Can central banks be institutions of the constituent power? If so, what does this mean in terms of their political role and their legitimacy? In tandem with the increasing involvement of politically independent central banks in governing our economic lives, the question of their democratic foundations and legitimacy arises. This is because central bank legitimacy fits uneasily within the mechanisms of ordinary democratic politics. Elections are rarely, if ever, decided on questions of monetary policy, and it is often unclear what power, if any, elected politicians have over central banks. The question of the relationship between the central bank and ‘the people’ is therefore of some importance.
This does not have to involve the question of the constituent power, but it may. With reference to the European Central Bank (ECB) – one of the few central banks in the world that can meaningfully, albeit controversially, be considered an institution of the constituent power – this contribution discusses the consequences of thinking about central banks through the lens of constituent power. While reference to the constituent power promises to establish a firm democratic foundation for the central bank, the elevation of the central bank’s mandate and authority to the constitutional level comes with certain problems. In particular, it risks rendering the mandate of the central bank too rigid to be practical in crises, thereby prompting a politics of suspending or altering the mandate in an emergency situation. This, of course, is often anything but democratic.
Most central banks are not institutions of the constituent power. Their position within the modern state has developed gradually and been entirely elite-driven. They are constituted powers, of course, but their authority is derived from other constituted powers that can withdraw or alter them at will. They are products of secondary law, not the primary law of the constitution, and were created by ordinary political representatives working within constituted legislatures, not ‘the people/nation’ or its extraordinary representatives in revolutions or constituent assemblies. As such they could be called ‘secondary’ constituted powers as opposed to the ‘primary’ constituted powers that create them (typically legislatures).
Some central banks, however, have been created in extraordinary political moments. The post-World War II German central bank, for instance, was created a year before the Basic Law constituted the Federal Republic in 1949, and it enjoyed an extraordinary position in the life of the West German state. Following its creation, the Bundesbank quickly became a symbol of a break with Germany’s past and presented itself as a bulwark against the dangerous excesses of politics. Through actively cultivating public opinion in its favour, the Bundesbank successfully established itself as an independent power within the state on a par with the legislature and government. In conflicts with the government, the Bundesbank appealed to ‘the people’, and, more often than not, it carried the day (Mee, 2019). The Bundesbank, however, was formally still a secondary constituted power, as the Bundestag held the right to alter or abolish it through ordinary legislation. If there was a connection between the German people and the Bundesbank, it was informal – but no less effective for that.
When the European Central Bank was created, the Bundesbank was the main source of inspiration. Like the Bundesbank, the ECB was created in a moment that marked a transformational break with the past. Like the Bundesbank, the ECB was to be independent of political instruction. Unlike the Bundesbank, however, the ECB’s mandate and institutional status were fixed in primary law, the Maastricht Treaty. This means that no constituted power has the right to alter or abolish the ECB through ordinary legislation. Its acts cannot be vetoed, and it cannot, in principle, be compelled to do anything against its will. In matters pertaining to its Treaty mandate, it can legislate without the involvement of other constituted bodies and execute its will throughout the territory of the Eurozone without the involvement of Member State authorities. The only check on the ECB’s powers is judicial: it must act in accordance with the mandate given to it by the Treaty.
Such powers, combined with the independence from political authorities, make the ECB unique among central banks. The question is whether it is an institution of the constituent power.
The answer to this question depends to a certain extent on how the constituent power is conceptualised. In Dictatorship, Carl Schmitt (2014, p. 123), referring to Sieyès, defines the constituent power as
the primordial force of any state … From the infinite, incomprehensible abyss of the force [Macht] of the pouvoir constituant, new forms emerge incessantly, which it can destroy at any time and in which its power is never limited for good. It can will arbitrarily. The content of the willing has always the same legal value like the content of a constitutional definition.
In this definition, there is nothing inherent in the idea of the constituent power that precludes the possibility of central banks being institutions of the constituent power. Nothing, after all, can prevent the nation/people from creating whatever constitutional forms it desires. Thus, while central banks are not ordinarily institutions of the constituent power, it is a theoretical possibility.
