The ECB and the two crises:
How does the ECB deal with an
imported legitimacy attack?
Ivan Grigoryev
:: outline
1. ECB as a non-majoritarian institution:
where legitimacy comes from?

2. global financial crisis: preparing t...
:1/4:
ECB as a non-majoritarian
institution: where does
legitimacy come from?
:1/4: where does legitimacy usually come from?




There are three sources of legitimacy:

(1) input legitimacy,
(2) proce...
:1/4: what are NMIs?


Non-majoritarian institutions are the “governmental
entities that
(a) possess and exercise some gra...
:1/4: how are NMIs legitimised?
The 'eye of the beholder' problem




‘Output legitimacy’ is the current standard
justific...
:1/4: does output work without input?


iPod theory:
you 'legitimise' your iPod at
the moment you take a
decision to buy it
:1/4: does output work without input?


Once the input is made,
the institution works itself.
It is protected from
interfe...
:1/4: does output work without input?

Circumstances change, and
you are no longer happy
with the iPod. At this
moment its...
:1/4: is being illegitimate risky?


Yes, unless the NMI is
well protected from
political interference
:1/4: what is a legitimacy attack?


LA is a situation when
the NMI's autonomy is
questioned by the
people or by elected
p...
:1/4: what is a legitimacy attack?


I'm interested in looking
on how the ECB
responds to the
legitimacy attacks.
Let's pi...
:2/4: Global financial crisis:
preparing the strike
:2/4: how legitimate is the ECB?


60




50


                                                                    Distrus...
:2/4: how legitimate is the ECB?




Check out the huge leap in trust/distrust made in 2007-9.
:2/4: is it because of high inflation?

 51                               3,50%
 50
                                  3,00...
:2/4: is it because of high inflation?




No, it's not. Correlation between inflation and
trust in the ECB is 0,45, where...
:2/4: where's the reward?




The ECB has done a good job controlling the
inflation and driving the economy out of the
cri...
:2/4: where's the reward?




The reward is it's not yet smashed.
But this is due to the constitutional
protection.
:2/4: was the attack unaddressed?




                            legitimacy attack
:3/4: What happens to our iPod when
Greece comes in?
:3/4:   So far Germans did not want the reform
:3/4:   So far Germans did not want the reform
:3/4:   So far Germans did not want the reform
:3/4:   The same characters. Entries le g.é.




February 11th: Merkel says the EU
would need an economic government
=> th...
:4/4:
What's on the ECB's mind?
:4/4:   What's on the ECB's mind? (1)




           (1) secure the right g.é. discourse



             “Independence doe...
:4/4:   Which discourse is right?




“Competitiveness was largely overlooked. In some
countries the costs are persistentl...
:4/4:   New tools?

“The Commission... instrument would be
constituted by a system of coordinated bilateral
loans and woul...
:4/4:   New tools: the reply

“New institutions won't help if the existing ones are
ignored.” (Axel Weber)

“But then agai...
:4/4:   What's on the ECB's mind? (2)


 (2) secure the EMU integrity
:4/4:   Who are the suspects?




                                (Jones: 1088)
:4/4:   Survival of the fittest



"In the future we need an
entry in the treaty that would
make it possible, as a last
re...
::   Conclusion
::   Bibliography
    Atkins, Ralph, and Quentin Peel, 'Germans oppose Greek aid, poll shows',
Financial times, March 21, ...
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ECB and legitimacy attack

