Proportionality and procedure of monetary policy-making

In its judgment of May 5, 2020, the Second Senate of the German Constitutional Court qualified for the first time a judgment of the Court of Justice of the European Union (CJEU)—C-493/17 Weiss—as “arbitrary from an objective perspective” and declared the underlying European Central Bank (ECB) decisions regarding the Public Sector Purchase Programme (PSPP) to be ultra vires. It requested the German Government and the German Parliament to take steps against the PSPP in its current form and to ensure that the ECB conducts a proportionality assessment of its PSPP. The judgment also prohibits the German Central Bank from participating, after a grace period of three months, in the implementation and execution of the ECB decisions at issue, unless the ECB assesses and substantiates that the measures provided for in its decisions satisfy the principle of proportionality. The present article, which was written by academics, lawyers, and civil servants from five countries, casts a critical eye on the judgment of the German Constitutional Court. It identifies significant shortcomings from both a German constitutional and a European Union perspective.

О решении Федерального конституционного суда Германии по программе выкупа государственных облигаций

Chapter 7 discusses the German Federal Constitutional Court’s (GFCC) judgment on the European Central Bank’s Public Sector Purchase Programme (PSPP) and its repercussions in the context of the EU’s response to the Covid-19 pandemic. As the GFCC’s first ever ultra vires judgment, the PSPP ruling is a sign that the tension between the GFCC’s case law and the course of European integration has become increasingly untenable. Yet, despite this significant escalation, the chapter shows how the weak remedy left addressing the constitutional concern to Germany’s elected politicians. Such weak review lets national constitutional courts signal constitutional problems, but leaves their resolution to the political branches, which is welcome from a democratic perspective. In addition, and unlike during the euro crisis, elected politicians openly criticized the GFCC’s case law. Still, the GFCC’s case law continues to influence the development of European integration, visible in the legal design of Next Generation EU.

The BVerfG's Proportionality Review in the PSPP Judgment and its Link to Ultra Vires and Constitutional Core: Solange Babel's Tower Has Not Been Finalised

In Search of Monetary Stability: The Evolution of Monetary Policy

Cet article examine l’art du central banking de la BCE en reprenant la distinction proposée par Goodfriend [2009] entre les trois politiques qui sont du ressort d’une banque centrale : la politique monétaire qui consiste à faire varier la taille de son bilan ; la politique du crédit qui consiste à en modifier la structure et la politique de taux d’intérêt qui consiste à modifier les taux sur la facilité de prêt marginal et sur la facilité de dépôt. La « littérature » théorique souligne l’existence d’un principe de séparation entre la première, orientée vers la stabilité monétaire, et les deux autres politiques, orientées vers la stabilité financière identifiée au bon fonctionnement du marché monétaire interbancaire ; elle montre en particulier qu’une banque centrale non seulement a la possibilité mais doit s’efforcer de séparer la conduite de sa politique monétaire, qui doit être fondée sur la recherche de la stabilité des prix à moyen et long terme, de sa politique du crédit, qui obéit à des impératifs de court terme et consiste à approvisionner le système bancaire en liquidité en cas de chocs transitoires sur la demande de monnaie. Le principe de séparation, qui a guidé l’action de la BCE durant la première phase de la crise, est devenu de plus en plus difficile à maintenir quand les taux d’intérêt se sont rapprochés de zéro. Les mesures non conventionnelles adoptées par la BCE ont en effet créé une interférence entre sa politique monétaire, sa politique du crédit et sa politique de taux d’intérêt.

The financial crisis which began in the U.S. in 2007 influenced all economies on a global scale following the collapse of Lehman Brothers in September 2008. As a response to the crisis, central banks started to implement non-standard monetary policy tools as well as short-term interest rates also known as standard policy tools in order to help monetary policy transmission channels work effectively. The European Central Bank (ECB) implemented non-standard monetary policies as in addition to the standard policy tools during this period. The non-standard monetary policies introduced by the ECB were different from those implemented by other central banks (Fed, Bank of England) in terms of implementation and results. Firstly, the policies of the ECB were not specific to one single country. Secondly, the banking system was the major source of finance in Europe, which had an impact on the policies. In this regard, the ECB introduced a policy of enhanced credit support consisting of five main elements in order to maintain price stability over the medium term following the crisis. By 2010, public debt in some member countries of the European Union reached high levels, requiring them to take additional measures. The Securities Markets Programme was introduced to that end. Initially focusing on the debt securities of Greece, Ireland, and Portugal, the Securities Markets Programme was expanded in August 2011 to cover the debt securities of Italy and Spain. In addition, two Long-term Refinancing Operations (LTROs) were introduced. This article presents a descriptive analysis of the non-standard monetary policy tools introduced by the ECB following the financial crisis. However, the monetary policy implemented in the Euro zone is not specific to one single country, and every country has a different financial structure, both of which limit the effectiveness of the policies implemented. The changing structure of the monetary policy implemented in the aftermath of the crisis aims to help the transmission channel work effectively. This depends on countries’ having a strong budget and financial structure as well as an effective monetary policy. Therefore, general economic factors may have complicated impacts on shaping the expected results of the policies when there are various implementations of monetary policies.

