The Eurosystem’s Monetary Policy at 25 (1999-2023) E-Book

Christos V. Gortsos

• Herausgeber: buch & netz
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 546

Veröffentlichungsjahr: 2024

Beschreibung

This study, completed in April 2024, aims at comprehensively presenting and thoroughly analysing the legal framework governing the definition and implementation of the single monetary policy in the euro area during the first twenty-five years of the Eurosystem’s operation. In this historical context, the focus is on the legal aspects pertaining to the definition and implementation of this single monetary policy since the establishment of the Eurosystem on 1 January 1999 amidst, and in response to, several financial and non-financial crises which erupted in the course of that period (and in particular since 2007, which marked the onset of the Global Financial Crisis). The ultimate goal is to highlight the significant contribution and the importance of the legal framework in shaping the single monetary policy of the Eurosystem, in normal times and at times of stress. The study is structured in two key chapters entitled “The Single Monetary Policy in the Euro Area: Definition and Legal Framework” and “Implementation of the Single Monetary Policy in the Euro Area in Periods of Crises”. The Epilogue (Chapter 3), entitled “Considerations on the Impact of Monetary Policy Decisions on Financial Stability in the Euro Area” discusses the interaction between monetary policy and financial stability, as well as the latest (until April 2024) financial stability conditions in the euro area through the lens of international and EU official reports, taking also into account the (spring 2023) banking turmoil.

Leseprobe

The Eurosystem’s Monetary Policy at 25 (1999-2023) Copyright © by Christos V. Gortsos is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License, except where otherwise noted.

© 2024 – CC BY-NC-ND (Werk), CC BY-SA (Text)

Author: Christos V. GortsosPublisher: EIZ Publishing (eizpublishing.ch)Production, Set & Distribution: buch & netz (buchundnetz.com)ISBN:978-3-03805-701-7 (Print – Softcover)978-3-03805-702-4 (Print – Hardcover)978-3-03805-703-1 (PDF)978-3-03805-704-8 (ePub)DOI:https://doi.org/10.36862/eiz-702Version: 1.02 – 20240625

This work is available in print and various digital formats in OpenAccess. Additional information is available at: https://eizpublishing.com/publikationen/the-eurosystems-monetary-policy-at-25-​1999-2023/.

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In memory of Αυρήλιος, my best friend ever

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Preface

A. The aim of the present study is a comprehensive presentation and thorough analysis of the legal framework governing the definition and implementation of the single monetary policy in the euro area during the first twenty-five years of the Eurosystem’s operation. In this historical context, its focus is on the legal aspects pertaining to the definition and implementation of the single monetary policy in the euro area since the establishment of the Eurosystem on 1 January 1999 amidst, and in response to, several financial and non-financial crises which erupted in the course of that period (and in particular since 2007, which marked the onset of the (2007-2009) Global Financial Crisis (GFC)). It also discusses the judgments of the Court of Justice of the European Union (CJEU) relating to the implementation of the single monetary policy, while also addressing the close interaction between monetary policy and financial stability.

The ultimate goal is to highlight the significant contribution and the importance of the legal framework in shaping the single monetary policy of the Eurosystem, in normal times and at times of stress. Undoubtedly, the links between law (including both institutional settings and operational arrangements) and political economy in the field of monetary (and, in general, central banking) policy are traditionally and internationally very close. Financial stability and fiscal policy considerations are also taken into account. From this perspective, and notwithstanding the pivotal role of economic/financial or policy-related decisions (usually taken under the influence of predominant economic perceptions) in shaping policy, these considerations always and duly take into account the limitations set by the legal framework. This also applies within the Eurosystem, where the European Central Bank (ECB) is also a rule-maker, in accordance with the regulatory powers conferred upon it by means of the provisions of the Treaty on the Functioning of the European Union (TFEU) and the Statute of the European System of Central Banks (ESCB) and of the ECB.

Given that the study is based on a manuscript that was the basis of my lectures at the University of Zurich during my Visiting Professorship at the Law Faculty in the winter semester of the academic year 2023-2024, it also contains, to a certain extent, a comparative analysis of the Eurosystem (and in particular of the ECB as its hub) with the Swiss National Bank (SNB) (see Box 3).

On the other hand, several highly important aspects relating to the Eurosystem and its central bank members, namely, the ECB and the national central banks (NCBs) of the Member States whose currency is the euro, are outside the scope of this study. These, indicatively, include their independence and accountability, their liability regime and their immunities, as well as the monetary income (seignorage) and other financial provisions of the Eurosystem. “Green” monetary policy, another typical aspect which is currently at the top of the political and academic agenda, is discussed herein only in broad terms (in particular in the context of the ECB’s new monetary policy strategy within the Eurosystem, which was introduced in July 2021) with due reference to an already vast existing literature.

B. The study is structured in two chapters, under the heading of five sections, followed by an Epilogue (Chapter 3).

Chapter 1 is entitled “The Single Monetary Policy in the Euro Area: Definition and Legal Framework” and contains two sections:

Section A deals with the definition of the single monetary policy in the Eurosystem after a brief presentation of the notions of monetary system and (conventional and unconventional) monetary policy. Emphasis is given to the definition of price stability in the euro area and to the ECB’s new 2021 monetary policy strategy within the Eurosystem.

The legal framework governing the implementation of the (conventional) single monetary policy is discussed in Section B. In this respect, the key provisions of primary and secondary EU law are discussed first (under 1), followed by the presentation of the operations for its implementation (i.e., open market operations, standing facilities and minimum reserves), the instruments employed, the procedures followed, as well as the eligible counterparties and the assets eligible as collateral in the Eurosystem (under 2-4).

Chapter 2, which is entitled “Implementation of the Single Monetary Policy in the Euro Area in Periods of Crises”, contains three sections:

The focus in Section C is on the implementation of the single monetary policy following the (2007-2009) GFC and the subsequent fiscal crisis in the euro area, discussing in detail the unconventional monetary policy instruments employed during (and since) that period, namely, the asset purchase programmes (APPs) and the different series of targeted longer-term refinancing operations (TLTROs).

Section D reviews the developments relating to the implementation of the single monetary policy since the outbreak of the pandemic crisis, discussing, inter alia, the pandemic emergency longer-term refinancing operations (PELTROs), the Pandemic Emergency Purchase Programme (PEPP) and the amendments applied to other APPs.