Possibility, of course, is not actuality, and there are some difficulties associated with the concept of the constituent power in the context of the European Union. One of these is that the treaties were not products of constituent assemblies (except the failed Constitutional Treaty), but rather intergovernmental conferences. The primary law of the EU is thus not a product of a formless constituent power, but of an agreement between several constituted powers. Again, however, the theory of the constituent power, as formulated by the Abbé Sieyès (2014, p. 91), can allow for this through the concept of extraordinary representation. What distinguishes the adoption of the EU treaties from other international treaties is that it transforms the political status of the signatories – ‘from nation states to Member States’ (Bickerton, p. 2012) – as well as how they govern themselves (Larsen, 2021). In the Eurozone this is particularly clear, as the creation of the ECB introduced a transnational power that can implement its will within the territories of the member states without involving national authorities. The ratification of the Maastricht Treaty can thus be seen as an extraordinary political act that profoundly altered the constitutional order of both the EU and its member states. The ordinary representatives that signed (heads of states and governments) and ratified the Treaty (in most cases, parliaments) thereby acted as extraordinary representatives.
However, even if the concept of extraordinary representation is accepted, the EU cannot be characterised as the product of the will of a single constituent power. Jürgen Habermas (2012) has sought to overcome this problem through conceiving of the treaties as products of a pouvoir constituant mixte that consists of the citizens of Europe in a dual capacity: as citizens of the EU and of their respective member states. Notwithstanding the problem that citizenship is of course a constituted legal status, this highlights that if the concept of constituent power is to make sense in the EU context, it must be in the plural. The ECB (2002, p. 46; emphasis added) strikes a similar note in describing its foundations of authority: ‘It was the sovereign decision of the peoples of Europe (through their elected representatives) to transfer the competency for monetary policy and the other tasks enumerated in the Treaty to a newly created European body, and to endow it with independence from political interference’. The ECB thereby strikes a chord similar to that of legal scholars such as Dieted Grimm (2015, p. 48) and Miguel Poiares Maduro (2008, para. 21), who argue that the EU treaties are attributed to the peoples of Europe, not the governments or parliaments of the member states. In this account, the ECB, and the EU in general, derives its right to govern from the same source as the member states themselves. The will of the European peoples may have been conveyed by elected representatives, but it is the will that matters, not how it is represented.
One can dispute whether the ECB was ‘really’ the will of the peoples. Few peoples were asked, and the German Chancellor at the time, Helmut Kohl, later admitted that in forcing through Germany’s adoption of the euro he acted as a dictator (Paul, 2010, p. 293). While this may disqualify the ECB’s claim to be a product of the will of the peoples, it does not necessarily mean that the ECB’s public law does not operate on the assumption that it is. In a sense, the ECB’s extraordinary powers and its independence in exercising them have to be attributed to the constituent power of the peoples. That there are multiple constituent powers involved, however, raises certain problems.
The ECB takes the idea of central bank independence to its extreme conclusion. Through the effective constitutionalisation of the ECB’s price stability mandate (art. 127 TFEU) and independence from political actors at both the European and Member State levels (art. 130 TFEU), the ECB derives its right to govern monetary affairs from primary law. No constituted power can alter its status or mandate through ordinary legislation. This is intended to insulate it from political pressures that might compromise its single-minded pursuit of price stability. In principle, the ECB and its powers can be altered or withdrawn only by a new ‘sovereign decision by the peoples of Europe’. This means that unless the constituent power of any of the member state peoples is abrogated, leaving them no longer a people in the legal-political sense, all hold veto power over any change. The mandate of the ECB is thereby potentially even more rigid, and thus inherently conservative, than that of institutions subject only to a single constituent power.
