EXECUTIVE SUMMARY

• In the wake of the successive crises that have affected the euro area over the last twelve years, the role of the European Central Bank (ECB) in managing the euro-area economy has expanded considerably. Its use of less-conventional monetary tools and various asset purchase programmes has increased its footprint in financial markets and in the real economy. Although we consider that this development has been warranted by the situation, it increases the need to ensure effective accountability to the European Parliament (EP), the only directly-elected EU institution.

• This paper assesses the current ECB accountability framework, and compares it to that of the Bank of Japan (BoJ). Even if the functioning and degrees of independence of the BoJ and ECB differ significantly, some useful lessons can nonetheless be drawn from the Japanese experience.

• To be more accountable, the ECB’s primary and secondary objectives should be clarified and transparency about decision-making should be increased. Moreover, in contrast to parliaments of other jurisdictions, the European Parliament’s competences are very limited: it can neither appoint nor sanction the ECB’s Executive Board members, while fundamental changes in the functioning of the ECB would require a change to the EU Treaties, which must be approved unanimously by EU Member States.

• The BoJ Act of 1997 intended to increase BoJ independence, but the BoJ remains much less independent than other major central banks, and in particular the ECB. There is a high degree of government involvement in monetary policy decisions in Japan, as “close contact” and coordination are written into law and established in practice. For instance, while the main objectives of the BoJ are enshrined in Japanese law, the quantitative definition of price stability (which evolved over time) is determined by the BoJ, but the most recent change has been heavily influenced by the government. The Japanese Parliament is also much more powerful than the EP as it can modify the law governing the functioning of the BoJ and veto appointments to the BoJ Policy Board. BoJ decision-making processes are also more transparent than those of the ECB, as the BoJ publishes detailed minutes of monetary policy meetings with details of individual votes and reasons for dissent.