Section E focuses, in a comparatively more detailed way, on the implementation of the single monetary policy under the new monetary policy strategy of the ECB within the Eurosystem amidst the current “inflation crisis”.

Finally, the Epilogue (Chapter 3), entitled “Considerations on the Impact of Monetary Policy Decisions on Financial Stability in the Euro Area” discusses the interaction between monetary policy and financial stability, as well as the latest (until April 2024) financial stability conditions in the euro area through the lens of international and EU official reports, taking also into account the (spring 2023) banking turmoil.

C. Four closely related, albeit specific, aspects are briefly discussed under the heading of four Special Topics: the establishment of a central bank digital currency (CBDC) in the euro area, the digital euro (Special Topic 1 at the end of Section A); the role of the ECB in the European System of Financial Supervision (ESFS) and in the first pillar of the Banking Union (BU), namely, the Single Supervisory Mechanism (SSM) (Special Topic 2 at the end of Section C); the euro short-term rate (€STR) (Special Topic 3 at the end of Section D); and the ECB monetary policy decisions taken in early 2024 (i.e., the cut-off period for this study) (Special Topic 4 at the end of Section E).

Furthermore, the study contains five (even briefer) Excursus on the Eurosystem’s “consolidated accounts”, the introduction of “green dual interest rates”, the amendment of the Stability and Growth Pact (SGP), the establishment of an “Interinstitutional EU ethics body”, and the spring 2023 banking turmoil, respectively.

D. Several illustrative boxes and tables (including 2 summary tables), as well as graphs (taken over from ECB documents) have also been included to further clarify (and develop on) some aspects. In particular, Tables 6 and 8-10 show (respectively) the evolution of the Eurosystem’s consolidated financial statements/balance sheet during:

first, the period 2007-2017 (to highlight the impact of the measures taken amidst and after the (2007-2009) GFC and the subsequent euro area fiscal crisis);

second, the period December 2019 – January 2022 (to indicate the impact of the measures taken amidst the pandemic crisis); and

finally, in 2022 and 2023 amidst the current inflation crisis.

The key aspects of these financial statements are briefly analysed as appropriate.

E. The study is based on an exhaustive corpus of sources of primary and secondary EU law, which are also separately listed at the end of the study to highlight their significance for the purposes of a book on monetary policy law. This is complemented by a quite extensive (but still selective) list of secondary sources (bibliography), in the expectation that the most relevant books and articles have been duly included therein. Some Sub-sections are based on a previous monograph referred to in the list of secondary sources as Gortsos (2020a) (duly referred to in footnotes). However, developments since then have been of such significance that their updating was rendered indispensable, while some aspects – notably those relating to the pandemic and the inflation crisis – emerged after the publication of that monograph. The same applies in relation to financial stability considerations amidst the high-inflation environment.

F. As noted, the focus is on the Eurosystem’s first 25 years, i.e., the period 1999-2023. However, the cut-off date for information included herein is April 2024, which allowed the incorporation, as appropriate, of some subsequent developments until its completion and submission to the publisher. This applies, in particular, to the ECB legal acts and instruments published in early 2024 (see inter alia, Special Topic 4 at the end of Section E).

G. When I was in the process of completing this study, which is broadly based on previous drafts of a set of university lecture notes, I benefited from challenging discussions with my postgraduate students during my (above-mentioned) Visiting Professorship at the University of Zurich, where I taught a course on European Central Banking Law. I have also mostly benefited from comments and suggestions by my dear colleagues and friends Filippo Annunziata, Christina Livada, Dimitrios Kyriazis and Katerina Lagaria. I want to thank them all most cordially. I also want to thank Athina Papadatou for her valuable administrative support. Any errors or omissions are my sole responsibility.

I am very grateful to the Dean of the Law Faculty of the University of Zurich, Professor Thomas Gächter, for having kindly accepted to finance this publication and to my dear colleague and friend, Professor Rolf Sethe at the same Faculty of that University, for also having kindly accepted to include this work in the series of publications of the University Research Priority Program (URPP) “Financial Market Regulation” of the University of Zurich. I also wish to cordially thank Dr. Inke Nyborg for her valuable support in respect of the latter.

Last, but not least, special thanks are extended to another dear friend and colleague, Professor Andreas Kellerhals, as well as to my dear friend Dr. Tobias Baumgartner and to Sophie Tschalèr from EIZ-Publishing for their great support in publishing this book.

Athens (Greece), April 2024 Christos V. Gortsos

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Summary Table of Contents

CHAPTER 1 THE SINGLE MONETARY POLICY IN THE EURO AREA: DEFINITION AND LEGAL FRAMEWORK

Section A: Definition of the single monetary policy in the euro area

Introductory remarksMonetary system and monetary policyOn the definition of the single monetary policy in the euro area

Special Topic 1: towards a central bank digital currency (CBDC) in the euro area

Section B: The legal framework governing the implementation of the single monetary policy in the euro area

Introductory remarksOperations, instruments and procedures for implementation of the single monetary policyEligible counterparties and assets eligible as collateral in Eurosystem credit operations

CHAPTER 2 IMPLEMENTATION OF THE SINGLE MONETARY POLICY IN THE EURO AREA IN PERIODS OF CRISES

Section C: Implementation of the single monetary policy amidst and following the (2007-2009) global financial crisis (GFC) and the fiscal crisis in the euro area

Introductory remarksExcursus 1: the Eurosystem’s “consolidated accounts”The ECB asset purchase programmes (APPs)The programme for targeted longer-term refinancing operations (TLTROs)Special Topic 2: The role of the ECB in the European System of Financial Supervision (ESFS) and its specific tasks in the first pillar of the Banking Union (BU)

Section D: Implementation of the single monetary policy after the outbreak of the pandemic crisis

Introductory remarksMeasures relating to the ECB general monetary policy frameworkThe asset purchase programmesThe Eurosystem repo facility for central banks (EUREP) – swap lines and arrangementsStatistical informationDevelopments in relation to interest rates before the current “inflation crisis”Special Topic 3: The euro short-term rate (€STR)

Section E: Implementation of the single monetary policy under the new monetary policy strategy of the Eurosystem amidst the current “inflation crisis”

Decisions taken in July 2022Further decisions taken in September, October, and December 2022Excursus 2: Introduction of “green dual interest rates”Decisions taken in 2023Development of the Eurosystem’s consolidated accounts in 2022 and 2023An important further consideration: the appropriate mix between monetary and fiscal policiesExcursus 3: The amendment of the Stability and Growth Pact (SGP)Special Topic 4: Decisions taken in early 2024Excursus 4: Establishment of an “Interinstitutional EU ethics body”

