Table Of ContentThe New European Central Bank
The New European
Central Bank
Taking Stock and Looking Ahead
Edited by
THOMAS BEUKERS, DIANE FROMAGE, AND
GIORGIO MONTI
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Foreword
Evolution, not Revolution: The Development of the Role of
the European Central Bank since its Establishment
Chiara Zilioli
The European monetary union is the only successful example in history of the vol-
untary adoption of a single currency by politically and linguistically separate states.
The institution that has the mandate to ensure the stability of the currency is one of
the world’s youngest central banks. In its first twenty-t hree years of life it has navi-
gated stormy waters, preserved the singleness of the monetary union, maintained the
stability of the currency, incorporated several new Member States, and successfully
sailed through three very serious financial crises. It is indeed a story that deserves to be
carefully studied: ‘The “New” European Central Bank: Taking Stock and Looking Ahead’
is a remarkable collection of well-a ssorted analyses by distinguished scholars on the
development of the European Central Bank (ECB) since its establishment. Coming
twenty years after euro banknotes and coins were first put in circulation this is a very
timely contribution, which presents an opportunity to take stock of the past and look
forward into the future.
I have had the great privilege to participate in the monetary union adventure from
the beginning and indeed I can see a very different ECB today than in 1998, both from
the perspective of the institution’s structure and dimensions and in terms of its re-
sponsibilities and public presence. At the same time, I see this difference as reflecting
the natural evolution of a competent and powerful institution, which has a mandate
to achieve, and needs to do so in the most effective and proportionate way, adapting
its instruments to the ever- changing reality. Let me go back to the main steps we have
gone through in these years.
What is the ECB and what is its role? The natural starting point for any analysis of
the ECB’s legal framework and the development of its policy action since its establish-
ment is to look into its mandate. The ECB’s mandate was codified in the Maastricht
Treaty at a time when the prevailing view among economists was in favour of an inde-
pendent central bank that would deliver on its medium-t erm price stability objective
by setting short-t erm interest rates, while the role for discretionary, countercyclical
fiscal policy would be limited.1 The ‘constitutionalization’ of the ECB’s mandate and
of its legal framework—t he Statute of the European System of Central Banks and of
1 ‘Monetary- fiscal policy interactions in the euro area’ (2021) ECB Occasional Paper Series No
273 <https:// www.ecb.eur opa.eu/ pub/ pdf/ scp ops/ ecb.op273~fae 24ce 432.en.pdf> accessed 12 January
2022 (hereafter ‘Monetary-fi scal policy interactions in the euro area’).
vi Foreword
the European Central Bank (hereinafter the ‘Statute’), being a protocol to the Treaty
on the Functioning of the European Union (TFEU), is fully part of it and enjoys the
same legal ranking— was precisely meant to tie the hands of politicians and avoid
shifts in political preferences leading to departures from that optimal model. For this
reason, economists and Treaty drafters alike believed that the model needed to be em-
bodied in the Maastricht Treaty. In time, especially after the Great Financial Crisis
(GFC), the broader context changed. This has not been a uniquely European devel-
opment, and comparative analysis shows that other central banks also adapted the
way in which their mandates were implemented, while the formal mandates did not
change. Based on this trend, some argue that the ECB legal framework deserves to be
‘deconstitutionalized’ to better withstand the challenges of changing times.2 On the
other hand, the framework has proven to allow for important margins of flexibility,
enabling it to cope with a radically different environment than that in which the ECB
was established, while protecting the central bank from undue political interference.
There are several instances in which, in the wake of the GFC, the ECB’s approach
has changed, making use of the flexibility allowed by the law mainly in two ways: ei-
ther the ECB has used in a new way, or for the first time, the powers that the Treaty
drafters had conferred on it from the beginning; or the EU legislator has made use of
the flexibility granted to it by the Treaty to confer new powers and tasks on the ECB,
within the assigned competences.
Chronologically, the first step in ensuring additional margins of flexibility was the
extension of the list of collateral considered adequate for monetary policy operations.
