Swift interventions by the European Central Bank (ECB) have stemmed market pressures and credit crunches throughout the early period of the current crisis. However, monetary policy is wielded with little regard to the social and ecological crises Europe and the world are facing. The statutory independence of the ECB notwithstanding: it is within the powers of the political authorities of the Euro Area to define the “general economic policies in the Union” that constitute the ECB’s secondary objective. No concerted effort has yet been made to establish clear priorities for the ECB under its secondary objective. Spelling out the content of the ECB’s secondary objective can go a long way towards democratizing central banking.
The Euro Area could institute an open and regularly recurring process at the highest political level to specify these “general economic policies in the Union” that the ECB is, according to Art. 127 of the Treaty on the Functioning of the European Union, required to support. Art. 11 TFEU already requires the Union’s policies to integrate environmental protection. Further specifying what such protection involves in relation to the full portfolio of central bank activities — which is considerably broader than monetary policy proper — is thus in line with the spirit of the Treaties.
While this is a general-purpose proposal, one way to specify the secondary mandate would be to require the ECB to support a European Investment Authority (EIA). Specifically, this would imply that the ECB modifies its collateral framework so as to insulate EIA bonds from pressure by private market actors such as rating agencies and investors. This does not require primary market purchases; the maintenance of an interest rate ceiling on the secondary market suffices.
Furthermore, the ECB should abandon the myth of market neutrality and orient monetary policy implementation so as to support sustainable investments. It can do so by greening its asset purchases and existing asset holdings, by institutionalizing green-support factors, and, once the European Commission’s Sustainable Finance taxonomy is expanded to include a brown list, by adding brown-penalizing factors.