The Independence of the ECB

The monetary policy of the European Central Bank (ECB) was in many ways supposed to be different than the policies pursued by national central banks. As the Financial Times noted, ‘It was not meant to be like this’.76 From the ECB’s first days in office in June 1998, the ECB’s policies were extremely politicized, its independence questioned, and its credibility doubted. What is immediately and abundantly clear is that the institutional and policy dilemmas faced by the ECB are quite similar to the dilemmas faced by other national central banks over the last 50 years. Exchange rate fluctuations, to say nothing of internal political pressure from the Euro-Zone governments, act as a direct constraint on the ability of the ECB to pursue an independent monetary policy. The ongoing efforts of the ECB to prop up the sagging euro — which has lost over 20 per cent of its value since its inception in January 1999 — illustrate the dilemmas the bank faces. While the weak euro boosts exports from and employment within the Euro-Zone, the euro’s value demonstrates in part the power of the markets over the ECB, contributes to the credibility problems of bank, complicates trade relationships with non-euro members and the US, and undermines public support and confidence in the euro. The first years have been difficult ones for the ECB.