japan.
Moreover, studies show that the strong standing of the old Bundesbank was due to a large extent to its capacity to generate public support for its stance in conflicts with the government. The ECB cannot be assumed to automatically inherit the popular support that the Bundesbank enjoyed in Germany. It needs to build up its own relationship with the public and that may be difficult if it is perceived as distant and secretive.
Critics claim that publication of votes would encourage pressure on council members who might be seen by their governments and lobbyists as national representatives. But in the current system governments, should they wish to do so, could still bring pressure to bear, but in secret. Governments have a way of knowing, not least because the Council of Ministers is represented on the central bank's Governing Council.
I believe that publication of votes will ensure that each member takes particular care to be able to justify his/her own position in terms of their mandate to scrutinise developments in the euro zone as a whole rather than developments in their own member's state. Given that they want to maximise respect for their own professional judgment and integrity, publication is the best means of both ensuring high quality independent judgments and the independence of the ECB as a whole.
The ECB is more independent than its national predecessors, which is both necessary and good. We want a strong and independent central bank as a guarantor of an effective European monetary policy. This requires that the bank be scrutinised and questioned in depth. Openness is the key to quality control and essential to proper parliamentary accountability.
I am convinced that a frank and open ECB will enhance monetary union, making it stronger and more successful. We will continue to push for further measures to enhance transparency. After all, back to the nurses, it doesn't hurt to double-check that the patient isn't operated on for heart disease, while really suffering from anaemia.
Pat Cox is president of the Liberal Democrat Group in the European Parliament