CHAPTER 3 EPILOGUE: CONSIDERATIONS ON THE IMPACT OF MONETARY POLICY DECISIONS ON FINANCIAL STABILITY IN THE EURO AREA

The linkages between financial and monetary stabilityFinancial stability in the euro area through the lens of international and EU official reports – and the spring 2023 banking turmoilExcursus 5: The spring 2023 banking turmoil

CONCLUDING REMARKS

The scope of this study and its inherent limitationsKey findings

Primary Sources

Secondary Sources

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Analytical Table of Contents

List of judgments of the Court of Justice of the European Union (CJEU) and of Opinions of Advocates General

List of abbreviations

List of Tables

List of Graphs

List of Boxes

CHAPTER 1 THE SINGLE MONETARY POLICY IN THE EURO AREA: DEFINITION AND LEGAL FRAMEWORK

Section A: Definition of the single monetary policy in the euro area

Introductory remarksMonetary system and monetary policyThe monetary system The monetary policy function of central banks‘Conventional’ monetary policy‘Unconventional’ monetary policyOn the definition of the single monetary policy in the euro areaThe “broad picture”Participation in the EMU and the euro as a single currency of the Member States thereinOn the objectives and basic tasks of the EurosystemThe primary and the secondary objective of the EurosystemThe basic tasks of the Eurosystem and the ECB’s original monetary policy strategyIn particular: the role of the ECB as a lender of last resort – the Emergency Liquidity Assistance (ELA) mechanismDefinition of price stabilityThe two pillars of the analysisThe first pillar: economic analysisThe second pillar: monetary analysisThe new (2021) monetary policy strategyIntroductory remarksThe pillars of the new monetary policy strategy

Special Topic 1: towards a central bank digital currency (CBDC) in the euro area

The initiatives undertaken by the ECBThe legal basis for adopting a digital euro and its status as legal tender

Section B: The legal framework governing the implementation of the single monetary policy in the euro area

Introductory remarksHistorical overviewThe applicable frameworkKey provisions of primary EU lawGeneral provisionsIn particular: the sanctioning regimeKey legal acts and instruments of EU secondary law (Council and ECB) – the Eurosystem monetary policy implementation frameworkThe General Documentation GuidelineGeneral provisionsIn particular: the legal relationship between the Eurosystem central banks and counterpartiesThe rules governing the Eurosystem’s minimum reserve systemOther key legal acts and instrumentsOperations, instruments and procedures for implementation of the single monetary policyOpen market operationsThe provisions of the ESCB/ECB StatuteThe key aspects laid down in the General Documentation GuidelineIndividual features of the four categories of open market operationsMROsLTROsFine-tuning operationsStructural operationsStanding facilitiesCommon featuresGeneral aspectsIn particular: setting interest rates for standing facilitiesThe marginal lending facility: characteristics, access conditions, maturity and interest rateThe deposit facility: characteristics, access conditions, maturity and interest rateMinimum reservesEligible counterparties and assets eligible as collateral in Eurosystem credit operationsEligible counterpartiesAssets eligible as collateral in Eurosystem credit operationsGeneral overviewEligible assets and accepted collateralisation techniques used for Eurosystem credit operationsThe “Eurosystem credit assessment framework” (ECAF)

CHAPTER 2 IMPLEMENTATION OF THE SINGLE MONETARY POLICY IN THE EURO AREA IN PERIODS OF CRISES

Section C: Implementation of the single monetary policy amidst and following the (2007-2009) global financial crisis (GFC) and the fiscal crisis in the euro area

Introductory remarksExcursus 1: the Eurosystem’s “consolidated accounts”The ECB asset purchase programmes (APPs)The initial stageThe Outright Monetary Transactions (OΜΤ) ProgrammeThe ‘expanded’ asset purchase programmeThe programme for targeted longer-term refinancing operations (TLTROs)Special Topic 2: The role of the ECB in the European System of Financial Supervision (ESFS) and its specific tasks in the first pillar of the Banking Union (BU)On the European System of Financial Supervision (ESFS)On the Single Supervisory Mechanism (SSM)The resulting enhancement of the ECB tasks (and powers) and a terminological clarification

Section D: Implementation of the single monetary policy after the outbreak of the pandemic crisis

Introductory remarksMeasures relating to the ECB general monetary policy frameworkDecisions on the third series of targeted longer-term refinancing operations (TLTRO-III)Introduction of pandemic emergency longer-term refinancing operations (PELTROs)Implementation of the Eurosystem monetary policy framework and valuation haircutsAdditional temporary measures relating to Eurosystem refinancing operations and to eligibility of collateralThe asset purchase programmesEstablishment of the “Pandemic Emergency Purchase Programme” (PEPP)Amendments to pre-existing APPsAmendments to the framework governing the third covered bonds purchase programme (CBPP3)Amendments to the corporate sector purchase programme (CSPP)Further announcements relating to asset purchase programmes (APPs)Some statistical dataThe Eurosystem repo facility for central banks (EUREP) – swap lines and arrangementsStatistical informationDevelopments in relation to interest rates before the current “inflation crisis”An overview in the period before the outbreak of the inflation crisisOn the negative deposit facility rates and interest rates in the interbank marketThe negative ECB deposit facility rate (DFRs) and its exceptionsNegative interest rates in the interbank market

Special Topic 3: The euro short-term rate (€STR)

General overviewThe Guideline (EU) 2019/1265 on the euro short-term rate (€STR)The amendment to the Benchmark RegulationSpecific aspects

Section E: Implementation of the single monetary policy under the new monetary policy strategy of the Eurosystem amidst the current “inflation crisis”

Decisions taken in July 2022General overviewIn particular: the “Transmission Protection Instrument” (TPI)Further decisions taken in September, October, and December 2022Decisions relating to interest ratesOther monetary policy-related decisionsAspects relating to the APP, the PEPP, the CSPP and TLTRO-III operationsRemuneration of government deposits held with the EurosystemRemuneration of minimum reservesOther decisionsExcursus 2: Introduction of “green dual interest rates”Decisions taken in 2023Decisions relating to interest ratesThe first set of decisions (February – March)Subsequent decisions (May – July)Other monetary policy-related decisionsAspects relating to the APP, the PEPP and TLTRO-III refinancing operationsRemuneration of government deposits held with the EurosystemRemuneration of minimum reservesOther aspectsDevelopment of the Eurosystem’s consolidated accounts in 2022 and 2023An important further consideration: the appropriate mix between monetary and fiscal policiesExcursus 3: The amendment of the Stability and Growth Pact (SGP)Special Topic 4: Decisions taken in early 2024Excursus 4: Establishment of an “Interinstitutional EU ethics body”

