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The Institutional Politics of Central Bank Independence in France

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The Institutional Politics of Central Bank Independence in France The Institutional Politics of Central Bank Independence in France. Greece and the U.K. Panayiotis Skoularikis The London School of Economics and Political Science Ph.D. in European Studies 2001 UMI Number: U176354 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U176354 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Ufy, P0L1T;CU T H£S 5 s F So So IQ1%\ I ! Abstract This thesis analyses the politics of making central banks independent within the European Union. Unlike other studies that focus solely on the economics of the debate, this study also concentrates on the political aspects of the reform through an institutional approach. It examines the interaction of interests, institutions and ideas in the process of reforming one of the most essential organs in the process of economic policy-making. The research concerns the attempts of governments of three member-states of the European Union - France, Greece and the U.K. - which signed the same Treaty, but which nonetheless followed different paths in implementing Central Bank Independence (CBI). The thesis aims to explain the differences between the three cases about the considerations of CBI, the exact timing of introducing the reform and the particular models of independence chosen. This study suggests that there are three main variables which shaped and influenced why, when and how the three member-state governments implemented CBI in the 1990s. Those variables are the position of the country within the international political economy, the established rules and processes of political competition, and finally the traditional patterns of post distribution and democratic control. The first variable mainly explains the interest and attitude towards CBI, based on the standing and the status of each country in the European and the international politico-economic scene. The analysis of the case studies showed that the greater the exposure of an economy to global economic pressures and financial market flows, the more likely were its elites, in seeking monetary stability and credibility, to consider the idea of CBI and to bring it onto the political agenda. The second refers to the domestic politico-economic parameters which determine the stance of the main actors and account for the time and method of establishing CBI. The research revealed that the electoral cycle is particularly important. Newly elected governments, whether of the same party or not, attempt significant reforms early to show their difference, prove their effectiveness and minimize opposition. In all three cases CBI has been established by new governments which took advantage of the significant parliamentary majority they had and the ‘grace period’ they enjoyed during their first months. Finally, the third variable justifies the differences among the institutional characteristics between the models of CBI. Policy makers are bound by the prevailing arrangements of distributing public offices and the procedures for democratic control in each country and therefore adopt CBI appointment and accountability procedures which follow these traditional patterns. 1 Acknowledgements I would like to give my greatest thanks to my supervisor, Dr. Howard Machin, for his constant encouragement, guidance and faith from the beginning to the very end. The London School of Economics provided me with the resources and facilities necessary to complete such a dissertation, and I consider myself privileged for attending such a school. I would like to thank everyone in the European Institute, Economics and Government workshops and seminars for their thoughtful comments and helpful suggestions. Within the LSE, I give my special thanks to Dr. Elias Mossialos, Dr. Spyros Economides and Dr. Robert Hanche for their support and advice at various important stages of my research. I would like to give my thanks to all those whom I interviewed for providing me with such useful data and information which would otherwise have been impossible to find. In particular, I would like to thank Professors Lucas Papademos and Yiannis Stoumaras for their continuous personal interest and advice which was so useful for particular aspects of my research. I am also indebted to Babis Papanayiotou for helping me at the initial stages of my thesis and for always being around to help me, and to Dr. Spyros Seretis for his overall support throughout my years in London. Needless to say, I am also thankful to the NATO - Greek Ministry of National Economy Scholarship for their financial support without which this thesis would never have been realised. On a personal note, I want to extend my thanks to my friends for making my life in a foreign city seem like home and for being around in difficult times. I particularly want to express my gratitude to Elina not just for always being so close to me but also for her patience in proof-reading this thesis. I also thank all my flatmates, Vassilis, Tasos, Xenia and Katerina for being patient during stressful times and for sharing their personal feelings with me. I am most warmly grateful to my parents and to my sister Athena whose unlimited love, faith and support enabled me to complete this thesis, and provided the secure base that I needed to get through these difficult, but rewarding, years. 2 Table of Contents ABSTRACT.............................................................................................................................................................1 ACKNOWLEDGEMENTS..................................................................................................................................2 TABLE OF CONTENTS......................................................................................................................................3 LIST OF FIGURES AND TABLES...................................................................................................................5 CHAPTER I: EXPLAINING ECONOMIC POLICY CHANGES............................................................. 6 POLICY-MAKING / POLICY REFORM PROCESS....................................................................................9 AN INSTITUTIONAL APPROACH TO POLITICS...................................................................................15 POLICY CHANGE PROCESS....................................................................................................................... 18 ACTORS / PARTICIPANTS IN THE POLICY CHANGE PROCESS.................................................... 28 ARGUMENT, METHODOLOGY AND STRUCTURE............................................................................. 33 CHAPTER II: THE INSTITUTIONAL CONTEXT WITHIN ECONOMIC AND MONETARY UNION................................................................................................................................................................... 44 THE TREATY ON EUROPEAN UNION.....................................................................................................44 THE STATUTE OF THE EUROPEAN SYSTEM OF CENTRAL BANKS............................................51 CONCLUSIONS...............................................................................................................................................55 CHAPTER III: THE DEBATE ON CENTRAL BANK INDEPENDENCE IN THE CONTEXT OF EMU ........................................................................................................................................................................58 THE COSTS AND BENEFITS OF AN ECONOMIC AND MONETARY UNION...............................58 THE CONCEPT OF CENTRAL BANK INDEPENDENCE......................................................................63 THE CASE FOR CENTRAL BANK INDEPENDENCE............................................................................ 64 CONCLUSIONS.............................................................................................................................................. 76 CHAPTER IV: INSTITUTIONAL CHARACTERISTICS OF AN INDEPENDENT CENTRAL BANK: PERSONNEL INDEPENDENCE......................................................................................................80 ASPECTS OF CENTRAL BANK INDEPENDENCE.................................................................................80 CONDITIONS OF APPOINTMENT............................................................................................................. 81 GOVERNING BODIES AND STRUCTURE.............................................................................................. 86 CENTRAL BANK ANSWERABILITY AND ACCOUNTABILITY.......................................................91 CONCLUSIONS.............................................................................................................................................. 95 CHAPTER V: INSTITUTIONAL CHARACTERISTICS OF AN INDEPENDENT CENTRAL BANK: FUNCTIONAL INDEPENDENCE...................................................................................................99 CONTENTS
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