Quantitative easing in the Euro Area – An event study approach

On June 1, 2018, the European Central Bank (ECB) celebrated its 20th anniversary. This paper provides a comprehensive view of the ECB's monetary policy over these two decades. The first section gives a chronological account of the macroeconomic and monetary policy developments in the euro area since the adoption of the euro in 1999, going through four cyclical phases "conditioning" ECB monetary policy. We describe the monetary policy decisions from the ECB's perspective and against the background of its evolving monetary policy strategy and framework. We also highlight a number of the key, critical issues that were the subject of debate. The second section contains various assessments. We analyze the achievement of the price stability mandate and developments in the ECB's credibility, and we also investigate the ECB's interest rate decisions through the lens of a simple empirical interest rate reaction function. Finally, we present the ECB's framework for thinking about nonstandard monetary policy measures and review the evidence on their effectiveness. One of the main themes of the paper is how the ECB utilized its monetary policy to respond to the challenges posed by the European twin financial and sovereign debt crises and the subsequent slow economic recovery, making use of its relatively wide range of instruments, defining new ones where necessary, and developing the strategic underpinnings of its policy framework.

This paper aims to examine some significant implications of the new European single banking supervision for the economics of banking and the market of financial services. It is one of the three pillars of the European Banking Union architecture, as part of a longer-term vision for further economic and monetary integration in EU. The new supervisory mechanisms implies a huge and complex transfer of powers from national authorities to the European Central Bank. It aims to ensure the safety and soundness of the European banking system, to increase financial integration and stability, and to permit consistent supervision. Banks are being held to common supervisory standards. The structure of this paper is as follows. Section 1 introduces the paper and outlines the general context of the study. Section 2 analyzes some organizational and regulatory issues of the single supervisory scheme. Section 3 examines the comprehensive assessment of the main banks performed by the European Central Bank together with the national supervisors. Section 4 discusses the implications of the single supervisory mechanism for banks' business models and management, and explores some of the challenges likely to be faced by the supervised banks. This section also sheds some lights on relevant drawbacks of the single prudential supervisory approach. Section 5 concludes.

This chapter explores the judicial accountability of the European Central Bank (ECB). Has judicial control kept pace with the evolution of its functions? The euro-area crisis, in the fight against which the ECB assumed a dominant role, and the advent of Banking Union have had a transformative effect on the ECB’s mandate. Is judicial scrutiny a reliable form of accountability? How has the Court of Justice responded? The chapter engages with the rationale for judicial review of central bank decisions, discusses the distinction between economic and monetary policy, and reflects on the role of proportionality. It also looks at the standard of review and the application of process requirements by the Court of Justice. It then examines the new litigation landscape of prudential supervision focusing on composite procedures, the application of national law by the ECB, and litigation on the imposition of fines. It finds that, thus far, judicial control has kept pace with the evolution of the ECB’s functional transformation although the ECB remains part of a governance framework that suffers from an undue level of uncertainty and the greatest challenges are perhaps still to come.

The European Central Bank and Why Things are the Way They Are: A Historic Monetary Policy Pivot Point and Moment of (Relative) Clarity

This chapter discusses the institutional aspects governing the systems and mechanisms participated in by the European Central Bank (ECB) and the national central banks (NCBs). The first section elaborates on the composition and legal nature of the European System of Central Banks (ESCB) and the Eurosystem, the objectives, tasks and financial provisions of the ESCB, as well as the role of national central banks therein. The second section presents (in more detail than in Chap. 4) the Single Supervisory Mechanism (SSM), with an emphasis on its two components, while the third briefly discusses the Single Resolution Mechanism (in particular with regard to aspects of relevance to the ECB) and, then the fourth analyses the two components of the European System of Financial Supervision (ESFS), that is the European Banking Authority (EBA) and the European Systemic Risk Board, with specific reference to the SSM as part thereof. Appendix of this chapter contains an analysis of the role of the EBA in the making of European banking (and, in general, financial) law.

This chapter considers Article 123 TFEU as a cornerstone of the systems of economic and monetary governance in the Union. It discusses how Article 123 TFEU lays down a prohibition on monetary financing, which is intended to contribute to the independence of the central banks that make up the European System of Central Banks (ESCB). It also analyzes the prohibition on monetary financing that ensures price stability and could be jeopardized if it were possible to monetize deficits with the consequent inflation of money in circulation. The chapter features the ban on monetary financing in Article 123(1) TFEU that has the European Central Bank (ECB) and national central banks (NCBs) that are barred from granting overdraft facilities or other types of credit facilities to the Member State (MS) or to the Union. It highlights how the ECB and NCBs can purchase government bonds on the secondary market.

In the present article effectiveness and potential risks of recently implemented non-conventional monetary policy measures by the Eurosystem are discussed. The goal of research is to show that an additional use of non-conventional monetary policy measures is meaningless to stimulate lending behaviour of the banking system in the Euro-area. At the background of the state of conventional monetary policy today, which in short is characterized by unlimited and free of charge allotment possibilities of central bank money to monetary financial institutions, there exist no monetary policy restrictions which prevent lending behaviour of the banking system. So alternative intentions of the European Central Bank are discussed in this article, why non-conventional monetary policy measures had been implemented. In this context it is shown, that the use of single non-conventional monetary policy measures as well as the whole arrangements of the recently very expansive monetary policy involve considerable potential risks, which can inflict severe problems to monetary policy in the future.