The European Central Bank may enjoy stronger protection against political pressure than other central banks do, but it also faces unique constraints. The more the ECB is forced to expand its policy remit to meet new economic challenges, the more likely it is to trigger destabilizing political conflicts within the eurozone.
LONDON – The relationship between monetary authorities and governments differs in important ways between the United States and the eurozone. The US invariably falls into a traditional pattern whereby governing politicians, with an eye toward the electoral cycle, tend to favor expansionary fiscal policies and looser monetary conditions, while the Federal Reserve, wary of political pressure, endeavors to assert its independence. If the Fed’s autonomy were called into question, domestic – and, by extension, global – macroeconomic stability would be jeopardized.
LONDON – The relationship between monetary authorities and governments differs in important ways between the United States and the eurozone. The US invariably falls into a traditional pattern whereby governing politicians, with an eye toward the electoral cycle, tend to favor expansionary fiscal policies and looser monetary conditions, while the Federal Reserve, wary of political pressure, endeavors to assert its independence. If the Fed’s autonomy were called into question, domestic – and, by extension, global – macroeconomic stability would be jeopardized.