The #ECB should now be elected to stop it showing more contempt for democracy

Last night saw something which opened up the Euro area debate to many who may have missed one of its themes. I will come to the detail in a moment but my theme that elected politicians in the Euro area have abrogated economic policy and handed it to the European Central Bank could not have been reinforced much more strongly. Does anybody recall  the election manifestoes of the 25 members of the ECB Governing Council ? No? That is because they have never stood for election. Even worse they were fewer in number if there was an actual vote because under the new rotation system the Governors of the central banks of France, Ireland and especially significant here Greece and Cyprus would not have had a vote. So we would have been down to 21 members who apparently feel that they can dictate economic policy to the new elected government of Greece. As we shall see the ECB has moved beyond its mandate of monetary policy to the more debatable arena of overall economic policy but has also intervened in politics against a government which could not have much more of a fresh mandate.

What did the ECB do?

The move is described below and is a type of double-negative.

The Governing Council of the European Central Bank (ECB) today decided to lift the waiver affecting marketable debt instruments issued or fully guaranteed by the Hellenic Republic. The waiver allowed these instruments to be used in Eurosystem monetary policy operations despite the fact that they did not fulfil minimum credit rating requirements. The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the programme review and is in line with existing Eurosystem rules.


The reason I wrote double-negative above is that the ECB had previously broken its own rules to allow Greek sovereign debt to be used as collateral with it. Now it is saying no to its previous no and leaving Greece cast adrift.

Suspension is in line with existing Eurosystem rules


What use are rules it applies at its own whim? Not much indeed we could go wider and wonder what the rules actually are as they seem rather malleable. Indeed we saw another example of this sort of thing from Germany’s Finance Minister Schaeuble yesterday. (h/t @mhewson_CMC and apologies for the capitals).



His own country has a national debt to GDP ratio of 75% according to Eurostat and the Euro area average in 92%. Alice In Wonderland wasn’t the half of it.

Why, sometimes I’ve believed as many as six impossible things before breakfast.


Another example of this is Peter Praet of the ECB Governing Council who is being reported as saying this to Les Echos this morning.

ECB Rules Transparent, No Exceptions for Greece


Well since around 9 pm last night anyway!

Who would this impact?

The initial impact would be felt by the Greek banks and if we consider them in isolation then they would be left looking to find a home for collateral that will not be usable at the ECB as of the 11 th of this month. They will find it at the Bank of Greece as the situation plunges one more time into an Alice In Wonderland world as the ECB moves the risk to the national central bank which is a constituent part of it and has a 2.9% share of it. If you like it in geographical terms the risk moves from Frankfurt to Athens.

So there is a clear signal here of the ECB reigning back its support for Greece and to some extent ring-fencing itself at least to the initial round of effects. For the banks there are a litany of issues of which the major ones are fear and contagion and something which appeared to be happening anyway which is a loss of deposits. A more explicit cost is that what is called ELA (Emergency Liquidity Assistance) funding has so far been more expensive than borrowing from the ECB itself.

There was an impact as markets opened earlier

 # Banks after minutes in session -23%

This was calmed a little later by the ECB leaking news that it has allowed the Bank of Greece to do an extra 10 billion Euros of ELA if necessary. Yes it will be necessary and sooner or later markets will get around to thinking that it is not enough. Also we need some perspective here as Greek bank shares have to look -up quite a long way to see even bargain basement levels

Greek government bonds have also fallen heavily today and yields have soared. But whilst there is a media impact the actual financial impact is low as Greece is unlikely to be issuing any bonds any time soon. It did issue some short-dated bills yesterday at 2.75% which frankly seems remarkably cheap so I hope that readers do not have any!

What about a bank run?

Back in the day when I was an economics student I was taught that one of the roles of a central bank was to prevent bank runs and if they happened to ameliorate them. Whereas we see the ECB acting as if it is on the verge of firing the starting gun on one. This does of course reinforce my theme that it is not a proper central bank but even for it this is rather extraordinary.

Is Grexit more likely?

Yes but sadly it is still a low percentage chance as I expect the various game players to have more than a few extra throws of the dice before this is over. Another alternative can be seen a little to the south of Greece on the island of Cyprus. Greece may find itself mulling the name of the group “House of Pain” as it heads down a road of capital controls and haircuts from bank deposits in the way that Cyprus did. Of course should bank deposits start to see such a possibility well what would you do?