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ECB and legitimacy attack

  1. 1. The ECB and the two crises: How does the ECB deal with an imported legitimacy attack? Ivan Grigoryev
  2. 2. :: outline 1. ECB as a non-majoritarian institution: where legitimacy comes from? 2. global financial crisis: preparing the strike 3. sovereign debt crisis and le gouvernement économique revived 4. a double measure of luck for the ECB: some scenarios
  3. 3. :1/4: ECB as a non-majoritarian institution: where does legitimacy come from?
  4. 4. :1/4: where does legitimacy usually come from? There are three sources of legitimacy: (1) input legitimacy, (2) procedural legitimacy, (3) output legitimacy (Thatcher and Stone Sweet: 18-19). Normally (2) and (3) are used to evaluate the institution performance and legitimise it through (1).
  5. 5. :1/4: what are NMIs? Non-majoritarian institutions are the “governmental entities that (a) possess and exercise some grant of specialised public authority, separate from that of other institutions, but (b) are neither directly elected by the people, nor directly managed by elected officials” (Thatcher and Stone Sweet: 2). So NMIs have no input legitimacy channel. How are they legitimised?
  6. 6. :1/4: how are NMIs legitimised? The 'eye of the beholder' problem ‘Output legitimacy’ is the current standard justification for NMIs... The legitimacy of NMIs is only at issue when agents are corrupted, or fail to deliver adequate levels of promised benefits. (Thatcher and Stone Sweet: 18) But what is adequate is in the eye of the beholder.
  7. 7. :1/4: does output work without input? iPod theory: you 'legitimise' your iPod at the moment you take a decision to buy it
  8. 8. :1/4: does output work without input? Once the input is made, the institution works itself. It is protected from interference so all you can do is enjoy it.
  9. 9. :1/4: does output work without input? Circumstances change, and you are no longer happy with the iPod. At this moment its legitimacy is low. You would need a bottle opener, but the input channel is blocked. You hate your iPod. But it's not the iPod's fault. That's 'the eye of beholder' problem.
  10. 10. :1/4: is being illegitimate risky? Yes, unless the NMI is well protected from political interference
  11. 11. :1/4: what is a legitimacy attack? LA is a situation when the NMI's autonomy is questioned by the people or by elected politicians because of decrease in legitimacy.
  12. 12. :1/4: what is a legitimacy attack? I'm interested in looking on how the ECB responds to the legitimacy attacks. Let's pick the two that occurred so far!
  13. 13. :2/4: Global financial crisis: preparing the strike
  14. 14. :2/4: how legitimate is the ECB? 60 50 Distrust 40 Trust 30 20 aut99 aut00 aut01 aut02 aut03 aut04 aut05 aut06 aut07 aut08 aut09 It's not quite clear from the Eurobarometer graph what effect the financial crisis had on the ECB legitimacy.
  15. 15. :2/4: how legitimate is the ECB? Check out the huge leap in trust/distrust made in 2007-9.
  16. 16. :2/4: is it because of high inflation? 51 3,50% 50 3,00% 49 48 2,50% 47 2,00% Trust 46 inflation 1,50% 45 (one year 44 1,00% lag) 43 0,50% 42 41 0,00% aut00 aut02 aut04 aut06 aut08 aut99 aut01 aut03 aut05 aut07 aut09
  17. 17. :2/4: is it because of high inflation? No, it's not. Correlation between inflation and trust in the ECB is 0,45, whereas normally it should at least be negative.
  18. 18. :2/4: where's the reward? The ECB has done a good job controlling the inflation and driving the economy out of the crisis (see G.Glöcker's presentation a fortnight ago). But is has become less legitimate.
  19. 19. :2/4: where's the reward? The reward is it's not yet smashed. But this is due to the constitutional protection.
  20. 20. :2/4: was the attack unaddressed? legitimacy attack
  21. 21. :3/4: What happens to our iPod when Greece comes in?
  22. 22. :3/4: So far Germans did not want the reform
  23. 23. :3/4: So far Germans did not want the reform
  24. 24. :3/4: So far Germans did not want the reform
  25. 25. :3/4: The same characters. Entries le g.é. February 11th: Merkel says the EU would need an economic government => the window of opportunity is open
  26. 26. :4/4: What's on the ECB's mind?
  27. 27. :4/4: What's on the ECB's mind? (1) (1) secure the right g.é. discourse “Independence does not mean loneliness. Having a counterpart would be good.” (Glöcker)
  28. 28. :4/4: Which discourse is right? “Competitiveness was largely overlooked. In some countries the costs are persistently higher. They never get lower, so the lag accumulates. That's why the ECB would like to see some sort of a competitiveness pillar on the economic side of the EMU, some special tools to overcome the competitiveness problem.” (Glöcker)
  29. 29. :4/4: New tools? “The Commission... instrument would be constituted by a system of coordinated bilateral loans and would be compatible with the no bail-out clause and with strict conditionality. The creation of this instrument does not imply its immediate activation. Our objective is an instrument designed within the euro area, with conditions and management established by the euro area and its institutions... I do not want to speculate if there will be a financial contribution from the IMF. What is important is to agree on a Euro area instrument.” (Barroso)
  30. 30. :4/4: New tools: the reply “New institutions won't help if the existing ones are ignored.” (Axel Weber) “But then again, there is no need for something new, for some new rules. There is a lot of rules in Europe already, so instead of creating something new they could just apply what already exists.” (Gabriel Glöcker)
  31. 31. :4/4: What's on the ECB's mind? (2) (2) secure the EMU integrity
  32. 32. :4/4: Who are the suspects? (Jones: 1088)
  33. 33. :4/4: Survival of the fittest "In the future we need an entry in the treaty that would make it possible, as a last resort, to exclude a country from the euro zone if the conditions are not fulfilled again and again over the long term" (Angela Merkel, March 17th)
  34. 34. :: Conclusion
  35. 35. :: Bibliography Atkins, Ralph, and Quentin Peel, 'Germans oppose Greek aid, poll shows', Financial times, March 21, 2010, http://www.ft.com/cms/s/0/ee055e82-3529- 11df-9cfb-00144feabdc0.html, retrieved March 22, 2010. Eurobarometer, Eurobaromètre Standard 72, Brussels, European Commission, 2010. Glöcker, Gabriel, Deputy head of the European Union Institutions Division, European Central Bank, Interview, Bruges, March 5, 2010. Jones, Erik, 'Output Legitimacy and the Global Financial Crisis: Perceptions Matter', JCMS: Journal of Common Market Studies 47, no. 5, 2009, pp. 1085- 1105. Kessler, Roman, 'Trichet Comments Leave Door Open to EMF', Wall Street Journal, March 11, 2010, http://online.wsj.com/article/SB1000142405274870370100457511397366181 6294.html, retrieved March 23, 2010. 'Merkel wants scope to expel eurozone troublemakers', EurActiv, http://www.euractiv.com/en/priorities/merkel-wants-scope-expel-eurozone- troublemakers-news-354178, retrieved March 23, 2010. 'Statement of President Barroso on the creation of a Euro area instrument for coordinated assistance to Greece', EUROPA - Press releases, http://europa.eu/rapid/pressReleasesAction.do? reference=MEMO/10/90&format=HTML&aged=0&language=EN&guiLanguage= en, retrieved March 23, 2010. Thatcher, Mark, and Alec Stone Sweet, 'Theory and Practice of Delegation to Non-Majoritarian Institutions', West European Politics 25, no. 1, 2002, pp. 1-22.

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