The European Central Bank (ECB) has lost its independence after gaining additional powers following the 2011 sovereign debt crisis, a former member of its Governing Council has told CNBC.
Panicos Demetriades, formerly head of the Cypriot Central Bank, served as an ECB Governing Council member between 2012 as well as 2014. He resigned coming from his post due to tensions with the Cypriot government over the financial crisis which then was taking place inside the country. Media reports at the time suggested which the Cypriot government believed the central bank of Cyprus had made mistakes which led to a banking as well as subsequent financial collapse.
Demetriades told CNBC which he had received death threats as well as had to leave his post as well as Cyprus.
Speaking with CNBC in a phone conversation Monday, Demetriades said: “(ECB) President (Mario) Draghi has made his personal project to do ‘whatever the idea takes’ to save the euro as well as he’s been consistent with which. nevertheless which’s created some unintended consequences, such as the erosion of central bank independence, especially inside the periphery.”
In July 2012, Draghi claimed he might do “whatever the idea takes” to restore the euro zone economy as well as save the euro. According to Demetriades, This specific led to a general perception which governments could do what they wanted, as well as which the ECB might be there to rescue their economy, no matter what.
As a consequence, central bank governors — who are appointed by national governments as well as have a seat at the ECB table — might do whatever the idea takes to protect their national economy, he said.
Demetriades added which This specific erosion of independence “commenced in Cyprus as a result of the unprecedented banking crisis in 2013… as well as continued in Slovenia as well as Latvia, more recently.”
In 2016, Slovenian authorities investigated the country’s central bank chief Bostjan Jazbec for “criminal abuse of office” as well as seized documents which contained ECB information. More recently, the central bank governor of Latvia, Ilmars Rimsevics, was ousted following allegations of corruption. He claimed he was the victim of a concerted campaign by several banks.
“the idea’s very telling what happened to the Latvian governor, if you want to get rid of your governor, you just need some serious allegations as well as you can get the idea done over a weekend,” Demetriades told CNBC.
“The accumulation of additional powers inside the wake of the crisis, such as bank supervision as well as bank resolution, which are inherently more political, has created a backlash against central bank independence.”
The ECB did not want to comment on the issue when contacted by CNBC. nevertheless according to its website, “the political independence of the ECB is actually instrument to its primary objective of maintaining cost stability.”
Europe’s central bank was given additional powers inside the wake of the debt crisis which shook the continent to ensure a stronger financial stability. These included overseeing the balance sheet of the euro area banks as well as requesting additional capital if needed.
Arguably, the expansion of powers has increased the pressure on central bankers, who currently have to deal with more than just ensuring the right level of inflation.