As the news was released last night I likened this move to a much nastier tackle than anything I had seen in the Bolton versus Liverpool FA Cup replay. The more I think about it the worse it gets in every respect. The fundamental issue is that a group of unelected supposed technocrats are able to dictate to a recently elected government. Much of that is the fault of the elected politicians of the Euro area who vacated the scene and left what are their job and roles to the ECB.

In addition as a tactical move it poses problems as the ECB has left itself on the road below if Greece plays hard ball in response and continues its “no to blackmail” line.

We’re on a road to nowhere
Come on inside
Takin’ that ride to nowhere
We’ll take that ride


After all there is some 80% of Greek debt in official hands including the ECB’s. As Joseph Stalin might have put it.

How many divisions does the ECB have?


The critique I have long applied to the Bank of England also applies to the ECB and I suggest the same remedy.

Also I have a further thought and it does indicate quite a change. As the role of the Monetary Policy Committee has changed and expanded more than could have been forecast when it was introduced in1997 there need to be new checks and balances on its power. My suggestion for a change is that MPC members should stand for election as they are currently much more powerful than many of our elected representatives.


Share Radio

I was interviewed on Share Radio’s Morning Money show earlier so for those of you who prefer to listen to my analysis rather than read it here it is.



26 thoughts on “The #ECB should now be elected to stop it showing more contempt for democracy

  1. Economists seem to be very dim about almost everything else ,

    ECB is elected ,
    the same as a pope is elected , if you don’t like the pope…… stop going to church….
    if you don’t like the methods of ECB don’t vote for people that do , and don’t give them your money , the fact that you think ‘democracy’ is a solution to unaccountability suggests you are way behind the curve , if you boys in the city don’t like the game……. don’t trade the paper !

    • So not voting for ALL of the major parties in the UK at the upcoming Election will make the appointed and unelected technocrats of Europe more accountable will it?. Sorry I must also be a bit dim but how does that work exactly?

      • as far as I can see it we only have 3 choices offered by government :
        1. leave the planet
        2. agorism (living without money)
        3. pitchforks

        thanks for slowing down a bit I might get a chance to read your excellent posts ! always grateful R

    • ” the fact that you think ‘democracy’ is a solution to unaccountability suggests you are way behind the curve” – couldn’t agree more – a lot of idealism surrounds the notion of “democracy” when all you have to do is look around at the so called “democratic” countries to see how effective it is. It is only slightly more representative then the show going on in China.

  2. Great article again Shaun, thanks.
    I suspect there is a darker motive behind the actions of the ECB. That of destroying the credibility of the first truly left wing government elected in Europe in recent decades.
    As we saw with other referenda in recent years, if you don’t get the desired result then ask the question again. In this case, it is the policies of an elected government that don’t fit the European agenda. In order to change that, they will need to discredit Syriza first.

    • You have hit the nail on the head. Anything that exposes the Euro project for what it is or threatens the further integration of European countries, will be hammered by the Eurocrats. They want to crush Syriza to discourage others.

      • Syriza can disarm their poison, by calling a referendum on GrExit. The same referendum that their predecessor reneged on after Merkel pressure ….

        Real referendums – increase EC discomfort

    • Stanishev got elected recently, and he’s as left wing as they come with his Moscow education and rebadged communist party. Big spending on his roads construction program, but I found the actual road works pretty much invisible.

      What matters to Greece is finding a govt that is honestly working for society, not just another new face in a chain of kleptocrats. Corruption is as common on the left as the right, and the EC is totally unaccountable to voters, taxpayers etc.

      to misquote Bill Clinton, “it’s about corruption, stupid”

      • Yes I take your point and stand corrected.
        There are many pro-europe left wing groups and parties that support the idea of the european superstate and the positions of power such a state brings for them.
        Perhaps I should have said the first “anti-austerity government to be elected”.

        • Maybe he’ll become the first EC politician to accept a NO vote in a Euro referendum. That will cause consternation within Brussels….

  3. I just listened to the radio link. Anyone who has read all of Shaun’s columns could still listen to it with enjoyment and profit. I liked the comparison between Carney calling for a European fiscal union and Draghi coming out for Scottish independence.