CHAPTER 3 EPILOGUE: CONSIDERATIONS ON THE IMPACT OF MONETARY POLICY DECISIONS ON FINANCIAL STABILITY IN THE EURO AREA

The linkages between financial and monetary stabilityIntroductory remarksThe impact of monetary policy actions on financial stabilityAn environment of high inflationAn environment of very low inflationInterim conclusionsFinancial stability in the euro area through the lens of international and EU official reports – and the spring 2023 banking turmoilIntroductory remarksFinancial stability conditions just before the outbreak of the pandemic crisisFinancial stability at the outbreak of the inflation crisisExcursus 5: The spring 2023 banking turmoilCurrent financial stability considerations in the EU in a global contextReports in 2023Reports in 2024

CONCLUDING REMARKS

The scope of this study and its inherent limitationsKey findingsOn the Eurosystem’s monetary policy strategy and the general framework on the implementation of the Eurosystem’s monetary policyOn the implementation of the single monetary policy during the GFC, the fiscal crisis in the euro area, the pandemic crisis and the (current) inflation crisisOn the linkages between monetary policy and financial stability

Primary Sources

Treaties – Charter – ProtocolsEuropean Council DecisionCouncil Regulations, Directives and DecisionsLegislative acts of the European Parliament and of the Council (co-legislators)RegulationsDirectivesActs of the CommissionECB legal acts, legal instruments, and AgreementsRegulationsDecisionsGuidelinesAgreements with the participation involving the ECB

Secondary Sources

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List of judgments of the Court of Justice of the European Union (CJEU) and of a View and Opinions of Advocates General

View of Advocate General Kokott of 26 October 2012 in Case C‑370/12, Thomas Pringle v Government of Ireland and Others, ECLI:EU:C:2012:675

Judgment of the Court (Full Court) of 27 November 2012 in Case C‑370/12, Thomas Pringle v Government of Ireland and Others, EU:C:2012:756

Opinion of Advocate General Cruz Villalón of 14 January 2015 in Case C-62/14, Peter Gauweiler and Others v Deutscher Bundestag, ECLI:EU:C:2015:7

Judgment of the Court (Grand Chamber) of 16 June 2015 in Case C-62/14, Peter Gauweiler and Others v Deutscher Bundestag, ECLI:EU:C:2015:400

Judgment of the Court (Grand Chamber) of 20 September 2016 in Joined Cases C-8/15 P, C-10/15 P, Ledra Advertising Ltd and Others v European Commission and European Central Bank (ECB), ECLI:EU:C:2016:701

Judgment of the Court (Fourth Chamber) of 10 November 2016 in Case C-156/15, Private Equity Insurance Group SIA v Swedbank AS, EU:C:2016:851

Judgment of the Court (Grand Chamber) of 28 March 2017 in Case C72/15, PJSC Rosneft Oil Company v Her Majesty’s Treasury, Secretary of State for Business, Innovation and Skills, and The Financial Conduct Authority, EU:C:2017:236)

Judgment of the General Court of 16 May 2017 in Case T-122/15, Landeskreditbank Baden-Württemberg ‒ Förderbank v European Central Bank, ECLI:EU:T:2017:337

Judgment of the General Court (Sixth Chamber) of 26 April 2018 in Case T-251/15, Espírito Santo Financial (Portugal) v European Central Bank (ECB), ECLI:EU:T:2018:234

Opinion of Advocate General Wathelet of 4 October 2018 in Case C-493/17, Weiss and Others, ECLI:EU:C:2018:815

Judgment of the Court (Grand Chamber) of 11 December 2018 in Case C-493/17, Weiss and Others, ECLI:EU:C:2018:1000

Judgment of the Court (Grand Chamber) of 26 February 2019 in Joint Cases C-202/18 and 238/18, Ilmārs Rimšēvičs and European Central Bank v Republic of Latvia, ECLI:EU:C:2019:139

Judgment of the General Court (Second Chamber) of 12 March 2019 in Case T‑798/17, Fabio De Masi and Yanis Varoufakisv European Central Bank (ECB), ECLI:EU:T:2019:154

Judgment of the General Court (Sixth Chamber) of 13 March 2019 in Case T‑730/16, Espírito Santo Financial Group SAv European Central Bank (ECB), ECLI:EU:T:2019:161

Judgment of the Court (First Chamber) of 8 May 2019 in Case C‑450/17 P on the appeal brought by Landeskreditbank Baden-Württemberg Förderbank, ECLI:EU:C:2019:372

Judgment of the Court (First Chamber) of 19 December 2019 in Case C‑442/18 P, European Central Bank (ECB) v Espírito Santo Financial (Portugal) SGPS, SA, ECLI:EU:C:2019:1117

Opinion of Advocate General Pikamäe of 9 July 2020 in Case C-342/19 P, Fabio De Masi and Yanis Varoufakisv European Central Bank (ECB), ECLI:EU:C:2020:549

Opinion of Advocate General Pitruzzella of 29 September 2020 in Joined cases C-422/19 and C-423/19, Johannes Dietrich and Norbert Häring v Hessischer Rundfunk, ECLI:EU:C:2020:756

Judgment of the Court (Sixth Chamber) of 21 October 2020 in Case C‑396/19 P, European Central Bank (ECB) v Insolvent Estate of Espírito Santo Financial Group SA., ECLI:EU:C:2020:845

Judgment of the Court (First Chamber) of 17 December 2020 in Case C-342/19 P, Fabio De Masi and Yanis Varoufakisv European Central Bank (ECB), ECLI:EU:C:2020:1035

Judgment of the Court (Grand Chamber) of 26 January 2021 in Joined cases C-422/19 and C-423/19, Johannes Dietrich and Norbert Häring v Hessischer Rundfunk, ECLI:EU:C:2021:63

Judgment of the General Court (Third Chamber) of 9 February 2022 in Case T-868/16, QI and Others v European Commission and European Central Bank, ECLI:EU:T:2022:28

