Abstract
When accepting the Maastricht treaty, the members of the Euro-zone agreed on the establishment of a very independent European Central Bank (ECB). Over the years, however, French political leaders systematically brought forward proposals undermining the ECB’s independence, much to the dismay of their German counterparts. This pattern of political disagreement on central bank independence has again surfaced during the current sovereign debt crisis, and has contributed to the discord amongst the Euro-zone members on the causes and proper solutions to the problems. This article conducts tests of various factors generally expected to influence the preference for central bank independence. It shows that economic explanations are unable to account for the persistent differences amongst European member-states on this issue. In contrast, national differences in political and economic culture and especially a nation’s score on the dimension Power Distance—its acceptance of centralisation of power in political leaders or institutions—does show a correlation with the different levels of internalisation of the norm of central bank independence. These findings show that institutionalisation of economic norms does not imply their internalisation by the political and the economic elite. In the broader context of current European politics, this may mean that even if European leaders will be able to come up with a common institutional answer to the current crisis, more profound convergence of their underlying economic and political cultures is needed for the successful and sustainable implementation of these solutions.
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Notes
Dodd (2001) also points to the importance of the sociological aspects of the EMU and euro.
Due to its fragmented political system, it is difficult to speak of a unitary German position on European economic and monetary integration. At times, the position of the German financial elite diverges almost as much from that of the German political elite as from that of the French politicians.
According to Szász (1999: 114), for France to accept independent ECB “cannot have been an easy decision. An independent central bank is at variance with French centralist tradition”.
French pleas for the establishment of a ‘gouvernement économique’ should not be regarded as a plea for the supra-nationalisation of member-states’ economic policies (Van Esch 2007), as is also apparent from the most recent plans along this line of Fall 2011 (see Section 3.2.1). French plans to establish a ‘gouvernement économique’ are first and fore-mostly motivated by a desire to transfer decision-making firmly in the hands of democratically elected high politicians rather than the unelected ‘functionaires’ of the ECB.
Howarth suggests that the issue of an economic government ‘provided a useful bargaining chip in the negotiations with the Germans’ (Howarth 2000: 143).
In October 1990, the Bundesbank argued that the ESCB should be given the sole responsibility for interventions in capital markets and should have co-decision rights on all other external monetary policy decisions.
Another frequently used index of central bank independence is that of Cukierman (1992) and Cukierman et al. (1992). Van Lelyveld (2000: Appendix 7-A) presents an updated version of this index, which includes changes in the legislation up to 1994. At that time, however, not all countries had brought the requirements of the EMU into their national legislation.
For the period January 1999 to June 2011, the evidence is based amongst others on a systematic search of articles published in the Financial Times (search-items: “ECB” and “the name of the head of state”).
In addition to these, the structure of the banking sector and the exchange rate regime are mentioned. However, we will not discuss these since France and Germany (as well as the other Euro-zone states) did not differ on these variables since the inception of EMS. Therefore, these factors cannot offer an explanation for the current difference in attitude towards central bank independence (De Jong 2002; Posen 1995; Van Lelyveld 2000: Chapter 7).
This method is superior to methods in which one calculates the relative inflation aversion by dividing the scores on two separate questions one on inflation fighting and the other on fighting unemployment. Since in these questionnaires the respondents are not forced to make the trade-off between inflation and unemployment, they regard both fighting inflation and fighting unemployment as important, so that these methods have to deal with a very high number of ties. As these methods, the current method has the disadvantage that the answers are influenced by the stance of the business cycle (level of unemployment). Moreover, this question is asked only twice: in 1976 and 1997.
On average the respondents in Hoppe’s survey, conducted in 1984, have five more years of formal education than the Hofstede IBM employees. More than two-thirds held doctorates or master’s-level degrees (see Hofstede 2001: 126–127). Results for the Cukierman-index are similar to those reported in the text and can be obtained from the authors.
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Acknowledgment
The authors thank Iman van Lelyveld for the data of the Cukierman-index for the period 1990–1997, Sipke Overbeeke for research assistance, and Christian Bogmans for editorial assistance. Extensive comments are acknowledged from Paul Schure, Katrinn Ulrich, Bertjan Verbeek, Amy Verdun, Michiel de Vries, and participants of the ECSA-C conference of May 2004 in Montreal and of the ECPS of March-April 2005 in Durham. The responsibility for the way the information is used is ours.
Appendix: Data sources
Appendix: Data sources
Central bank independence: Masciandaro and Spinelli (1994) for 1990 and Tavelli et al. (1998: 343) for 1997.
Government debt as a percentage of GDP in the 1980s: De Haan and Van ‘t Hag (1995, Appendix).
Government debts and deficits as a percentage of GDP during the period 1995–2007: Eurostat, Summary Table Consolidated General Government;
Checks and balances in the legislative system.
Strong checks and balances: at least two decision bodies exist which are independent of each other, which have different preferences, and each body has veto power.
Weak checks and balances: At least two decision bodies exist with different preferences, but one body is decisive while the other can only delay a decision.
No checks and balances: there is only one decision body,… or if several exist, they have identical preferences. See Moser (1999: 1580, 1581).
Change is the frequency of government changes during the 1980s: De Haan and Van ‘t Hag (1995, Appendix).
SIGN is the frequency of government changes when another party comes into power: De Haan and Van ‘t Hag (1995, Appendix).
RUA is the Relative Unemployment Aversion, the higher the number the higher (smaller) the aversion for unemployment (inflation), Van Lelyveld (2000, Table 7.1).
Power distance: Hofstede (2001) for both Hofstede’s and Hoppe’s measure.
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van Esch, F., de Jong, E. Institutionalisation without internalisation. The cultural dimension of French-German conflicts on European Central Bank independence. Int Econ Econ Policy 10, 631–648 (2013). https://doi.org/10.1007/s10368-012-0220-9
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DOI: https://doi.org/10.1007/s10368-012-0220-9