From Prof Willem H. Buiter.
Sir, The European Central Bank is about to propose extending the payments system used for central bank clearing and settlement operations (Target1) to cover securities settlements through its proposed Target2-Securities (T2S) scheme. This would be owned and managed by the ECB.
It may well be that securities settlement is a natural monopoly and that costs can only be minimised by providing a single platform for the eurozone. It is even possible (although by no means self-evident) that a regulated public entity with access to ECB liquidity would be the best arrangement for managing such a natural monopoly. Having the ECB itself own and run these operations raises a fundamental constitutional issue, however.
The ECB is the most independent central bank in the world. While the treaty and protocols do not give the ECB the power to set either the ultimate targets of monetary policy or the operational targets, they do grant it an extraordinary degree of operational independence. As a result the ECB is not substantively accountable to anyone. There is only formal accountability - reporting duties, that is the obligation to provide certain information and to explain its actions to the European parliament. If the information and explanation do not satisfy those to whom the ECB is formally accountable, no sanctions can be imposed by the parliament or anyone else. ECB governing council members have bullet-proof job and remuneration security. For instance, even if a member of the executive board no longer fulfils the conditions required for the performance of his duties, or if he has been guilty of serious misconduct, only the European Court of Justice can compulsorily retire him. Gross incompetence is not grounds for dismissal. The financial resources of the ECB are ring-fenced securely.
Such a high degree of operational independence, and the absence of substantive accountability it inevitably entails, may be desirable, even necessary, for the agency managing monetary policy. It is unnecessary and undesirable for the manager of the securities settlement and clearing system.
The domain of unaccountability of the ECB should be restricted, not further expanded. The logic of accountability suggests that even Target1, the interbank clearing and settlement system of the eurozone, be removed from ECB ownership and control and turned over to a separate agency (with appropriate guaranteed access to ECB liquidity). The ECB's proposal for Target2-Securities with the ECB in charge is a form of mission and mandate creep that must be resisted. The legitimacy of central bank independence where it makes sense - in the conduct of monetary policy - is undermined when the independent central bank accumulates tasks and functions that do not require that same degree of independence.
Willem H. Buiter,
Chair in European Political Economy,
London School of Economics