Central Bank Independence in the Eu

European Law Journal, Vol. 14, No. 4, July 2008, pp. 446–460.

© 2008 The Author Journal compilation © 2008 Blackwell Publishing Ltd, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

Central Bank Independence in the EU: From Theory to Practice

Dr Lorenzo Bini Smaghi1

Abstract: This article provides an overview of the practical problems which arise in ensuring the effective independence of central banks in the EU, drawing on the European Central Bank’s consultative experience. Four aspects of central bank independence are discussed separately: functional, institutional, personal and financial. The possible issues raised by central bank involvement in prudential supervision are touched upon. The main conclusion of the article is that a set of legal provisions is generally not sufficient to ensure proper central bank independence; a culture of respect for independence, including its limits, among all parties involved is essential.

I Introduction

The issue of central bank independence has been the subject of important academic work. However, the literature has mainly focused on the theoretical and formal aspects of independence, without considering that the distance between theory and practice is not always short.2 The experience of the past few years has shown that the implementation of the rule of law is not without challenges, even inside the EU. While it is in no way an objective of this article to offer a critical survey of the existing academic literature on the subject, I endeavour to shed some light on the more practical matters involved in safeguarding central bank independence. The main sources for the material referred to in this article are the convergence reports and the legal opinions of the European Central Bank (ECB), the latter provided to national legislators in line with the ECB’s consultative competence.3 A selection of the ECB’s main legal opinions in the field of central bank independence is provided in the annex...