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List of Abbreviations

ABSs Asset-Backed SecuritiesABSPPAsset-backed Securities Purchase ProgrammeACCAdditional Credit Claims (framework)AEUVVertrag über die Arbeitsweise der Europäischen UnionAMCAsset Management CompanyANFAAgreement on Net Financial AssetsAPPsAsset Purchase ProgrammesBCBSBasel Committee on Banking SupervisionBISBank for International SettlementsBoEBank of EnglandBUBanking UnionBVerfGBundesVerfassungsGericht (Germany)CBDCCentral Bank Digital CurrencyCBPP Covered Bond Purchase ProgrammeCCBMCorrespondent Central Banking ModelCCyBCountercyclical Capital BufferCEMACCommunauté Économique et Monétaire de l’Afrique CentraleCEPRCentre for Economic Policy ResearchCET1 Common Equity Tier 1 (capital)CFRCharter of Fundamental Rights (of the European Union)CGFSCommittee on the Global Financial SystemCJEUCourt of Justice of the European UnionCPCommercial PaperCPIACurrency and Payment Instruments Act (Switzerland)CRD IVCapital Requirements Directive No IV (2013/36/EU)CRRCapital Requirements Regulation (575/2013)CSDRCentral Securities Depositories Regulation (909/2014) CSPPCorporate Sector Purchase ProgrammeDECC(non-marketable) Debt (instrument backed by) Eligible Credit ClaimsDFRDeposit Facility RateDLTDistributed Ledger TechnologyDVPDelivery Versus Payment€STR Euro Short-Term RateEBAEuropean Banking AuthorityEBAREuropean Banking Authority Regulation (1093/2010)EBIEuropean Banking InstituteECAFEurosystem Credit Assessment FrameworkECAIsExternal Credit Assessment InstitutionsECBEuropean Central BankECCUEastern Caribbean Currency UnionECLIEuropean Case Law IdentifierECONSEnhanced Contingency SolutionEDISEuropean Deposit Insurance SchemeEEAEuropean Economic AreaEECEuropean Economic CommunityEFSFEuropean Financial Stability FacilityEFSMEuropean Financial Stabilisation MechanismEFTAEuropean Free Trade AreaEIOPAEuropean Insurance and Occupational Pensions AuthorityELAEmergency Liquidity AssistanceEMI European Monetary InstituteEMUEconomic and Monetary UnionEONIAEuro OverNight Index AverageERM IIExchange Rate Mechanism No IIERMSEurosystem Reserve Management ServicesESAsEuropean Supervisory AuthoritiesESCBEuropean System of Central BanksESFSEuropean System of Financial SupervisionESGEconomic, Social and Environmental (risks)ESMEuropean Stability MechanismESMAEuropean Securities and Markets AuthorityESRBEuropean Systemic Risk BoardESRBREuropean Systemic Risk Board Regulation (1092/2010)ESTER Euro Short-Term RateEUEuropean UnionEUREPEurosystem Repo (facility for central banks)FCFederal Constitution (of the Swiss Confederation)FCAFinancial Conduct Authority (United Kingdom)FCCFederal Constitutional Court (Germany)FDICFederal Deposit Insurance Corporation (United States)FINMASwiss Financial Market Supervisory AuthorityFINMASAFinancial Market Supervision Act (Switzerland)FOMCFederal Open Market Committee (United States)FSAPFinancial Sector Assessment Program (IMF and World Bank)FSBFinancial Stability BoardFSOCFinancial Stability Oversight Council (United States)GC Governing Council (ECB)GFCGlobal Financial CrisisGHGGreenHouse Cas (emissions)HICPHarmonised Index of Consumer PricesIADIInternational Association of Deposit InsurersIFRSInternational Financial Accounting StandardsIMFInternational Monetary FundIOSCOInternational Organisation of Securities CommissionsIRAInflation Reduction Act (United States)ITSsImplementing Technical StandardsLCRLiquidity Coverage RatioLIBORLondon Inter-Bank Offered RateLLRLender of Last ResortLTROs Longer-Term Refinancing OperationsMASMonetary Authority of SingaporeMFIsMonetary Financial InstitutionsMiCARMarkets in Crypto-Assets RegulationMIDMarket Information Dissemination (platform)MMFsMoney Market FundsMoUMemorandum of UnderstandingMROs Main Refinancing OperationsNBFIsNon-Bank Financial IntermediationNBANational Bank Act (Switzerland)NCAsNational Competent AuthoritiesNCBsNational Central BanksNDAsNational Designated AuthoritiesNPEsNon-Performing ExposuresNPLsNon-Performing LoansNSFRNet Stable Funding RatioOAGOffice of the Attorney General (Switzerland)OECDOrganisation for Economic Co-operation and DevelopmentOJOfficial Journal (of the European Union)OOHOwner-occupied housing (cost)OMTsOutright Monetary Transactions (Programme)PCIJPermanent Court of International JusticePDProbability of DefaultPELTROsPandemic Emergency Longer-Term Refinancing OperationsPEPPPandemic Emergency Purchase ProgrammePSPPayment Service ProviderPSPPPublic Sector Purchase ProgrammeQ&AsQuestions and AnswersQEQuantitative EasingQTQuantitative Tighteningr-CBDCretail Central Bank Digital CurrencyRAQRisk Assessment Questionnaire (EBA)RDBRisk DashBoard (EBA)RMBDRetail Mortgage-Backed Debt (instrument)RoEReturn on EquityRRFRecovery and Resilience Facility (under Regulation (EU) 2021/241)RTGS Real-Time Gross SettlementSDRsSpecial Drawing Rights (IMF)SGPStability and Growth PactSMP Securities Markets ProgrammeSNBSwiss National BankSRMSingle Resolution MechanismSRMRSingle Resolution Mechanism Regulation (806/2014)SSMSingle Supervisory MechanismSSMRSingle Supervisory Mechanism Regulation (1024/2013)SSM-FRSSM Framework Regulation (468/2014)SSSsSecurities Settlement SystemsSVBSilicon Valley Bank (United States)T2STarget2 SecuritiesTARGET Trans-European Automated Real-Time Gross Settlement Express Transfer (system)TECTreaty establishing the European CommunityTEUTreaty on European UnionTFEUTreaty on the Functioning of the European UnionTLTROsTargeted Longer-Term Refinancing OperationsTPITransmission Protection InstrumentUEMOAUnion Économique et Monétaire Ouest-AfricaineUKUnited KingdomUNUnited NationsUSUnited States (of America)USDUnited States Dollarsw-CBDCwholesale Central Bank Digital CurrencyWFSWeekly Financial Statement

