For the first time, the ECB has released the minutes of its policymaking meetings. This is a new step towards ‘normalising’ a central bank that long insisted on wearing the old-fashioned mantle of the Bundesbank. Unsurprisingly, perhaps, the minutes do not include any major surprise. They mainly confirm previous leaks. Yet, they are helpful for all those who strive to understand the logic of Eurozone monetary policy, whether they are academics or investors.
The world’s major central banks have long published the minutes of their monetary policy committees; the Fed started in 1993, the Bank of England and the Bank of Japan in 1998. It is of independent interest why it took so long for the ECB to take that step in the face of heavy criticism, including the early debate between Buiter (1999) and Issing (1999). The usual argument against publishing the minutes is clearly stated in Issing (2013):
“Many critics of the ECB ignore the special character of being a central bank of the currency of a large group of sovereign states. The publication of every council member’s vote and argumentation could have a significant impact on their contributions, the integrity of members’ voting could be compromised. The media and public will tend to connect decisions and votes with the national background. Maybe this applies for the executive board members only to a limited extent, but certainly this would be an issue for the national central bank governors facing pressure if they are regarded as supporting measures that might be reasonable for the euro area as a whole, but go against the national interest of their home country. Immense economic divergences across the members of the euro area only intensify such pressures. Hence, transparency could not only reduce the readiness of people to be fully transparent, but could provoke decisions by members of the governing council to turn actually more national.”
As is often the case with long-awaited changes, the first publication of minutes of the January 2015 meeting of the Governing Council, officially called an “account”, turned out to be almost a non-event. Yet, it turns out to be an interesting document.
First, it provides much useful information about the ECB analysis, which goes far beyond the highly scripted press conference, even though it is subsequently published in the Monthly Bulletin.
- We see that the meeting starts with presentations by two Board Members of financial market developments and of the economic situation, respectively. These are rich, dense presentations.
- The meeting proceeds with the Chief Economist laying out policy proposals.
The January 2015 meeting is when the ECB took the long-awaited step of deciding to begin quantitative easing (QE). The Chief Economist presented two options: (i) wait and see, and (ii) QE. This clearly recognises divergences of opinion within the Council. He makes the case for QE and offers a detailed proposal, with further details provided by the Board Member in charge of financial markets.
The most eagerly awaited section is the anonymous summary of the discussion. As expected, the wait-and-see arguments are fully laid out. They emphasise uncertainty about the inflation and growth forecasts, arguing that the reduction in oil prices might make QE unnecessary. The debate centres on whether most of the disinflation effects are already absorbed and the expansionary effects will now slowly get under way, as argued by the wait-and-see school, or whether second-round effects are now likely to move inflation even further below target (a.k.a. the policy objective of an inflation rate of close to but less than 2%), as argued by the ‘too low, too long inflation’ school. We see that disappointment2 with previous asset purchase decisions taken in September and declining inflation expectations led to a “broadly shared view” that the time for QE has come.
The discussion then turns to what assets should be purchased and how. Here again, we see a debate between those who propose buying sovereign bonds and those who wish to stick with private assets – expanding the disappointing September programmes. The rear-guard battle arguments against sovereign bond purchases cover the familiar gamut of concerns about the size of portfolio balance effects, financial stability and the unavoidable issue of moral hazard.3
Finally the Council considered the only issue that was seriously debated outside its meeting room – namely, the decision not to share risks. Here we are not offered much information. The minutes quickly mention a consensus. Was this too technical to be debated or too delicate to report? One surprises emerges – the Council agreed to monthly purchases of €60 billion, while the Chief Economist only proposed €50 billion. Unfortunately, the minutes do not provide any information on the discussion that leads to this decision.
Does the publication of minutes increase ECB transparency?
Based on the first release concerning an important meeting, the answer is: yes, a little bit. The post-meeting press conference indicated the existence of disagreements and the gist of the various arguments had been aired before the meeting by at least some of the Council members. So we merely see a confirmation of what had filtered; in effect, no new argument surfaces.
What is missing is the give-and-take of the actual discussions, which is adequately reported in minutes of the Fed, the Bank of England and the Bank of Japan, to name only the major central banks. As a result, we do not know why some views prevailed and, of course, how wide the majority was. We do not even know whether votes were taken, while the other central banks report the votes of individual monetary policy committee members. As argued in Geraats et al. (2008), this is what real transparency is all about. Thus, in comparison with other major central banks, the ECB still remains relatively opaque.
Issing (1999, 2013) argues that the ECB is special because it is the central bank of independent nations. In his view, this requires care to avoid national interference. The argument is undoubtedly true and important. Yet, opaqueness is not the solution. This has been illustrated during the Eurozone Crisis as some individual central bank governors have become highly vocal critics of the Governing Council to which they belong. In addition, some governments – including the German government – have exerted direct pressure on the Governing Council, as noted by, among others, De Grauwe and Ji (2015). Even the German Constitutional Court has weighed in when it accepted to examine the issue of what is normal monetary policy. This all implies that the very independence of the ECB is being trampled upon.
The Governing Council, therefore, needs to prove that it remains immune to threats to its independence. The Treaty prevents its members from basing their decisions on purely national considerations. While they may be careful not to do so explicitly, public statements by the German members of the Council happen to coincide uncomfortably with the views of the German government and its public opinion. This disquieting evolution disproves Issing’s main argument against transparency. On the contrary, shedding light on the discussions within the Council is likely to confirm US Justice Brandeis’s celebrated assertion that “sunlight is said to be the best of disinfectants”.
Publishing “accounts” is an important and most welcome first step. Publishing minutes, with proper account of the discussions and of voting, will be the next step. It is hoped that it will not take another 15 years to get there.
Buiter, W (1999), “Alice in Euroland”, Journal of Common Market Studies 37(2): 181-209.
De Grauwe, P and Y Ji (2015) “Quantitative easing in the Eurozone: It's possible without fiscal transfers”, VoxEU 15 January.
Geraats, P, F Giavazzi and C Wyplosz (2008), Transparency and Governance, Monitoring the European Central Bank 6, CEPR, London.
Issing, O (1999), “The Eurosystem is Transparent and Accountable, or Willem in Wonderland,” Journal of Common Market Studies 37(3): 503-519.
Wyplosz, C (2014) “Is the ECB Doing QE?”, VoxEU, 12 September.
 The Council may be the only body to be disappointed, see Wyplosz (2014).
 It is very hard to see any link between the ECB mandate and moral hazard concern. In a vertical long run Phillips curve world, moral hazard is orthogonal to the mandate.