The ECB's conundrum and 21st century monetary policy: How European monetary policy can be green, social and democratic

Abstract

The ECB’s mandate was drafted 30 years ago and focuses narrowly on preventing inflation. As a consequences, the ECB lacks clear democratic guidance concerning the challenges it faces today: how to deal with government debt and what to do to fight climate change. This lack of guidance undermines the legitimacy of its choices and the effectiveness of its programmes. The EU’s political institutions can solve the ECB’s conundrum by providing it with renewed democratic authorisation.

It takes two to dance: Institutional dynamics and climate-related financial policies

“…In national jurisdictions this can usually be achieved by an act of the Parliament. The case of European institutions is more complex, as their legitimacy is enshrined in international treaties that require long processes to be modified (van't Klooster, 2021). Governments can thus decide to bring back monetary policy and financial regulations under their control.…”

“…To achieve this, a mandate change is not necessary, as ordinary legislative procedures (by e.g. clarifying the ranking of the objectives or the statutes of the ECB) could prove sufficient (van't Klooster, 2021). This could also take the form of a legal procedure (similar to the one that followed the programs of the OMT and the PSPP, the European Court) stating ex post about the legitimacy of green promotional policies conducted by DAs and providing them with legal ground.…”