7

List of Tables

# of TableTitlePage(s)Table 1A simplified central bank balance sheetTable 2Target of central bank balance sheet policies – in particular: credit policyTable 3A summary of the key ECB legal acts and instruments governing the Eurosystem monetary policy implementation frameworkTable 4A summary of the Eurosystem’s monetary policy implementation frameworkTable 5Main features of the Eurosystem’s open market operationsTable 6Evolution of the Eurosystem’s consolidated accounts (2007-2017, in million euro): The impact of the GFC and the euro area fiscal crisisTable 7A comparison: ECB (as a supervisory authority), EBA and ESRBTable 8Evolution of the Eurosystem’s consolidated accounts (2019-January 2022, in million euro): The impact of the pandemic crisisTable 9Evolution of the Eurosystem’s consolidated accounts in 2022 (in million euro): The impact of the inflation crisisTable 10Evolution of the Eurosystem’s consolidated accounts in 2023 (in million euro): The impact of the inflation crisisSummary TablesSummary Table 1The system of rules in Article 127 TFEUSummary Table 2Key policy responses of the ECB to the various financial and non-financial crises which erupted since 2007

List of Graphs

# of GraphTitlePage(s)Graph IThe Eurosystem’s (initial) monetary policy strategyGraph IIThe mechanism for the transmission of monetary policy effectsGraph IIIOverview of open market operations and standing facilities of the Eurosystem

List of Boxes

# of BoxTitlePage(s)Box 1Specific remarks on the basic tasks – and some related institutional aspects Box 2Case law in relation to the ELA MechanismBox 3A brief comparison to the Swiss National Bank (SNB)Box 4On the legal tender status of euro banknotes and coins in accordance with the Commission’s Recommendation and the judgment of the CJEU (Joined Cases C-422/19 and C-423/19)Box 5The key differences between ECB Regulations, Decisions and GuidelinesBox 6The CJEU judgments in the “Pringle case” and the “Gauweiler case”Box 7The three channels through which APPs influence (inter alia) broader financial conditionsBox 8The CJEU judgment in the “Weiss case” – and a postscript Box 9The phasing-out of LIBOR

I

Chapter 1 The Single Monetary Policy in the Euro Area: Definition and Legal Framework

1

Definition of the single monetary policy in the euro area

Introductory remarks

(1) On 30 December 2023, the Presidents of four European Union (‘EU’) institutions and of the Eurogroup published a Press Release entitled: “Euro at 25: the value of unity in a changing world”.[1] They stated, inter alia:

“25 years ago, on 1 January 1999, the euro came into force as the single currency for 11 EU Member States. It now serves the economy and eases life for 350 million people in 20 countries.”

“There have been tremendous challenges over the years, including questions about the future of the euro itself. But each time we have found the right answers. In response to the global financial crisis and sovereign debt crisis, for example, we established safeguards like the harmonised system of banking supervision and resolution or the European Stability Mechanism. Today, support for the single currency among euro area citizens is close to record levels.”

“But our work is not done. Because today we face new challenges that countries cannot address alone – and people are looking to Europe for answers.”

“The first 25 years of the euro have shown just how successful a dream can be. But as the world changes around us, our action proves that a united Europe provides the answers the Europeans and the world need.”

(2) Indeed, since the start of Stage Three of the Economic and Monetary Union (‘EMU’) on 1 January 1999,[2] the euro is the single currency in the euro area[3] and the number of EU Member States which have adopted it since then has almost doubled. In parallel, the task has been conferred upon the Eurosystem, within the EU, “to define and implement the monetary policy of the Union”.[4] This is the first of its basic tasks in accordance with Article 127(2), first indent of the Treaty on the Functioning of the European Union[5] (‘TFEU’).

The legal framework governing the definition and implementation of the single monetary policy in the euro area is further discussed below (in Sub-section 3and in Section B, respectively).[6] This follows a brief presentation of the notions of monetary system and of monetary policy, one of the key macro-economic policies (see just below, under 2.1and 2.2, respectively).

Monetary system and monetary policy[7]

The monetary system

(1) A national monetary system contains the unit of account of a state (with reference to its name and any applicable subdivisions thereof), and comprises, at institutional level, a central bank (or similar ‘monetary authority’, as it is named, e.g., in Singapore and Saudi Arabia, or ‘Reserve Bank’ as it is named, e.g., in the United States (of America, ‘US’), Australia and India[8]), which enjoys the monopoly of issuing national banknotes (the first item on the liability side of its balance sheet[9]), controls the quantity of coins issued by the government (i.e., the Ministry of Finance or a corresponding ministry) and provides liquidity to banks operating within its territory.[10]

(2) According to the “State Theory of Money”, a sovereign state is entitled to issue its own money (the money of the state) and create a (national) monetary system. This principle of “monetary sovereignty” has been reaffirmed in international law; as noted, inter alia, by the Permanent Court of International Justice (‘PCIJ’) in the 1929 Serbian and Brazilian Loan Case, “it is indeed a generally accepted principle that a state is entitled to regulate its own currency”.[11] In certain cases, however, small sovereign states have neither their own money nor a domestic monetary system.[12]

A quite different case is the formation of a monetary union among (more or less equally sizeable) sovereign States, which decide to transfer their (national) monetary sovereignty to supranational entities issuing a single (or common) currency and operating a supranational, regional monetary system. The European monetary union – further discussed in detail below – is the most striking example, the Eastern Caribbean Currency Union (‘ECCU’) being another (albeit less significant) one. Discussions on the creation of a regional monetary union are for years now also taking place among several African States and some Arab States.[13]

The monetary policy function of central banks

‘Conventional’ monetary policy

(1) Monetary policy encompasses all measures adopted by a central bank in order to influence the money supply, as well as, through the latter, certain financial variables (such as loan interest rates of banks). The aim is to achieve specific economic policy objectives and predominantly safeguard price stability in the economy.[14] In some states, however, the main objective of monetary policy does not only consist in maintaining price stability, but also (concurrently) in achieving other macroeconomic goals, such as affecting the exchange rate of the domestic currency and/or contributing to economic growth and development (thus also affecting labour market conditions).[15]

