This paper discusses the question, how Christine Lagarde wants to reorient the ECB's strategy and find answers to how the European Central Bank (ECB) could react to future developments such as climate change and if that is possible.
In 2015, 190 parties have committed themselves to the Paris Agreement. This agreement aims to limit global warming to well below 2 degrees. Climate change is one of the greatest challenges of our time and many nations have drawn up their own climate protection plans to limit their emissions. However, since climate change is a global challenge, international cooperation is more effective, if not necessary.
In December 2019, EU Commission President Ursula von der Leyen proved her commitment to environmental friendliness by announcing the European Green Deal in terms of which no more net greenhouse gas emissions are to be released in the EU by 2050. Von der Leyen is supported by the President of the European Central Bank (ECB) Christine Lagarde.
But does the ECB commit ultra vires in the process?
Table of Contents
A. Introduction: Are environmental considerations part of the ECB’s mandate?
B. Green interaction and price stability
I. Institutional ECB law
II. Economic theory behind price stability
III. Objectives of the ECB
1. Price stability, Art. 127 para. 1 sentence 1 TFEU
2. Support of general economic policy, Art. 127 para. 1 sentence 2 TFEU
a) Preliminaries
b) Distinction between monetary and economic policy
c) Application of the principle of proportionality
3. Principles underlying the objectives, Art. 127 para. 1 sentence 3 TFEU
4. Practical example
IV. Programmes of the ECB
1. Outright Monetary Transactions
2. Asset Purchase Programmes
a) Preliminaries
b) Risks of the APP
c) APPs in operation
V. Areas of green interaction to be conducted by the ECB
1. Preliminaries
2. Advisory powers, Art. 4 and 6 ECB Statute
3. Financial stability and prudential supervision
4. Purchase of green bonds
a) Purchase of green bonds within existing APPs
b) New Green Bond Purchase Programme
5. Green money printing
6. Excursus: Regulation (EU) 2020/852 – Taxonomy
VI. Comparison with other central banks
1. Preliminaries
2. Bank of England
3. The People’s Bank of China
C. Conclusion: Christine Lagarde intra vires!
Objectives and Core Topics
This paper examines whether the European Central Bank (ECB) can pursue climate-friendly monetary policies without exceeding its legal mandate, specifically addressing the "ultra vires" concerns raised by its environmental initiatives under President Christine Lagarde.
- Legal framework and mandate of the ECB regarding price stability and economic policy.
- Analysis of past ECB asset purchase programs (OMT, APP) in the context of legal interpretation.
- Potential integration of climate change risks into prudential supervision and monetary policy instruments.
- Comparative study of environmental activism in the Bank of England and the People's Bank of China.
Excerpt from the Book
1. Outright Monetary Transactions
Before at a later stage a controversy is presented, in which it will be discussed whether green interaction on the part of the ECB lies within its mandate, the past programmes of the ECB are examined. Thereby, an impression of how the ECB itself understands its mandate and how the judiciary, i.e. the European and national courts, judged the interactions is created.
First, the Outright Monetary Transactions Programme is described and the circumstances that led the ECB to launch this programme in 2012.
In 2010, the European Union experienced a national crisis in addition to the global financial crisis. Greece's default was imminent. This had the potential to bring the entire Union into a state of imbalance. Member States such as Greece, Spain and Italy, for example, fell into a severe recession/depression. Initially, the ECB tried to get the Union out of the crisis in the traditional way. In order to combat the threat of deflation, the key interest rate was cut from over 3.75% to 0.5% between 2008 and 2012. This was intended to increase the money supply and thus the mood for investment in the EU. But this did not help the southern European countries particularly. In spite of the low-key interest rate, Greece was unable to obtain money on the capital market. Creditors expected interest rates on Greek government bonds to exceed 25% and at the same time investors bet on Greece's default. Europe was facing a tensile test. In the summer of 2012 the then-President of the ECB Mario Draghi presented himself to the public and spoke
Summary of Chapters
A. Introduction: Are environmental considerations part of the ECB’s mandate?: Outlines the research question regarding whether Christine Lagarde's climate goals risk the ECB acting ultra vires.
B. Green interaction and price stability: Provides the institutional and economic theoretical framework, including the IS/LM model, to explain the limits of the ECB's influence.
I. Institutional ECB law: Describes the structure of the ECB and the Governing Council, emphasizing the importance of independence.
II. Economic theory behind price stability: Introduces the IS/LM macroeconomic model to illustrate how monetary policy influences national output and interest rates.
III. Objectives of the ECB: Analyzes the mandate of price stability and the legal constraints for supporting general economic policies.
IV. Programmes of the ECB: Reviews historical programs like OMT and APP to understand how the ECB interprets its mandate through unconventional monetary measures.
V. Areas of green interaction to be conducted by the ECB: Evaluates potential tools such as green bond purchases, advisory powers, and prudential supervision to mitigate climate risks.
VI. Comparison with other central banks: Compares the ECB's approach with the Bank of England and the People's Bank of China to provide a broader international perspective.
C. Conclusion: Christine Lagarde intra vires!: Concludes that green interaction is compatible with the ECB's mandate if it aligns with price stability and the principle of proportionality.
Keywords
ECB, European Central Bank, Christine Lagarde, ultra vires, price stability, monetary policy, economic policy, climate change, green bonds, financial stability, prudential supervision, APP, OMT, Bank of England, People's Bank of China
Frequently Asked Questions
What is the core issue of this paper?
The paper investigates whether the environmental policy initiatives supported by Christine Lagarde fall within the legal mandate of the European Central Bank or if they constitute an act beyond its authority (ultra vires).
What are the primary themes discussed?
Key themes include the legal boundaries of the ECB's mandate, the distinction between monetary and economic policy, the role of central banks in fighting climate change, and the comparative practices of international central banks.
What is the primary goal of the research?
The goal is to determine, through legal and economic analysis, if the ECB is permitted to adopt green monetary policies while remaining compliant with the EU Treaties.
Which scientific methodology is applied?
The paper utilizes a legal-doctrinal approach combined with macroeconomic analysis, specifically referencing the IS/LM model, EU case law, and relevant central bank regulations.
What topics are covered in the main part?
The main part covers the institutional legal basis of the ECB, an analysis of historical programs like OMT and APP, and an assessment of various instruments for "green interaction," such as bond purchases and climate risk disclosure.
Which keywords define this work?
The work is defined by terms such as ECB mandate, price stability, green interaction, ultra vires, monetary policy, and climate risk.
How does the ECB handle climate change risks?
The paper argues that the ECB can and should integrate climate risk assessments into its prudential supervision, as climate change poses a legitimate threat to financial stability.
Is a "Green Bond Purchase Programme" legally viable?
The author concludes that while the ECB can purchase green bonds, an APP solely focused on them might be problematic if it violates the principles of market neutrality and efficient resource allocation.
How does the ECB compare to the People's Bank of China?
The People's Bank of China has a much broader mandate that explicitly includes promoting economic growth and allows for direct state-directed green policies, whereas the ECB is more constrained by its primary focus on price stability.
- Arbeit zitieren
- Hanif Rahimy (Autor:in), Christian Daniel Hein (Autor:in), 2020, The European Central Bank and Green Interaction. The Role of Christine Lagarde, München, GRIN Verlag, https://www.grin.com/document/1011962
