The creation of a single market and the continuing concentration and integration at the European level have created phenomena that can neither be governed by nationally based policies nor left to the working of unregulated markets.2 According to the European Court of Justice, one of the cardinal aims of the Treaty is to create a single economic region, free from internal restrictions, in which an economic and customs union may be progressively achieved. This requires, among other things, that the parities between the currencies of the various Member States remain fixed3 until all national currencies in the Economic and Monetary Union (the EMU), have been replaced by the single currency, the Euro. The European Central Bank,4 acts as the sovereign within the sphere of Community monetary policy.
The cornerstone of the Bank’s meaningful position is its exclusive right to issue money and responsibility over its value.5 The primary objective of the ECB is to maintain price stability in the Euro area.6 Not disregarding this objective it shall also support the general economic policies and objectives of the Community as laid down in Article 2 EC. This provision establishes a clear hierarchy of objectives.7 The ECB is bound by the same principles as the other EU organs8, i.e. the principles of legitimacy9 and proportionality.10 Placing all central rules regulating the ECB in the Treaty and Statute which constitute primary law with direct effect on and within Member States gives the System a strong law-based status and strengthens its independence even further. Since the Treaty can only be changed if all Member States agree on and ratify amendments, the Statute has a very high legal, de facto constitutional status.11
According to Gros, the organisational structure and mode of operation of the Bank, however important these dimensions are, cannot solely determine its future performance. More essential is the general mandate for monetary policy the ECB pursues and its relationship to political authorities, summarised under the headings of independence and accountability.12The Union is, in accordance with Art. 6(2) TEU and well-established case law of the ECJ, bound to respect fundamental rights. Still, an independent central bank running an autonomous monetary policy questions the foundations of legitimacy and accountability, the general basis of democratic decision-making being the participation of those affected.
The system of monetary decision-making has deliberately been distanced from the conventional politically organised and democratically legitimated system of decision-making13 in order to make it immune to political pressure. By leaving the concept of price stability undefined, some flexibility has been achieved. At the same time, however, it has become difficult to control the accountability of the ECB and secure that it functions in a legitimate manner. Therefore the most central question becomes whether it is possible to function in an independent and legitimate manner at the same time, fulfilling both the substantive and procedural requirements for legitimacy. Is the ECB too independent? Democracy based on representation assumes a symmetrical relationship between power and accountability – when public power is implemented someone must be able to be held accountable for it.14 Public power is used within the EU and by ECB without, if nothing else, the traditional forms of political accountability which otherwise should follow automatically.
According to doctrine, an autonomous central bank is seen as a prerequisite for price stability,15 the general opinion appearing to be that monetary sovereignty cannot be divided.16 Thus, are there different categories of decision-making so that undemocratic decision-making by a central bank can be regarded as more legitimate than if it took place in the auspices of another organ?17 It has also been suggested that undemocratic decision-making could, nevertheless, be justified through profitable results. The objective of this paper is to consider the implementation of ECB’s law-making powers and its effects in light of the principle of democracy and the requirements of legitimate decision-making. In this paper, democracy is seen as the most central way to create legitimacy, even if other measures are introduced as well.