Related to but not identical with monetary policy is the provision by a monetary authority, i.e., a central bank, of lending of last resort (‘LLR’) to individual solvent banks exposed to liquidity risk and on a temporary basis,[16] which is an element of the financial stability-linked ‘bank safety net’.[17]

(2) The definition and implementation of monetary policy is a key task of all central banks,[18] conducted, in several jurisdictions, under conditions guaranteeing its independence vis-à-vis the political system. Safeguarding said independence is claimed to be necessary, since it constitutes the means for pursuing maintenance of price stability, allowing for definition and implementation of monetary policy without direct influence by the political system, typically over a period longer than the political cycle.[19]

(3) To implement monetary policy, central banks make use of several operations, instruments and procedures: First, a key category of monetary policy operations in today’s advanced (at least) economies is open market operations, which are aimed at influencing interest rates, controlling liquidity in the markets, and signalling the path of monetary policy. These operations are executed upon their initiative and under the conditions they set.[20]Second, central banks apply two standing facilities to grant and absorb liquidity to and from banks (and other eligible counterparties) outside working hours (marginal lending facility and deposit facility, respectively). Third, they usually also impose on eligible counterparties an obligation to hold a percentage of their deposits with central bank accounts to stabilise money market rates.[21]Furthermore, they determine specific criteria for the selection of the counterparties eligible for monetary policy operations and the categories of assets eligible as collateral in the conduct of credit transactions.[22]

TABLE 1 A simplified central bank balance sheetAssetsLiabilitiesGold & claims denominated in foreign currency (foreign reserves)Banknotes in circulation

CBDCs (upon their introduction)

Claims on banks related to monetary policy operations (open market operations & “lending facility”)Liabilities to banks related to monetary policy operations (reserve requirements & “deposit facility”)Securities issued by Governments and non-financial corporatesDebt certificates issuedOther claims (in domestic currency)Other liabilities (in domestic currency)Other claims (in foreign currencies)Other liabilities (in foreign currencies)Other assetsRevaluation accounts

Capital and reserves

‘Unconventional’ monetary policy

(1) Under the extraordinary circumstances arising from the need to bolster the banking (and, more generally, financial) system and the economy following the (2007-2009) global (or ‘great’) financial crisis (‘GFC’) and, in the European context, the subsequent fiscal crisis in the euro area, central banks all over the world adjusted their monetary policy in a synchronised way.[23] The onset of these crises showed that the key problem was not the risk of “inflation” (i.e., a sustained rise in the general level of prices).[24] The key concern was the exact opposite: very low inflation (“disinflation”) or even negative inflation (“deflation”, i.e., reduction of the general price level in an economy over a specified period of time).[25]

In this respect, the following is noted: (a) there is a difference between “headline inflation” and “core inflation”; the former is the inflation figure reported through a harmonised index (such as, in the euro area the Harmonised Index of Consumer Prices (‘HICP’);[26] core inflation removes the components of that index that may exhibit large short-term volatility (e.g., energy and food prices);[27] and (b)“stagflation” is an environment of slow growth (“stagnation”, and usually increased unemployment) coupled by inflation.

(2) The fact that the price level remained persistently below the benchmark set for price stability and that central bank (official) interest rates came close to their “effective lower bound” (the point at which lowering them further would have little to no effect), required central banks to implement a “balance sheet policy” (also labelled as quantitative easing (‘QE’) and/or “ballooning”[28]).[29] The target of this policy, which contained “unconventional” monetary policy instruments, was to inject liquidity to the economy in order to contain the effects of the GFC and, thus, directly affect broader financial conditions through central bank balance sheets. It is opposed to the (traditional) “interest rate policy” aimed at affecting short-term interest rates.

According to Borio and Disyatat (2009),[30] balance sheet policy comprises four categories: exchange rate policy (i.e., the purchase of foreign currency securities); quasi debt-management policy (i.e., the purchase of government bonds; bank reserves policy (i.e., setting a target for bank reserves); and “credit policy” to alter financing conditions for the private sector, which contains two pillars:

The first includes all measures adopted to influence interbank market conditions by means of the following instruments: drastic official interest rate cuts (including the setting of the interest rate on the deposit facility into negative territory), prolongation of certain types of open market operations, broadening the scope of assets eligible as collateral, broadening the range of eligible counterparties, as well as introduction of inter-central bank currency (foreign exchange) swap lines and easing of conditions for securities lending.

In this respect, the following is noted: A “currency swap line” is an agreement between two central banks to exchange currencies. This allows a central bank to obtain foreign currency liquidity from the central bank that issues it – usually to provide this to domestic commercial banks. For example, the swap line with the US Federal Reserve System enables the European Central Bank (‘ECB’) and all national central banks (‘NCBs’) in the euro area (Eurosystem)[31] to receive US dollars (‘USD’) from the Federal Reserve System in exchange for an equivalent euro amount provided to it. Currency swap lines through swap agreements have traditionally been part of central banks’ set of monetary policy instruments to fund market interventions. However, in recent years they have also become an important tool for preserving financial stability and preventing market tension from affecting the real economy.[32]“Securities lending” means the lending of shares, debt securities (bonds), commodities, derivative contracts, or other financial instruments against collateral (in the form of cash or other securities) and the payment of a borrowing fee.

The second pillar comprises “asset purchase programmes” (‘APPs’), namely, programmes adopted to influence non-bank credit markets through the purchase of short-term certificates of deposit and relevant commercial paper (‘CP’), asset-backed securities (‘ABSs’) and longer-term debt securities. In particular, APPs are aimed at directly affecting the price of the corporate and/or sovereign debt securities through central bank operations on their balance sheets.[33]

TABLE 2 Central bank balance sheet policies: an overview Target of all central bank balance sheet policiesdirectly affect broader financial conditions via central bank balance sheets – in opposition to the interest rate policy (affecting short-term interest rates)Exchange rate policypurchase of foreign currency securities in order to affect the exchange rate, its level and/or its volatility, at any given level of the policy rateQuasi debt-management policypurchase of government bonds in order to alter the yield on government securities and, thereby, influence the cost of funding and asset prices more generallyCredit policy1. Influence on interbank market conditionscut of official interest rates;prolongation of (specific types of) open market operations;broadening of eligible collateral and of eligible counterparties;inter-central bank foreign exchange swap lines; andintroduction of easing of conditions for securities lending

2. Influence on non-bank credit market (‘asset purchase programmes’)

purchase of short-term certificates of deposit and relevant commercial paper (CP);purchase of asset-backed securities (ABSs); andpurchase of longer-term debt securitiesBank reserves policysetting a target for bank reserves regardless of how this is counter-balanced on the asset side of the central bank’s balance sheet

