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The Fiscal and Political Implications of the ECB’s Non-conventional Roles

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Abstract

The role of the European Central Bank (ECB) went beyond standard monetary policy during the crisis. This evolution was accomplished both through non-conventional monetary policies, with a wider reach in terms of macroeconomic and financial stability, and through the direct involvement of the central bank in institutions such as the Troika, the Single Supervisory Mechanism, and the European Systemic Risk Board. The departure of the ECB from its mere inflation objective did not leave the central bank without pressure both in the Eurogroup and from individual member states. This chapter revolves around demarcating the ECB’s enhanced roles at this critical time and evaluating the political and fiscal implications of the central bank’s actions, including the possible trade-offs for the central bank’s independence.

Keywords

  • Non-conventional monetary policy
  • Euro area
  • ECB
  • ESRB
  • Banking Union
  • SSM

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Notes

  1. 1.

    This stands in contrast with the situation before the crisis, where countries could enjoy a “common pool”, which facilitated borrowing; see Wyplosz and Kostrup (2010).

  2. 2.

    In reality, most central bank open-market operations are now conducted via repurchase agreements (repos) with commercial banks against eligible collateral.

  3. 3.

    The ESCB comprises the ECB and the national central banks (NCBs) of all EU member states whether they have adopted the euro or not.

  4. 4.

    For the sake of focusing on the European QE’s stated purpose, that is, bringing inflation back on check, we should leave the direct financial stability implications of the ECB’s interventions aside.

  5. 5.

    The separation principle is a direct application of the Tinbergen Principle (1952) to the conduct of monetary policy (see also Bordes and Clerc 2013). This framework, adapted to inflation targeting strategies, has been translated into monetary policy and liquidity management strategies (Smets 2009).

  6. 6.

    While the ESM was conceived to become effective only in 2012, its creation followed a European Council decision from October 2010 already.

  7. 7.

    “OMT may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access” (Source: https://www.esm.europa.eu/glossary/O).

  8. 8.

    Note also the preferred creditor status of IMF claims over ESM claims (see ECB 2011b—Box 1).

  9. 9.

    Countries outside EU-IMF programmes have been asked also to implement major reforms (e.g., Italy).

  10. 10.

    The ESRB board brings together the central bank governors and high-level representatives of the financial supervisory authorities from all 28 EU member states, as well as the president and the vice-president of the ECB, a member of the European Commission and the chairs of the three ESAs (see Dierick et al. 2012).

  11. 11.

    The main SSM legislation consists of: Regulation No. 7776/1/13, adopted on 19 March 2013, conferring specific tasks (Article 4 of the same Regulation) on the ECB concerning policies relating to the prudential supervision of credit institutions; and Regulation No. 7775/13 amending Regulation No. 1093/2010 establishing the European Banking Authority (EBA).

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Macchiarelli, C., Monti, M., Wiesner, C., Diessner, S. (2020). The Fiscal and Political Implications of the ECB’s Non-conventional Roles. In: The European Central Bank between the Financial Crisis and Populisms. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-44348-1_4

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