The ECB’s independence means that no constituted powers can hold the ECB accountable for its acts and omissions. The ECB must ‘report’ to other constituted powers at the European level (art. 284(3) TFEU), but these institutions have no means of punishing it if they think it is failing its obligations. The ECB’s ‘input legitimacy’ is thus limited to the founding moment, and it is, through its ‘output legitimacy’ (informally) accountable only to the peoples who gave it its mandate.
The ECB’s constitutional status also reflects Sieyès’ (2014, p. 89) principle that ‘[n]o type of delegated power can in any way alter the conditions of its delegation’. Just as no other constituted power can alter the ECB, so it cannot alter its own mandate. It is thereby controlled by law and judicial review alone. It is thereby part of a system of checks and balances that is supposed to ensure that its governmental discretion is constrained by ‘a clear and limited mandate’ (Issing, 2002, p. 28) that it cannot control itself. This ‘clearly defined mandate’, according to the ECB (2002, p. 50), ‘lies at the very heart of the … “contract” between the people and the independent central bank’. It is an institution whose mandate, and the basic principles and values according to which it governs, are placed outside the ordinary political process by the founding act.
The practical and democratic consequences of the ECB’s constitutional position are wide-ranging. In ordinary times, it entails that the mandate of the central bank is almost impossible to adjust in accordance with changing macroeconomic values. Attributing the central bank’s mandate to the constituent power thereby attaches an inherently conservative bias to monetary policy, which at the same time constrains what member state authorities are able to do in terms of macroeconomic policymaking. The democratic legitimacy of this arrangement is questionable. It demands, at least, a strong popular attachment to the objective that the central bank pursues (in the case of the ECB: price stability).
The emergency situation raises further problems. The rigidity associated with the mandate in ordinary times is, in principle, carried over into the emergency situation. The central bank’s policymaking flexibility to address the crisis is thereby limited. The problem arises precisely because no constituted authority is empowered to alter, adjust or suspend the mandate. It is fixed between constituent moments. In a crisis, however, the restrictions of the mandate may threaten to exacerbate the crisis and prevent an effective response to it. As such, the central bank faces the age-old dilemma of emergency politics: honour the law but risk undermining the existence of the constituted order, or act beyond the mandate but violate the constitution. This was precisely what happened during the Eurozone crisis, which was understood as an existential crisis for the euro. At the peak of the crisis, the ECB famously stepped in to do ‘whatever it takes’ to rescue the euro. However, the acts that put this promise into practice – the so-called outright monetary transactions programme and the public sector purchases programme – violated one of the most fundamental principles of the ECB’s mandate (the art. 127 TFEU ban on monetary financing) and radically transformed and extended the powers of the ECB and its involvement in governing the Eurozone.
Due to its independence, no political authorities were involved in deciding on the ECB’s emergency political acts. There may, of course, have been support from governments across the Eurozone, but this was informal and ‘behind the scenes’. The ECB carries sole responsibility for acts that in effect transformed the constitutional construction of the Eurozone by, among other things, turning the ECB into a lender of last resort for the member states (see De Grauwe, 2013; Baldwin et al., 2015). This may be seen as a welcome development, but in introducing it the ECB itself effectively acted as an extraordinary representative of the constituent power. The absence of effective revolt against its acts may then be interpreted as a form of ‘acclamation by silence’ by the European people, in the name of whom the ECB now claims to act (see Lokdam, 2020).
This points to the problem with constructing the central bank as an institution of the constituent power. The constitutionalisation of the central bank’s mandate, in principle, restricts the flexibility of a central bank in dealing with unforeseen circumstances, because there are no institutionalised means of authorising (or punishing) new approaches to, or objectives for, monetary policy. The central bank as an institution of the constituent power is thereby (supposed to be) an inherently conservative power between moments of extraordinary politics. When the mandate proves untenable, however, the absence of institutionalised means of altering or suspending it means that the question of how to alter the mandate becomes opaque and inaccessible to democratic politics and contestation, as it did in the Eurozone crisis. If anything, then, the case of the ECB as an institution of the constituent power highlights the danger that rigid institutions of the constituent power present to a meaningful democratic politics.