In the immediate aftermath of the ECB’s establishment, the Eurosystem worked for
years to agree on a Single List of eligible collateral to harmonize its financial risk man-
agement strategy. Shortly after the Single List was agreed, the inception of the GFC
induced the Eurosystem to reconsider its risk management policies and broaden
the ‘adequate collateral’ category, internalizing higher risks than it previously did,
in order to increase the amount of collateral counterparties would have available to
access monetary policy operations and therefore ultimately the liquidity available to
the general economy. National variations were reintroduced in the form of additional
collateral claims; a temporary collateral framework was introduced to complement
(and derogate from) the general framework at Eurosystem level; and the conditions
for collateral to be accepted as eligible were increasingly loosened. This trend has been
reinforced during the COVID- 19 crisis, when the need for liquidity in the market has
further increased. These developments have occurred within the scope of the discre-
tion granted to the ECB to establish what amounts to ‘adequate’ collateral.3
When the financial crisis turned into a sovereign debt crisis, tensions on the na-
tional sovereign debt markets and spreads differentials that did not reflect the eco-
nomic fundamentals started impairing the functioning of the monetary policy
2 Marco Dani, ‘Deconstitutionalising the Economic and Monetary Union’ in European Central Bank,
‘Continuity and change— how the challenges of today prepare the ground for tomorrow’ Proceedings of the
ECB Legal Conference 2021, forthcoming. See also, chapter 16 by Marijn van der Sluis, in this volume: ‘The
analysis that the Maastricht Treaty actually succeeded in structuring the process of European integration,
must, in my opinion, lead to the conclusion that the euro and the ECB must be de-c onstitutionalized’.
3 Protocol No 4 on the Statute of the European System of Central Banks and of the European Central
Bank [2016] OJ C202/2 30, second indent of art 18.1 (hereafter ESCB Statute).
Foreword vii
transmission mechanism. It became clear that much more than the singleness of the
collateral policy was at risk: the very singleness of the ECB’s monetary policy was at
stake. Allowing for national variations in the collateral eligibility criteria had allowed
the flow of liquidity in some euro area Member States, albeit only up to a point. The
ECB then resorted for the first time to outright purchases, an approach that initially
targeted sovereign bonds but was later extended to assets issued by private entities.
This option had been part of the toolbox available under the Statute from the outset,4
but had not been used until then. Outright purchases of sovereign bonds by the ECB
became a legally contentious matter and also had a broader impact on the relation-
ship between the Court of Justice of the European Union (CJEU) and national con-
stitutional courts, giving rise to the first referral to the CJEU by the German Federal
Constitutional Court, and to the pronouncement by the latter that a CJEU judgment
should be considered ultra vires and not applicable in Germany. Without entering into
the details of this issue, which would clearly go beyond the scope of this foreword,
I would like to highlight that the underlying question is that of the respective scopes
of monetary policy and fiscal policy. An expansion of the monetary policy toolkit has
been seen by those who oppose the conferral of the monetary policy competence on a
supranational institution as an undue interference with national fiscal policy, threat-
ening the application of the national democratic principle in the economic sphere,
while at the same time also threatening the principle of central bank independence.
The practically difficult separation of monetary policy from economic policy was ne-
cessary when the Maastricht Treaty was drafted, not only to protect central bank inde-
pendence and thereby the objective of price stability, but also to enable the launching
of monetary union despite the absence of a political commitment to confer economic
competences at supranational level. However, more recent findings and analyses, es-
pecially in view of experiences in the context of the COVID-1 9 pandemic, support the
view that monetary policy and fiscal policy are naturally aligned and achieve their re-
spective objectives far more effectively if the two are coordinated and complementary,
at least in an environment with structurally low interest rates and persistent downside
risks to price stability.5
The third development, brought about by the crises (GFC, sovereign debt crisis,
pandemic crisis), has been to bring to the forefront the importance of financial sta-
bility, the contribution that the central bank can make to achieving it,6 and the fact
that a financially unstable environment jeopardizes the achievement of price stability
and therefore a central bank must fight it. An enhanced attention to the financial sta-
bility implications in the setting of monetary policy and a more intense dialogue with
fiscal authorities seem to have emerged from the crises (and is visible in the analysis
carried out by the ECB in its strategic review).7
4 See ESCB Statute (n 3) first indent of art 18.1.
5 ‘Monetary- fiscal policy interactions in the euro area’ (n 1).
