A Dangerous Fallacy

All men having power ought to be mistrusted.” James Madison

A few days ago, a major announcement was made by Mario Draghi, current president of the European Central Bank (ECB), intended to exorcise the spectre of the Euro disintegration. On September 6th, he announced the ECB would resume buying the bonds of troubled countries but upon the condition that those same countries submit to formal and externally monitored reform programmes.  Mr. Draghi justified the ECB’s action with the argument that high yields faced by certain European governments are not only the product of a higher credit risk, but also the result of markets’ “unfounded fear that the euro would break up”. My intention is not to assess the decision in technical terms but rather, the extremely worrying political assumptions and contradictions that can be detected in some aspects of the announcement and related press commentary.  

In the announcement, Mr. Draghi placed great emphasis on the fact that in taking the announced measures, the ECB acts “strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible”. He also made clear that it is for the policy-makers in the Euro area “to push ahead with great determination with fiscal consolidation, structural reforms to enhance competitiveness and European institution-building”.  He builds his statement on the assumption that it is indeed both possible and desirable to draw a line between what policy makers (i.e. politicians democratically elected and accountable) should do and a different type of more technical activity that should be left in the hands of experts.

Needless to say, this is not a fallacy invented by Mr. Draghi and it is certainly widespread in other political entities and countries.  It is a manifestation of the idea that certain tasks can only be performed by individuals equipped with highly technical knowledge and that can (and should) act independently.  I obviously agree with such a principle in certain contexts. I would not take a plane if the pilot had no knowledge of how to fly safely but simply because he had been democratically elected. Yet, its literal application to politics opens the door for the entrenchment of purely ideological constraints and agendas under the disguise of objective and technical decisions. Moreover, it raises the question of the hidden dangers of a seemingly independent official position when it allows some groups to enforce decisions that lack legitimacy. That is why any citizen that cares about freedom and democracy must be extra vigilant when that apparently sensible principle is invoked or simply taken for granted as beneficial.

In my opinion, the current financial crisis should have made clear to anyone who still had any doubts that: first, changes in the financial and monetary environment present a major force to determine political decisions and therefore, any official in charge of monetary policy is a major political actor that cannot be excused from the same checks, balances and accountability that are applicable (at least in theory) to any other member of government. In short, the president of any central bank is a politician and should therefore be subject to the same controls as any other. Furthermore, there is much to say about the stellar performance of professional economists, famous central bankers and other experts before and during the financial crisis. Just consider the role of Mr. Alan Greenspan who many regarded as the prime example of someone endowed with unparalleled insight into the arcane workings of the financial markets but whose decisions have been proven to be at least extremely reckless  if not plainly wrong.

In a democracy, those endowed with political power must be elected and held publicly accountable. Yet, the president of the ECB, as an independent central banker, is accountable to no government or parliament but only to other unelected central bankers in the ECB’s governing council. Furthermore, in stark contrast to the most basic principles of democratic discourse, any dissent or disagreement is not disclosed or discussed. Consider Mr. Draghi’s response when asked whether the decision to resume buying the bonds had been unanimous: “Well, it was not unanimous. There was one dissenting view. We do not disclose the details of our work. It is up to you to guess”. What justifies the secrecy? Since we are not considering matters of vital national security but rather, a conclusion based on careful considerations by experts, shouldn’t it be demanded that those details are disclosed and both the prevailing and dissenting views are explained? Why the fear of public scrutiny?

In addition, the powers and influence of the ECB are increasing. The proposed new banking supervisor for the euro zone will be an offshoot of the ECB. The ECB’s officials are also part of the group that monitors and enforces countries’ compliance with their bail-out conditions. Furthermore, when it comes to the future of the euro zone, Mr. Draghi has become a key driver in drafting a “road map” for future integration. All these developments make it even more pressing for us to rethink what course European politics are really taken.

The stakes are too high and despite the evident mistakes of our politicians, we cannot surrender basic principles of any really democratic government and follow the commands of experts that are not willing to provide evidence and justification for their decisions.

