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Niall Ferguson has said the European Union (EU) is a perfect prophet for the weak willed Pro-Europeanists, often anxious academic personalities, trapped in their verbal formulas extracted from post-modern schools of Marxist thought, to be perennially defeated by circumstance; namely economic. They offer a self-exculpating cosmic explanation for the most normal professorial state of popular resentment, alienation, dithering passivity and inaction on the party of Brussels's bureaucrats and their own sovereign messes.

Beyond all of that though is another ivory tower; the European Central Bank (ECB).

One should first, before even contemplating what the ECB really is -- and no I'm not referring to what you think it is from watching CNBC -- is to think about the individuals who run it from its two massive buildings in Frankfurt.

Specifically, those who enact regulations and give it carte blanche in Brussels via the disseminating voices of the European Commission, to the Council of the European Union who have essentially agreed like little puppies to obey and let the ECB roam free, to the European Parliament which has no authority, whatsoever, to pass fiscal or monetary policy -- unlike the US Congress has cannot even fire Draghi or any future Chairman -- to the carapace of vanity from Berlin, with Germany's ruling coalition backstopping every deal and implicitly the ECB, without which none of this could be possible.

As the ECB juggernaut simply rolls on, it's MIT-trained economists and the few Goldman Sachs experienced bankers who make-up its management are almost entirely Germans. It's Economics Research Department (by last names alone) is 70% German, with a few French and Belgians dotting around.

Can we therefore even trust that the ECB is representative of what wrong with governance in the EU? Well, it is.

The ECB is not a central bank that you've come to think of like the Federal Reserve -- it's akin to another government altogether. Oddly, according to one Der Spiegel poll, more people trust the ECB than their own German government -- that says rather a lot don't you think?

It's a historical thing. If it were a time line, you would see the ECB descends from the German Bundesbank, and the Bundesbank from the Central Bank Council (Zentralbankrat), the Council from German exiles of the Freiburg School; an economic school of thought built out of the said university after the war who influenced the first Chairmans, Karl Bernard and Wilhelm Vocke. They argued for the Central Bank independence, maintaining very simple, consistent monetary objectives, and ignoring insistence of every other institution.

Every decade leading to more decisions which totally ignored German public opinion or the private words of the German Chancellor. Konrad Adenauer, the first German post-war leader tried to have the first Central Bank abolished -- the American Military Authority kept it. From 1948 to the mid-50s' it battled inflation better than the Federal government could ever achieve, and between then and the 1990s a German politician never dared forget his place and criticize the Bundesbank.

When the Maastricht Treaty came about in 1993, the Bundesbank simply became the European Central Bank -- one might say analogous to a Bank of Europe. With the historical progression the ECB, from the mid-90s inthe Bundes-dominated European Bank, everyone involved got up, walked their chairs over and tossed them into new ECB offices in Frankfurt-on-Main almost without changing the signs.

Simply, there's no other actor, group, or institution powerful to do anything to act as a counterweight. While there are number of others represented in it, which is fair due to the diversity of talent, the larger share of power driven by the old Bundesbank reflects that neither the European Commission, Parliament, the Council of the European Union, or even all their bureaucrats can maintain themselves as a counterweight to the ECB's overreach. Given that it's sometimes said that while the EU's ivory tower maybe high, we would have to agree that the ECB's is the highest.


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Comments (13)

  • solb22's picture

    The first sentence is gold. +1

  • mxc's picture

    Draghi is an ex Goldman man.

  • Relinquis's picture


    The idea that the ECB bullied the rest of the EU bureaucracies into monetary union due to it's record on inflation fighting is remote from reality. The ECB has it's role because elected politicians and other bureaucrats worked for decades to get to some kind of Europe-wide economic integration, common market and monetary union. Several of the smaller countries held referenda to enter into monetary union, or not to do so.

    The Niall Ferguson type first paragraph in your post is just empty self-exalting, Anglo-American rhetoric. If the EU had a central government that could tax and spend in the way the UK and USA governments can it would be able to borrow at sub 2% interest rates for 10YRs Europe-wide. Not just in Germany. I'm not saying that this is the solution for Europe, it would entail giving up national sovereignty on fiscal policy in a more literal and real manner than currently, but it does illustrate that Ferguson's diagnosis of the problem, at best, misses the key point; that monetary union is incomplete without fiscal union and is vulnerable to dealing with recessions, banking crises and external shocks (i.e. vulnerable to the ramifications of the US led global financial crisis of 2007/8).

    What was the point of your post, that the ECB is not the EU? That the ECB doesn't answer to the public, what other central bank does? I think your post says more about your political ideology than it does about the political, economic or institutional workings of the EU, ECB and monetary Union.

  • G.M.Trevelyan's picture

    Anglo-American rhetoric? fyi, all Euro banks were twice as leveraged as any of the British and American banks. This is fair rhetoric for anyone concerned by the actions of the EU.

    Does it say more about my ideology? I wouldn't know personally, I'll have to ask my cat.

  • In reply to Frabjous
    G.M.Trevelyan's picture


    Midas used to post far more entertaining anti-EU rants.


