EU Parliament: ECB accountable for not supporting real economy

European Central Bank President Mario Draghi attends a European Parliament plenary session in Strasbourg, (European Parliament photographic library).

The European Parliament yesterday held the European Central Bank accountable for the lack of dissemination to the real economy of the cheap liquidity the central bank has accorded to commercial banks. The resolution adopted during the Parliament’s annual evaluation of the ECB’s activities, addresses both the ECB’s monetary policy responses to the Eurozone crisis and its more political activities. It argues that the ECB should do more to promote growth and jobs.

During the past three crisis years the European Central Bank has injected anything around €4.5 trillion to Eurozone commercial banks. Out of that huge amount almost nothing has been passed on to the real economy. All along this time the overall balance of bank loans to households and business has actually decreased. The recipient commercial banks of this cheap and abundant liquidity bonanza have withheld it to cover their own balance sheet needs.

In detail the Economic and monetary affairs Committee of the European Parliament in its plenary session of Wednesday 17 April voted a resolution, calling the European Central Bank to do more to ensure that its cheap loans to banks were being passed on to the real economy. The text stressed that the ECB itself must become more transparent and accountable in line with its growing role in the Eurozone. On Tuesday MEPs discussed the work of the ECB with its President Mario Draghi.

Parliament guides the ECB

The Parliament however took a step forward in guiding the ECB. The resolution stressed that the Eurozone’s central bank in its increased role over the financial and real economy crisis can take concrete action in helping the real economy. In this respect the European parliamentarians urged the ECB, “to take measures like those designed by the Bank of England to ensure that cheap central bank loans to banks are passed on to the real economy”. The resolution also outlines a future banking union and the ECB’s role in it. Finally, it raises concerns about the limited democratic accountability and transparency of an ECB, which has grown more politically prominent due to the Eurozone crisis.
A majority of MEPs taking the floor urged Draghi to move away from what they saw as an austerity-based focus, arguing that this would not deliver growth and was even proving counterproductive as jobs and growth figures fall further in various countries. They also urged the ECB to take action to help small and medium enterprises more directly and the real economy more widely. Various centre-right MEPs, by contrast, urged the ECB to stay its current course.

Not all MEPs agree

Mr Draghi replied that the ECB would remain “firmly committed to its price stability mandate”. He added that the ECB alone could not resolve the crisis – EU member states needed to do their work, too. This is a position Draghi has held for quite some time. As the European Sting writer George Pepper wrote yesterday in his article entitled “G20 to Germany: Abandon miser policies” the governor of central bank “Mario Draghi said recently, the ECB cannot continue performing every time all the time the job of other’s, meaning that Eurozone governments should undertake the task that is theirs’. This statement by Draghi has many recipients. Firstly it’s the over indebted Eurozone governments that have to apply better and more carefully planned consolidation programmes. Secondly it’s the surplus countries like Germany, which must support real economy with fiscal measures and more so with better wages and salaries agreements, to help the entire Eurozone start growing again. Thirdly it’s the major banks that have to find more capital of their own and stop depending on the ECB for unlimited liquidity injections”.

In this affair Draghi obviously refers to the ECB’s main mandate which doesn’t allow the central bank of Eurozone to directly help governments and the real economy, as all the other major central banks can do. This is the case for the American Fed, the British Bank of England and the Japanese central bank, the BoJ. In view of that the European Parliament’s rapporteur Marisa Matias (GUE/NGL, PT) last Tuesday raised the issue of how to change the ECB’s job description. “The ECB’s mandate must be revised and expanded so that it can help the economy and jobs”, she said. However this was a key element dropped from the final text adopted by the plenary of the Economic and monetary affairs Committee yesterday.

The text finally adopted by Committee though “raises concerns about the limited democratic accountability and transparency of ECB which has grown more politically prominent due to the Eurozone crisis”. The fact remains that at the end the European Parliament appeared contented with the role of the ECB as it is today described by its statutes.

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