In January 2020, Christine Lagarde announced that the ECB would be conducting a year-long review process of its monetary policy and remit. Much has happened since its last review in 2004, and GPI has responded to Lagarde’s ambitious agenda. The report reviews the development of ECB monetary policy over the past 30 years and concludes that radical reform is needed to enable the Eurozone to escape from the economic doldrum where it has been languishing during the past decade.
In the two decades that have passed since the launch of the Euro; the creation of the initial 11-member Eurozone (EZ), and the establishment of the ECB, a considerable number of political, economic, social, and technological changes have occurred. These changes have altered substantially the operational policies and political stance of the ECB, and its salience as an independent institution of the European Union (EU). It is the central bank of the now 19-member Eurozone, with other 3-members waiting in the ERM II. The ECB itself of course is a core part of the wider European System of Central Banks (ESCB), whose General Council is the ruling body.
We have attempted to take account of the various political and economic changes referred to above, and how these have impinged on the ECB. Some of these changes have been reflected also in the operations of other central banks. Hence, various of the comments and suggestion made in our response are relevant to the wider stances of central banks as they have developed over the past two decades, and more.
The approach taken in the document adopts three analytical perspectives. The first, set out in Part 1, examines the historical background to the establishment of the ESCB and the ECB; its institutional legal positioning, followed by a brief elaboration of the current economic and monetary environment within which the ECB Review is taking place. The aim is to set the review in the historical context of monetary and economic events since 1999, and to indicate a potential future trajectory.
The second perspective, the subject of Part 2, examines and reviews the current technical policy stance and operational practice of the ECB and whether and how these areas might be modified and improved. The discussion explores whether the original mandate for the ECB, in the context of the wider system of EZ central banks needs to be modified in the light of events during the past 21 years; given the current situation, and for the foreseeable future, including consideration of an alternative ECB price stability objective and monetary policy target which might be employed.
The third perspective, explored in Part 3, examines the wider political and socio-economic policy stance and operations of the ECB, including the necessity of improving communication channels, including to the European Parliament (EP) and general public, in an attempt to improve the democratic accountability of the ECB. This section of the report will also discuss the link between the ECB monetary policy and the stuttering moves towards an EZ fiscal policy; the implications for the monetary policy actions in relation to regional and social income and wealth distribution across the EZ, and the potential for ECB action on the issue of green bonds.
Part 4 will briefly set out the conclusions of the analysis.
The report was authored by:
Viara Bojkova, Senior Research Fellow, Global Policy Institute
Dr Michael Lloyd, Associate Director, Global Policy Institute
Professor Sam Whimster, Deputy Director, Global Policy Institute