The limits of `independence' and the policy of the ECB^*

It is argued that the European Central Bank's independence is not as secure as it seems and that as a result it has appreciable institutional incentives to protect and enhance its position. It follows that its behaviour should not be understood as being solely determined by the pursuit of price stability. One consequence is that certain points on which it has been criticised on the basis that its approach makes for ineffective monetary policy might be better understood as, often effective, attempts to protect its position. Another is that making a central bank (or any other institution) “completely independent'' may be much harder than it seems, and failed attempts, which come close, are not necessarily to be preferred, even by the advocates of independence, to less ambitious designs.