As things stand, the ECB is defining the limits of its own activities and immune to political accountability. When asked what gave him the democratic legitimation and authority to say that the euro is irreversible (since the EU treaties do not stipulate that it is the role of the ECB to decide what kind of currency the European countries have), his response was “we will do whatever it takes within our mandate – within our mandate – to have a single monetary policy in the euro area, to maintain price stability in the euro area and to preserve the euro. And we say that the euro is irreversible. So unfounded fears of reversibility are just what they are: unfounded fears. And we think this falls squarely within our mandate” (underline is mine).  In other words, it is up to the ECB to interpret the extent of its mandate. I am sad to say that it gives the uncomfortable feeling of unchecked and rather totalitarian authority.

Mr. Draghi himself spelled out his own political views for the future of the EU in a piece published in “Die Zeit”, on 29 August 2012.

“The objectives of the single currency remain as relevant today as they were when the single currency was agreed. To spread price stability and sustainable growth to all European citizens. To reap the gains of the world’s largest single market and make the historic process of European unification irreversible”. I cannot think of a more clearly stated political goal which will impact most thoroughly the present and future of every citizen of the member states of the EU. Let’s be clear about it, we are considering economic measures that are means to a clear political end. It is not acceptable to say that you are and should be independent when you are taking steps that directly impact and limit what can be decided by the citizens and their elected representatives. Should an unelected official, however qualified, make crucial decisions that shape that process and its results? I firmly think the answer to be negative.

Mr. Draghi goes on to say that the “when the euro was first proposed, there were those who said it would have to be preceded by a long process of political integration. This was because sharing a currency would imply a high degree of joint decision-making. Member countries would be a “Schicksalsgemeinschaft” and would need strong common democratic underpinnings. But a deliberate choice was made in the 1990s not to give the euro such features. (…) But as recent events have shown, this institutional framework left the euro area insufficiently equipped to ensure sound economic policies and effectively manage crises”. I could not agree more with his account and the assessment of the consequences.

It is shocking however, to read the other conclusions he draws from his line of reasoning. He states about the new framework that should correct the mistakes of the past: “this new architecture does not require a political union first. It is clear that monetary union does entail a higher degree of joint decision-making. But economic integration and political integration can develop in parallel”.  That is exactly the same type of argument that directly led us to this unsustainable model in the first place. Let’s muddle along and make fundamental political decisions as we go and somehow make them fit with economic decisions. His recipe is that to answer the question of how far the economic integration and political integration should go, “we can answer this question pragmatically: by calmly asking ourselves which are the minimum requirements to complete economic and monetary union. And in doing so, we will find that all the necessary measures are firmly within our reach”. He is already saying that the answer is “economic and monetary union” but that is clearly a political decision and no a ‘pragmatic’ or technical consideration that can or should be addressed separately. It is an insulting sleight of hand to say to any intelligent citizen, “don’t worry, we can first accomplish economic and monetary union and then we will discuss political integration”. What Mr. Draghi chooses to ignore is that those two are inextricably linked and how you go about the former is part of what you can do for the latter. I must make clear that I am not personally opposed to any of those goals but I expect that any decisions in that area are made by democratically elected representatives and not imposed by a bureaucratic body that will first design a cage, put me in it and then tell me that I can make any decision I want about my political freedom. My fate is sealed and I am ending up in the cage but according to Mr. Draghi, I will get to provide input to the designers about the color of the wallpaper during the construction.

If history has taught us anything is that political power has to be limited if we are to enjoy personal freedom. We cannot accept the fallacious argument that monetary and economic policies are any other than political decisions and should be managed by a different method. This is even more the case, in the historical process of defining an emerging political entity that will in all likelihood determine our present and that of future generations of Europeans. We must reject the seemingly harmless arguments that we can just be pragmatic and rest assured that certain experts will look after our well-being. We have seen far too often that such a road can only lead to the suppression of personal freedom and critical thought.

Categories: Economics and Finance, Politics | Leave a comment

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