Early Exits Put ECB Independence at Risk
Long terms protect monetary policy from political interference. Candidates should commit to serving them in full. A commentary by Ignazio Angeloni
Speculation is mounting once again that Christine Lagarde, president of the European Central Bank, is preparing to leave before her term ends in October 2027.
Asked about the issue at her latest press conference, she replied: “I have nothing to report.” The phrase seems suited to a situation in which the news is true, but the time has not yet come to disclose it.
Various reasons have been suggested for an early departure, ranging from the appeal of a prestigious position at the forefront of global political debate to the demands of French politics, with a presidential election looming.
Meanwhile, gossip about possible early departures is spreading to Isabel Schnabel, a member of the Governing Council responsible for market operations.
It would not be the first time that members of the six-person Executive Board running the Frankfurt institution had resigned early. The reasons, usually discernible even when unstated, vary.
In some cases, those resigning disagreed with the direction of monetary policy. That is a questionable reason to step down: the selection criterion set out in the ECB’s Statute does not require unanimity of views, but rather individuals “of recognised standing and professional experience in monetary or banking matters”.
Among highly qualified professionals, differences of opinion can only strengthen the collective body. On other occasions, individuals have been shown the door to achieve a balance of nationalities.
Worse still: since when has nationality been a guarantee of standing or professional experience? In one case, there was an exchange of positions with a national institution. Neither of the reasons mentioned above applied. Why, then, the swap?
While it seems fairly obvious that the criteria laid down by the ECB’s “founding fathers” for selecting and replacing its leadership are often disregarded, or at least relegated to second place without causing much of a stir, it is less clear what should or could be done about it.
The first question is whether a central banker’s term of office, its length and its security, really matters. Is it worth worrying about, or is it merely a formality?
The ECB’s Statute offers no clear guidance on this point. In line with a substantial body of scholarship, it instead stresses the requirement of independence: those at the top must neither seek nor accept external instructions, particularly from national or European political authorities.
Yet this is plainly not enough: independence cannot simply mean refusing formal instructions.
No politician in the world, with the sole exception of the current US president, is so brazen as to issue explicit orders to the central bank. But politicians can influence it in various ways, and this is where the length and security of tenure become relevant.
“Strategic” management of the timing of departures allows not only the politicians of the day to shape the succession along partisan lines, but also the departing officeholder to secure a better next position, making it easier to use a central bank post as a springboard to another job.
The long terms that usually accompany senior central bank positions are therefore no mere formality.
They are designed to ensure undivided commitment to an objective, monetary stability, that by its nature requires sustained effort over time, avoiding the distractions and loss of independence that such strategic management inevitably entails.
It would therefore seem useful to require candidates for positions on the ECB’s decision-making bodies, the Executive Board and the Supervisory Board, to make a commitment, as a condition of appointment, to complete their terms unless objective circumstances prevent them from doing so, such as becoming unable to perform their duties.
The commitment, which would inform the assessment of their suitability, would obviously not be binding. Honouring it would, however, carry reputational value, and could be encouraged by offering favourable departure terms, which the central bank itself determines, to those who leave at the end of their mandates.
Incidentally, partly similar considerations apply to the national representatives who sit on the central bank’s decision-making bodies, the Governing Council and the Supervisory Board, with prerogatives comparable to those of their colleagues serving within the institution: the same voting power, the same European mandate and the same degree of independence in carrying it out.
Here, however, the issue becomes more complicated because of the mixed nature of the role, partly European and partly national, and because these officeholders are everywhere governed by national law and practice.
This gives rise to certain inconsistencies, such as the appointment of holders of an office under European law without any European scrutiny or vetting. A contradiction that should, wherever possible, be resolved.
A previous version of this article was published in the Italian daily MF-Milano Finanza
IEP Bocconi does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
