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31 March 2015

ECB: Accounts and accountability

Speech by Mario Draghi covering the benefits of transparency.

Speech by Mario Draghi, President of the ECB, at the Euro50 Group Roundtable on  “Monetary Policy in Times of Turbulence”, Frankfurt am Main, 31 March 2015

Our monetary policy meeting in January this year was marked by two innovations. The Governing Council decided to expand its asset purchase programme to include public sector securities. And for the first time, a summary of that meeting’s deliberations was published. 

These decisions had the appearance of watershed moments – we had never before made purchasing government bonds a central tool of monetary policy[1], nor had we provided accounts of our monetary policy meetings. But both decisions were in fact the logical extension of our monetary and communication policies over several years, and in particular when our interest rates reached the effective lower bound.

With interest rates at the lower bound, both the tools and the communication of monetary policy have to change. Asset purchases become the logical next step to expand the monetary policy stance; and enhancing transparency becomes the logical way to steer expectations and ensure accountability in an unprecedented new environment.

In other words, what took place in January was not a revolution but an evolution. And what I would like to talk about this evening is how our policy has evolved in particular in terms of transparency and accountability, with a special focus on the publication of our accounts.


Transparency as a source of accountability and effectiveness

The ECB has a primary objective of maintaining price stability which is given to us by the Treaty. Achieving that objective requires independence. Independence in turn requires accountability. And accountability requires transparency.

Central banks no longer subscribe to the dictum attributed to Montagu Norman, Governor of the Bank of England from the 1920s to the 1940s: “never excuse, never explain”. We are not only accountable for achieving our mandate ex post, but we have an obligation to explain the decisions we are taking in real time to deliver price stability over the medium-term. For this a high degree of transparency is essential.

And transparency also has a second key benefit. To the extent that it facilitates a better understanding of monetary policy, it reinforces the transmission of our policy signals. A monetary policy strategy that is well communicated and well understood by markets and the public at large can support credibility and harness market expectations, which in turn makes it easier for us to attain our objective.

The more complex the environment in which monetary policy operates, the more important both these dimensions of transparency – accountability and effectiveness – become. 

First, while policy decisions are never mechanical, in complex circumstances there is inevitably a greater role for judgement. This in turn means that there is a greater obligation to explain to the public why one course of action was chosen over another.

Second, complex circumstances increase uncertainty about how our monetary policy strategy is applied, which makes it harder for the central bank to steer expectations. So, more transparency and more active communication on our “reaction function” is needed.

Of course, the environment the ECB has faced in recent years has been anything but simple. Our approach to transparency has therefore naturally had to evolve.

This began with the forward guidance we introduced in mid-2013. As central banks reach the effective lower bound, and so can no longer use changes in short-term rates as a policy signal, communicating directly about the future path of rates and their response to a changing economy becomes more important. By introducing forward guidance we were able to increase our influence over the shape of the yield curve and, in doing so, partly shelter euro area money markets from developments elsewhere in the world, notably the US.

Through 2014 we continued to enhance our transparency by conveying our “reaction function” in broad terms – i.e. how we would respond to specific scenarios materialising over time. In particular, in a speech in Amsterdam in April last year I set out a number of contingencies and their corresponding monetary policy responses. The monetary policy measures taken through the year were fully consistent with the roadmap laid out then, culminating in the decision in January to expand our asset purchase programme.

This episode provides a clear example of the importance of transparency in establishing credible expectations and thus increasing the impact of monetary policy.


Opening up our monetary policy meetings

Perhaps the greatest innovation in our transparency and communication, however, has been the decision to publish an account of our monetary policy meetings – an issue that has been debated since the ECB was founded in 1999.

This is not to say that we have been opaque about our deliberations in the past. The ECB was a pioneer in establishing, from day one, monthly press conferences immediately following the Governing Council meeting, where the President and Vice-President face questions in real-time. The Federal Reserve only adopted this practice in April 2011 and at quarterly frequency.

However, we have taken the view that with transparency “more is not always better”. Especially in the early days of the ECB, when our credibility and the collegial nature of our decisions still had to be established, we put a premium on speaking to the public with one voice. Our concern was that published minutes or accounts could have compromised this – and I do not think this was unfounded.

At the time, even slight differences in messages between Members of the Governing Council were criticised by commentators as a “cacophony”, while differences of opinion within the Monetary Policy Committee (MPC) of the Bank of England, with its external members, were often praised as reflecting the richness of its discussion! 

The point is that context matters. It is not enough just to communicate; the conditions also have to be in place for that communication to be well understood. In the view of the Council those conditions were not present then.

So what has changed now?

The main contextual change is that since late 2008 we have been, like all major central banks, increasingly resorting to unconventional measures to meet our mandate. Compared with conventional monetary policy (i.e. interest rates), these measures are less easy for the market to anticipate and their effects are less well understood. 

This is because, first, unconventional measures can take many different forms and operate through different transmission channels. And second, there is no historical or statistical track record from which the market could deduce our policy reaction to a given set of circumstances.

Moreover, while monetary policy always has side effects, the unprecedented nature of some unconventional measures makes those effects more uncertain. For example, there are questions about possible trade-offs with financial stability and – uniquely for the ECB – potential distributional effects across countries. All this required more explanation.


The specific features of our accounts

In general terms, our accounts are similar to established practice at other major central banks. They are intended to provide a richer summary and convey the flavour of the discussion among Governing Council members. But we have also made some specific decisions about the way we present our accounts that stand us out from other central banks. 

Here there are three issues in particular that I want to focus on: why we do not attribute positions to individual Council members; why we publish accounts instead of minutes; and why we do not provide vote tallies.

First, the explanation for non-attribution lies in the specific institutional setting of the euro area and the unique communication challenges in a multi-country monetary union. This implies that in reporting on our monetary policy deliberations the independence of the members of the Governing Council must not be put at risk. They act in a personal capacity in the interest of the euro area, rather than as representatives of their countries of origin.

There is an argument that, in this context, attributing positions could actually be helpful, as it would act as an antidote against Governing Council members being overly influenced by national considerations. But our concern was the opposite: that any attribution of names to policy positions could all too easily be misconstrued or misinterpreted through a national prism. 

We also felt that insulating members from such national scrutiny would be more conducive to maintaining an open and frank exchange of views, which is essential for the effectiveness of our collegiate decision-making. With similar reasoning the Warsh review commissioned by the Bank of England recommended for the MPC to preserve a “safe space” for discussions of a more explorative nature.

The inaugural edition of our monetary policy accounts was well-received. In the words of one observer, it clearly showed that the Governing Council had a thorough, serious and “sincere” exchange of views. And as those who have read the accounts will have seen, this way of presenting our discussions does not hide the different assessments and judgements of members on the course of action being proposed.


Enhancing transparency is a logical step for central banks facing an increasingly uncertain environment. In different ways all major central banks have moved in this direction during the crisis, be it through forward guidance on their policy or enhancing communication with the public. And this is in my view a thoroughly welcome development. The days of central banks acting as opaque and secretive institutions should be consigned to the past.

More transparency benefits central banks by making them more accountable and effective. And in our case it also helps deal with the particular challenges of setting monetary policy in a multi-country monetary union. 

Throughout the crisis citizens in some parts of the euro area have been calling on the ECB to do more, while elsewhere we have been called to do less. This is inevitable in a monetary union. But I trust that by publishing our account we can help the public to understand how all viewpoints are reflected and respected in our decisions, and how in the end we strive to take the decision that best serves the euro area as a whole.

Full speech

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