6 Consolidated Version of the Treaty on the Functioning of the European Union [2012] OJ C326/ 47, Art
127(5).
7 ‘Monetary- fiscal policy interactions in the euro area’ (n 1); and ‘The role of financial stability consid-
erations in monetary policy and the interaction with macroprudential policy in the euro area’ (2021) ECB
Occasional Paper Series No 272, <https:// www.ecb.eur opa.eu/ pub/ pdf/ scp ops/ ecb.op272~dd8 168a 8cc.
en.pdf> accessed 12 January 2022.
viii Foreword
Another development that has occurred in the last ten years is the conferral on the
ECB of new powers and tasks by the legislator. The most eye- catching innovation in
this regard was the establishment of the Single Supervisory Mechanism (SSM) and
the conferral of banking supervisory tasks on the ECB, on the basis that the ECB’s
technical expertise would help to deliver on the ‘imperative to break the vicious circle
between banks and sovereigns’.8 In this context, the necessary element of flexibility
already existed in the Treaty, in the form of the enabling clause to be found in Article
127(6) TFEU (it would not have been possible, otherwise, for the EU legislator to have
conferred competences on the ECB). There is no doubt that the conferral of this very
important new competence has marked quite profoundly the ECB’s evolution into
its new role in the euro area and the EU. A central element of the SSM’s institutional
framework is the relationship between the ECB and the national competent author-
ities, which is more tilted towards the national level than the relationship between the
ECB and the National Central Banks (NCBs) within the Eurosystem has traditionally
been. The principal reason for this is that the rulebook of the Banking Union is also
composed of directives, and therefore of the national laws implementing them, which
are different and which the ECB, an EU institution, needs to apply. Furthermore, the
SSM governance does not have the hierarchical structure and the profound integra-
tion clearly delineated for the Eurosystem in the Statute.
There are other cases in which the legislator, without conferring new powers,
has added tasks for the ECB to perform in close cooperation with other EU institu-
tions and bodies. For example, at the height of the sovereign debt crisis, the ECB was
tasked with contributing to the work of the Commission and the European Stability
Mechanism (ESM), first in the context of financial assistance programmes9 and later
in the context of the Six- Pack10 and Two- Pack11 legislative measures, as part of the
8 European Council, ‘Euro Area Summit statement’ (Brussels, 29 June 2012) <https:// www.consili um.
eur opa.eu/ media/ 21400/ 20120 629- euro- area- sum mit- stateme nt- en.pdf> accessed 12 January 2022.
9 See, eg, Art 13(1) of the Treaty establishing the European Stability Mechanism [2012] T/E SM 2012- LT.
For the period before the establishment of the ESM, see the references to the contribution of the ECB in the
European Financial Stability Facility Framework Agreement.
10 ‘Six- Pack’ is the term used to refer to the following legal instruments: Regulation (EU) No 1173/
2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of
budgetary surveillance in the euro area [2011] OJ L306/1 ; Regulation (EU) No 1174/2 011 of the European
Parliament and of the Council of 16 November 2011 on enforcement measures to correct excessive macro-
economic imbalances in the euro area [2011] OJ L306/ 8; Regulation (EU) No 1175/ 2011 of the European
Parliament and of the Council of 16 November 2011 amending Council Regulation (EC) No 1466/ 97 on the
strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic
policies [2011] OJ L306/ 12; Regulation (EU) No 1176/2 011 of the European Parliament and of the Council
of 16 November 2011 on the prevention and correction of macroeconomic imbalances [2011] OJ L306/
25; Council Regulation (EU) No 1177/ 2011 of 8 November 2011 amending Regulation (EC) No 1467/9 7
on speeding up and clarifying the implementation of the excessive deficit procedure [2011] (OJ L306/ 33;
and Council Directive 2011/ 85/ EU of 8 November 2011 on requirements for budgetary frameworks of the
Member States [2011] OJ L306/4 1.
