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The European Central Bank in the age of banking union

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  • Zsolt Darvas
  • Silvia Merler

Abstract

During the crisis the European Central Bankâ??s roles have been greatly extended beyond its price stability mandate. In addition to the primary objective of price stability and the secondary objective of supporting EU economic policies, we identify ten new tasks related to monetary policy and financial stability. We argue that there are three main constraints on monetary policy: fiscal dominance, financial repercussions and regional divergences. By assessing the ECBâ??s tasks in light of these constraints, we highlight a number of synergies between these tasks and the ECBâ??s primary mandate of price stability. But we highlight major conflicts of interest related to the ECBâ??s participation in financial assistance programmes. We also underline that the ECBâ??s government bond purchasing programmes have introduced the concept of â??monetary policy under conditionalityâ??, which involves major dilemmas. A solution would be a major change towards a US-style system, in which state public debts are small, there are no federal bail-outs for states, the central bank does not purchase state debt and banks do not hold state debt. Such a change is unrealistic in the foreseeable future.

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Bibliographic Info

Paper provided by Bruegel in its series Policy Contributions with number 796.

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Date of creation: Oct 2013
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Handle: RePEc:bre:polcon:796

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Cited by:
  1. Daniele Schiliro, 2014. "Changes in Eurozone Governance after the Crisis and the Issue of Growth," International Journal of Social Science Studies, Redfame publishing, vol. 2(2), pages 110-119, April.
  2. Henri Sterdyniak & Maylis Avaro, 2013. "Banking union a solution to the euro zone crisis," Sciences Po publications 2013-20, Sciences Po.

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