The Mandate of the ECB: Legal Considerations in the Ecb's Monetary Policy Strategy Review

Abstract

This paper offers an overview of the mandate of the European Central Bank (ECB), as defined by its objectives, the instruments available to achieve them and the constitutional framework that the ECB shall observe in pursuing them. The objectives include the primary objective of maintaining price stability and the secondary objective of supporting the general economic policies in the Union. The price stability objective enjoys primacy amongst the ECB objectives. The Treaties do not provide for a hierarchy of the "general economic policies" that the ECB shall support, although a number of criteria derived from primary law can help in guiding the ECB's priorities in this respect. The ECB is also tasked with contributing to the "smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system". As for the instruments available, these include both measures that directly pursue the objectives and measures that are instrumental in achieving them. Finally, the other constitutional rules that set out the framework within which the ECB pursues its objectives include the principles of conferral, institutional balance, proportionality, equal treatment and non-discrimination, as well as the principle of an open market economy and the prohibition of monetary financing.

What to Do with the ECB's Secondary Mandate

“…They also state that ‘[t]he institutions responsible for indicating priorities for the purpose of Article 127(1) TFEU are primarily the European Council, the Council of the European Union (the “Council”), and the European Parliament.’ (Ioannidis et al, 2021, p. 18).…”

“…As members of the ECB's legal service recently argued,

given that the role of the ECB in this context is to support the policies of other institutions, deferring to these policies would be warranted not only with regard to their content but also to the hierarchisation of priorities. (Ioannidis et al, 2021, p. 17)

…”

“…The secondary mandate is a source of legal duties. Commentators generally agree that when the ECB has different courses of action to maintain price stability, it would be legally barred from pursuing the course of action that does a worse job in supporting these general economic policies (see for example Grünewald, 2021; Ioannidis et al, 2021, pp. 14–15; Lenihan, 2006, p. 7; Selmayr, 2015, pp.…”

“…On this reading, the provision empowers the ECB to pursue predominantly economic policy objectives, provided it uses the instruments allowed by the Statute of the ESCB and ECB and its policies do not negatively affect price stability (Borger, 2016, pp. 181–2; Gerner‐Beuerle et al, 2014, p. 310; Heun, 2014, p. 333; Ioannidis et al, 2021, p. 16; Thiele, 2016, p. 533; Wendel, 2014, pp. 295–8; Whelan, 2020, p. 43).…”

“…Article 127 (1) requires the ECB to ‘support’ economic policies in the Union, which reflects the fact that the ECB cannot simply develop its own economic policy (Grünewald, 2021, pp. 275–6; Ioannidis et al, 2021, p. 16; Ioannidis, 2020, p. 371). Employment, climate, and the like are competences of the EU's political institutions and the member states.…”