  4. The trouble with can-kicking is that nobody wants to get caught kicking the can. Whosoever puts their name to crashing Greece would be tagged the scapegoat, easier to pull the levers through unelected bureaucrats. The longer this goes on, the more shadowy it gets. Witness Yanis scooting around talking to the various heads of state, but who does he talk to that runs Europe? Who is in charge of the show? It brings to mind a Nelson quote (purported), “never mind the maneuvers, go straight at ’em”. But there’s no flagship to rake, nobody to really hold to account.

    • Hi Peter

      Your point is very valid. From time to time we are told that Chancellor Merkel is running the show or that there is a French/German axis. Whereas in fact the only French/German axis has been between their banks who evaded calamitous losses by socialising them via the ECB,EFSF,ESM,and IMF. There are plenty of faceless bureaucrats there.

  5. Shaun,
    I think it’s been clear to everyone since Syriza chose the Independent Greeks as their coalition partner that Grexit is the most likely outcome. The only thing to fight over is who gets the blame. It’s the ECB, because there is no-one else to front for the politicians. Is it likely the ECB made its move without at least Paris, Rome, Berlin and Madrid being on board?

    • Grexit isn’t a threat to the ECB. Badly shortchanging German voters might create an AfD govt -> which is an existential threat to the ECB and many highly paid jobs.

  6. erm , isnt the whole United States of Europe an affront to democracy ?

    after that Irish vote …….

    Back to economics , perhaps, Greece should exit, default and then prosecute , like Iceland…

    But I suspect the lure of cozy jobs at the EU are making in roads to any election promise ….

    such is life … poor Greeks , no matter who you elect they all get corrupted by vast amounts of Euro gold …….


    • who exactly do they prosecute ? Goldman sachs ? or the ECB for allowing them entry ?
      It’s all a bit monty python ….. and the holy grail is wealth creation
      this technocrat scenario plays out in planning with regional development agencies and the like
      people don’t know what they vote for…. because they are even stupider than us

    • Tsipras rides a motorbike. The kleptocrats might arrange a convenient fatal “accident” to avoid / warn off prosecutors. Alternately they might just copy the KGB and go for unsubtle assassination

  7. You can hardly blame the ECB for showing contempt for democracy when our politicians have led the way.
    Who had a mandate to impoverish the nation for the sake of banksters?
    Whom do I vote for to end the farce that is austerity?
    Democracy died the same day as capitalism; when so-called liberal democracies’ govts. forsook their electorates in favour of financial institutions.

    • Hi therrawbuzzin

      I agree that democracy has large problems in the shape of our political class who exist for the purpose of existing and to enrich themselves. “Reform” of the House of Lords made it packed full of political cronies and failures as well as bulging at the seams with members. The same themes play out in Europe often even more strongly and on that scale I too have some sympathy with the ECB which must survey the landscape and feel rather alone.

  8. Excellent article, Shaun. I am reminded of a quote from Tony Benn (of all people): “Democracy is not something those in power “do”. It is something we all need to practice everyday, at work, at home and in our thinking”.
    Unelected bureaucrats need to have a course in political honesty (although that sounds like oxymoron)
    Ray Fletcher

    • Hi Ray,

      Democracy is to quote Simple Minds “Alive and Kicking” in Iceland where they had a referendum on subsidizing failed banks. Switzerland is well managed, and they frequently hold referendums

      I suggest the answer is simple, copy best International practice, allow referendums by public demand and make the results legally binding over the politicians

  9. Exactly what would change if we elected the ECB members in a similar manner to to we “elect” the European parliament ?

    The Euro treatys explicitly ruled out cross border bailouts. Just who has been prosecuted for violating this ?

    • Hi ExpatInBG

      My hope would be twofold. That others with beliefs like mine- as in having some beliefs not necessarily the same as mine- would stand. Also that it would be a specific mandate as opposed to the polymorphous nature of what an elected MP/MEP/MSP is supposed to have been voted in for.

      The risk is that the same old crew get elected i agree.

  10. The ECB plays a dangerous game of bluff with Greece. The new Government may call them out and leave the EZ – then what for all that paper the ECB holds?

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