The BCL is a public institution. Its independence is provided for by its founding law and by the Maastricht Treaty. This independence takes several forms: personal, institutional, operational and financial. The first consecrates the Governor’s independence as being a member in his personal capacity of the Governing Council of the ECB. It is materialised by the awarding of a long mandate (6 years) which is renewable. The second applies not only to the Governor as a member of the Governing Council, but also to the decision-making bodies of a National Central Bank (NCB) which shall not request nor accept instructions from third-party institutions and organs –European or national – or from national governments. The two other forms must ensure that an NCB will be able to acquire sufficient technical and financial means to allow the NCB to perform the missions which are part of its duties.
The justification for this independence mainly rests on the postulate of the neutrality of money in the long term. In other words, it is supposed that in the long term, there is no arbitrage between inflation and growth. In the short term, the effects of monetary policy are more marked for production than for prices. In the long term, however, the effects on production fade away and the effects on prices remain. Thus, in the long term, an economy will not benefit from increased growth, but will have to confront increased inflation.
Any temptation to use monetary policy in order to boost the economy in the short term must be avoided, because this could have negative effects on inflation in the mid or long term. This is why monetary policy has to be entrusted to an independent central bank. Governments, which are regularly subject to elections, could be tempted to obtain positive short-term effects without being concerned about the long-term effects.
Finally, monetary policy has no influence on the short-term volatility of prices and its effects on prices can also be observed after a certain lapse of time.
The corollary of this independence is an obligation to inform the public (hence some degree of accountability with regard to the set objectives). This information is given by speeches and publications such as quarterly bulletins or working papers. Moreover, the BCL is bound by law to publish an annual report which is transmitted to the Government and the Parliament.
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