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9 - The Overburdened Monetary Policy Mandate of the ECB

from Part II - The Monetary Dimension

Published online by Cambridge University Press:  28 September 2023

By
Dariusz Adamski
Edited by
Dariusz Adamski ,
Fabian Amtenbrink  and
Jakob de Haan
Dariusz Adamski
Affiliation:
University of Wroclaw
Fabian Amtenbrink
Affiliation:
Erasmus Universiteit Rotterdam
Jakob de Haan
Affiliation:
University of Groningen
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Summary

The ECB was designed as a monetary institution with a restrained mandate pivoting on its primary objective of price stability. However, during the sovereign debt crisis and the period of interest rates at the effective lower bound its restrained, market-oriented mandate changed profoundly. As implications of it going beyond price stability became increasingly important, the mandate of the ECB has been less restrained. This process helped achieve both its primary and secondary objectives in the environment of persistently low inflation. But, each time explained in terms of ‘monetary transmission mechanism’ and ‘singleness of the monetary policy’, monetary policy actions with serious implications for broader economic considerations have produced new risks and potential conflicts. The ECB has been forced to assume economic stabilization and anti-fragmentation functions in response to macroeconomic, fiscal, and financial centrifugal processes produced by national policies and design flaws of the single currency. In consequence, the euro area’s monetary policy has become overburdened by the task of mitigating consequences of actions beyond the control of the central bank, with potential negative effects both for its legitimacy and effectiveness.

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The Cambridge Handbook of European Monetary, Economic and Financial Integration , pp. 155 - 174
Publisher: Cambridge University Press
Print publication year: 2023

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