mr noyer ’ s overview on the relationship between politics and central banks speech by mr christian noyer, vice - president of the european central bank, on the relationship between politics and central banks to the estonian central bank at tallinn, estonia on 3 may 1999. introduction ladies and gentlemen : it is a pleasure to be here today. first of all, i should like to congratulate the estonian central bank on its 80th birthday. this also suggests that i should be modest, speaking as a representative of a central bank which is not even one year old. i am particularly delighted to be addressing the topic of politics and central banks, since this is one of the basic issues in central banking. i should like to explain to you why i think independence from day - to - day politics is crucial for a successful central bank and how this has been achieved in the case of the european central bank ( ecb ). however, independence should not mean isolation. a more open and transparent central bank is more effective. moreover, in a democratic society accountability for policies is the logical complement to independence. in this context, i shall address the issue of how we pursue our aim to be as open, transparent and responsible as possible. i shall conclude with a brief discussion of the relationship between the monetary and fiscal authorities. independence as a cornerstone of central banking recently there has been a world - wide tendency to grant independence to central banks. this tendency is evidenced by both practical experience and academic research. by shielding monetary policy decisions from political interference, lower inflation can be maintained without having to give up economic growth. indeed, in that sense, creating an independent central bank appears to be a good thing all round. the reason for this is that monetary policy - making under the influence of politicians tends to focus too much on short - term considerations. this can easily lead to temporary, nonsustainable accelerations in economic activity, at the expense of lasting increases in inflation and also ultimately a curbing of economic output and increases in unemployment. politicians all over the world have come to realise this and have decided to remove the temptation to pursue short - term gains - like ulysses, who asked to be roped to the mast in order to resist the temptation of the sirens ’ song - and to make their central bank independent. it should be underlined that granting this independence is, as it should be, a political decision. an independent central bank needs a clear legal mandate. the ecb is one of the most, if not

the most, independent central bank in the world. its independence and that of the participating national central banks is firmly enshrined in the so - called maastricht treaty, the treaty on european union. this treaty was concluded by the governments of all the eu member states and ratified by all their national parliaments. in some cases referenda were held. the 17 members of the main decision - making body, the governing council of the ecb, are not allowed to take or seek instructions from anybody, politicians included. politicians are not allowed to give such instructions. members of the governing council have a term of office of at least five years. the ecb is financially independent and has a clear mandate, laid down in the maastricht treaty. its primary objective is to maintain price stability and, without prejudice to this objective, it should support the general economic policies in the community, with objectives such as economic growth and high employment. independence from politics should not and does not mean isolation from politics. i have already mentioned that granting the ecb independence was a political decision. more generally, the introduction of the euro and the establishment of the ecb constitute a new, important step in the process of european integration which has now been under way for more than half a century. this process is based on the political view that an integrated europe is in the interest of stability, security and prosperity. the european integration process is primarily a political process with, of course, important economic aspects and benefits. it should also be underlined that the appointment of the members of the executive board of the ecb, as you may have noticed last year, is a political decision, to be taken at the highest political level, i. e. by the heads of state or government. i should add immediately that the treaty stipulates that the persons to be appointed should be experts in financial matters. there are also some rules of the game which the politicians must follow in making these appointments. it is equally important to avoid isolation in the daily conduct of monetary policy. that brings me to the issues of accountability and transparency. transparency and accountability accountability for policies is the logical complement to independence in a democratic society. the maastricht treaty includes a number of provisions in this respect. first, there is the mandate to pursue price stability. this provides a qualitative measure against which the ecb ’ s performance can be measured. we have decided to enhance this by providing a quantitative definition of price stability