  • eurokopek's picture

    who make-up its board are almost entirely Germans

    Board are Germans? That's simply not true. Last year there was a headline about 2 out of 6 being Italians. Did you expect Cyprus, Malta and Estonia on board?

    European Commission, to the Council of Europe who have essentially agreed like little puppies to obey and let the ECB roam free, to the European Parliament which has no authority, whatsoever, to pass fiscal or monetary policy -- unlike the US Congress has cannot even fire Draghi or any future Chairman

    You seem to confuse Council of Europe and European Council. The latter is the primary legislative body and appoints the president, who is accountable both to council of ministers and the European parliament.

    The whole post reeks of conspiracy of portraying the ECB as an unaccountable institution full of Germans, while in fact it's quite the opposite - like Relinquis mentioned - it doesn't have much power without political union.

  • M and E's picture

    The collaborative nature of the ECB is its biggest contributor to its failure. Conceptually, its a great democratic experiment, but its truly the dumbest idea from a leadership point of view, ever. Honestly, who thinks these spineless candyman neo-keynesians will be able to tell the guy across the table to lock up the cookie jar from himself without any checks and balances? Its a lot of smart people without any reasonable hierarchy.

    There is no logic in that, so don't try. You can't make rational out of the irrational.

    Sometimes I wonder whether all the rhetoric about inflation fighting is just a bunch of BS like the neo-classical and Austrian schools say. The whole ECB debacle has been making me rethink my monetary policy stance.

  • G.M.Trevelyan's picture

    Don't you mean the Council of the European Union? If you visit its parliament you'll find it's simply called the Council of Europe... no one cares about the other organisation. It's like the difference between Euro bonds and Eurobounds, entirely different but people just use the easier term Eurobounds. On your other point about the Germans, there's tons of Germans... It's not just Jorg Asmussen but, what they do not include on the website, are those managers of the various departments who are represented on by board via its ministries. People like the Irish Central Bank Governor are on the 'board' but not the 'exeuctive' of the ECB. It's simply there to represent Ireland. You're confusing the representation of the all the individual central bank heads with those who actually run the ECB. Note I added the Belgians and the few Frenchman as well.

    There isn't much collaboration in the ECB. The department system means they stick to their guns.

    But I personally think the ECB is a roaring success in terms of bank independence and maintaining its consistency... the Taylor Rule etc.

    But N.W. Barber recently told me I should try and keep buttoned up on the German thing. But each German on the Executive and in positions of power hold way more say than anyone else.

  • In reply to G.M.Trevelyan
    Relinquis's picture

    Anglo-American rhetoric? fyi, all Euro banks were twice as leveraged as any of the British and American banks. This is fair rhetoric for anyone concerned by the actions of the EU.

    Do you mean Bears Stearns, Merrill Lynch, HBOS, RBS? or that paragon of financial conservatism, Lehman Brothers? Maybe the other bailout banks like GS, MS, Citi, and the list goes on.

    You're missing the point. They're banks. They're supposed to be over-leveraged. That's what they're their for. It doesn't really matter whether EU banks are as leveraged as US ones or not. Unlike the USA and UK, countries in the EU monetary union are constrained in their ability to bail their banks out, or to deal with the consequences of restructuring these banks.

    In EMU (European Monetary Union) what happens when you need governments to intervene in a banking crises (to bailout, restructure or nationalise banks) and to counter a 'balance sheet' recession; a recession where the private sector is de-leveraging? Two examples illustrate this:

    1. The UK was able to nationalise HBOS and RBS, colossal banks, and can still borrow at sub 2% p.a. interest rates over 10 years. Spain doesn't have the same ability for a puny* EU60 billion bailout of their banks. Why? Because Spain doesn't borrow in it's own currency. The UK does.

    2. The USA can borrow USA-wide, bail-out large banks that operate USA-wide and stimulate the economy on federal basis because it can borrow and tax federally. It has done so. The US government backstopped all of the major bailout banks, AIG, and so on in response to the crisis. There is no comparable entity that can do this EU wide. Not even the government of a large economy like Germany.

    So what is the real problem?

    The EU monetary union is incomplete without the ability to borrow and tax on a pan European basis; a fiscal union with a common treasury. This leaves the union constrained when it comes to dealing with pan-EU recessions and leaves member state governments in danger as they are constrained in their ability to finance deficits. Deficits which would be no problem if they had their own currencies and weren't in EMU. To solve this issue conclusively and decisively would require a reassessment of national sovereignty of all member states and for the EMU block as a whole. That's why the bureaucrats and politicians muddle through instead, pursuing regional austerity measures and patchwork refinancing solutions as they jump from crisis to crisis. It has nothing to do with being "anxious academics", "weak willed" or "trapped in post-modern-Marxist thought" to paraphrase the first paragraph of your original post.

    I didn't understand your cat comment. Was that a Deng Xiaoping reference?

    Good discussion.

    * Spain is a EU1.49-1.50 trillion p.a. economy. A EU60 billion bank bailout should be rounding error in the grand scheme of things.

  • In reply to G.M.Trevelyan
    eurokopek's picture

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