11 ‘Two- pack’ is the term used to refer to the following legal instruments: Regulation (EU) No 472/2 013
of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and
budgetary surveillance of Member States in the euro area experiencing or threatened with serious diffi-
culties with respect to their financial stability [2013] OJ L140/1 and Regulation (EU) No 473/ 2013 of the
European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and as-
sessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the
euro area [2013] OJ L140/1 1.
Foreword ix
new framework for the economic governance of the euro area. The attribution of these
new tasks did not stop with the end of the sovereign debt crisis and its most immediate
consequences. Additional examples of new tasks can be found, for example, in the
Securitisation Regulation12 and in the European Market Infrastructures Regulation
(EMIR),13 which are anchored to the ECB’s competences in the fields of banking
supervision and clearing and payment systems respectively. Also, in the field of super-
vision the ECB is required to cooperate very closely with other EU institutions and
bodies, in particular in relation to the failing or likely to fail assessment, which is the
‘connection point’ between the supervision of a bank and resolution: it is the moment
where the ECB as supervisor passes the baton to the Single Resolution Board and the
Commission, which are in charge of the resolution of failing banks.
The way in which the ECB’s role is perceived by the other institutions and by the
public has also fundamentally changed. Strange as it may seem today, in the early days
the ECB did not occupy centre stage in EU policies and EU public discourse: it did
not formally qualify as an EU institution until the Lisbon Treaty and, because of its
perceived technical and sectoral tasks, it was not included by most observers in the
inner circle of the most important actors at EU level. Nowadays, the ECB’s policies are
broadly discussed by the wider public and the ECB as an institution is part of a very
dense network of relationships with other institutions and bodies both at EU and at
national level, consistently after all with a global trend towards the formalization of
what has been defined as ‘the natural interest of central banks in financial stability’.14
What was criticized years ago as isolation arising from an overly radical protection
of its independence (the ECB is also geographically isolated from the other EU in-
stitutions) has no validity today. Increased dialogue, exchanges, and accountability,
and the provision of reasons for adopted policy to other political stakeholders, do
not jeopardize independence and are to be welcomed. On the one hand, the risk that
independence is undermined for political reasons is always present, and the proper
protections and defences need to be applied. On the other hand, as a consequence of
the extension of the ECB’s scope of action, its independence has warranted increased
standards of accountability. This has taken the form of specific arrangements with the
Parliament15 and the Council16 in relation to its supervisory tasks, but also account-
ability instruments towards national parliaments and the public at large. In the latter
respect, besides explicit accountability obligations it is worth stressing the ECB’s move
towards more transparency, for example via the disclosure of the agendas and minutes
12 Regulation (EU) 2017/ 2402 of the European Parliament and of the Council of 12 December 2017
laying down a general framework for securitization and creating a specific framework for simple, trans-
parent and standardized securitization, and amending Directives 2009/ 65/ EC, 2009/ 138/ EC and 2011/ 61/
EU and Regulations (EC) No 1060/2 009 and (EU) No 648/2 012 [2017] OJ L347/3 5.
13 Regulation (EU) No 648/ 2012 of the European Parliament and of the Council of 4 July 2012 on OTC
derivatives, central counterparties and trade repositories [2012] OJ L201/1 .
14 See chapter 5 by Agnieszka Smoleńska and Thomas Beukers, in this volume.
15 See Interinstitutional Agreement 2013/ 694/ EU between the European Parliament and the European
Central Bank on the practical modalities of the exercise of democratic accountability and oversight over
the exercise of the tasks conferred on the ECB within the framework of the Single Supervisory Mechanism
[2013] OJ L320/1 .
16 See Memorandum of Understanding MOU/ 2013/ 12111 between the Council of the European Union
and the ECB on the cooperation on procedures related to the Single Supervisory Mechanism (SSM) [2013]
<https:// www.ecb.eur opa.eu/ ecb/ legal/ pdf/ mou_ be twee n_ eu coun cil_ ecb.pdf> accessed 12 January 2022.