On the definition of the single monetary policy in the euro area

The “broad picture”

Participation in the EMU and the euro as a single currency of the Member States therein

(1) The rules of primary EU law governing the single currency and the single monetary policy in the euro area (the term “monetary policy” not being defined in the Treaties[34]) are (mainly) set out in the TFEU and (except for the euro-denominated coins) the Statute of the European System of Central Banks (‘ESCB’) and of the ECB (hereinafter the ‘ESCB/ECB Statute’), which is contained in Protocol (No 4) attached to the Treaties.[35] This Statute was adopted on the basis of (and follows very closely) the Draft Statute of the Committee of Governors of the Central Banks of the European Economic Community (‘EEC’), which was submitted on 21 November 1990.[36]

(2) Participation in the EMU, whose single currency is the euro,[37] is confined to the Member States meeting specific economic and legal ‘convergence criteria’.[38] Those not meeting these criteria are referred to as ‘Member States with a derogation’.[39] The latter also include Denmark which has an opt-out clause from the monetary union, in accordance with the conditions laid down in Protocol (No 16)[40] attached to the TEU and the TFEU (jointly the ‘Treaties’).[41]

(3) In close relation to the previous point (and from a legal point of view), the use of the euro is not restricted to the euro area. By virtue of three Decisions taken by the Council, on 31 December 1998, with respect to the position to be taken by the (then) Community regarding agreements concerning the monetary relations with the Principality of Monaco, the Republic of San Marino and the Vatican City State. Before the transition, these countries were using as their national currency that of a Member State which adopted the euro (namely, France and Italy).[42]It is furthermore noted that in some other European countries outside the euro area (namely, Albania, Bosnia and Herzegovina, Bulgaria, Hungary, North Macedonia, Romania, and Serbia) the use of the euro, albeit not their national currency, is widespread.[43]

(4) The euro is a single and not a “common” currency. It substituted for the (former national) currencies of the Member States participating in the euro area at an irrevocably fixed rate.[44] Banknotes and coins in the currencies of these Member States are not anymore in circulation (which would have been the case if it were a common currency). The euro-denominated banknotes and coins are the only means of payment that have a “legal tender status” pursuant to Article 128(1) TFEU (for banknotes) and Articles 10-11 of Council Regulation 974/98 (for banknotes and coins, respectively).[45](5) In terms of central banks’ participation, a significant distinction is that between, on the one hand, the (broader) term European System of Central Banks (ESCB) and, on the other hand, the term “Eurosystem”. In particular, while the ESCB comprises the ECB and the NCBs of all EU Member States,[46] the Eurosystem comprises the ECB and the NCBs of the Member States whose currency is the euro (i.e., those of the euro area).[47] Thus, the single monetary policy and the other basic tasks (as discussed just below) are not conferred upon the ESCB, but upon the Eurosystem.

Both the ECB, an EU institution,[48] which acts in the ESCB and in the Eurosystem as the “hub”, and the NCBs (of all Member States) have legal personality: the ECB under primary EU law[49] and the NCBs under the national law of the Member State where they are incorporated. On the other hand, the ESCB and the Eurosystem do not have legal personality. They are concepts used in EU monetary law as an “overall description” of, or “common name” for, its constitutive elements (ECB and the NCBs of EU Member States).[50]Inter alia, the fact that the Eurosystem does not have legal personality means, by effect, that it cannot be “defendant” in a possible action for annulment under Article 263 TFEU.[51]

The financial provisions of the ESCB are found in Chapter VI of the ESCB/ECB Statute (Articles 26-33) and their majority does not apply to the NCBs of Member States with a derogation. They refer to the ECB’s capital (a manifestation of its financial independence); the publication and control of financial accounts of the ECB and the NCBs of Member States whose currency is the euro;[52] the transfer to the ECB by the latter group of NCBs of (part of) their foreign reserve assets; as well as the allocation of monetary income (seigniorage) of the NCBs of these Member States and the allocation of ECB net profits and losses.

On the objectives and basic tasks of the Eurosystem

The primary and the secondary objective of the Eurosystem

(1) The “primary” and the “secondary” objectives of the Eurosystem are laid down in Articles 127(1) and 282(2), second and third sentences TFEU (repeated verbatim in Article 2, first sentenceESCB/ECB Statute[53]). The primary objective is to maintain price stability.[54] The ECB and the NCBs of the Member States whose currency is the euro are, therefore, competent, within the Eurosystem, for defining and implementing monetary (and exchange-rate) mainly to safeguard price stability. The secondary objective is without prejudice to the primary one; thereunder, the Eurosystem must support the general economic policies in the EU to contribute to the achievement of its objectives as laid down in Article 3 TEU; and act according to the principle of an open market economy with free competition, favouring an efficient allocation of resources (a “generic” statement on respect for market economics) and in compliance with the principles set out in Article 119(3) TFEU.[55]

(2) In this context, the following is further (briefly) noted:

First, the rationale behind this hierarchy of objectives lies within the prevailing view that the Eurosystem can only pursue its secondary objectives if the primary one, i.e., price stability, has been assured. Accordingly, it is expected that its basic tasks are performed with the aim to combat inflation (or disinflation) and, only if this is achieved, to influence growth, employment, environmental and other conditions. On the other hand, the Eurosystem does not have a “dual primary objective”. This is the case with some other central banks, such as the US Federal Reserve System[56] (or “Federal Reserve”, “Fed”), i.e., the US central banking system, which has a dual mandate and thus defining and implementing its monetary policy on the dual basis).[57]

Second, the general economic policies in the EU which the Eurosystem must support have recently come to include a high level of protection and improvement of the quality of the environment. In this respect, in accordance with the 2021 “European Climate Law”,[58] a binding objective of climate neutrality in the EU by 2050 has been set in pursuit of the long-term temperature goal set out in the 2015 Paris Agreement[59] which forms part of the general economic policies in the EU.[60]

The basic tasks of the Eurosystem and the ECB’s original monetary policy strategy

(1) Since 1 January 1999, the Eurosystem has been assigned the basic task of defining and implementing the single “monetary policy”,[61] which is the first of its “basic tasks” (pursuant to Article 127(2), first indent TFEU, repeated verbatim in Article 3.1. ESCB/ECB Statute[62]). The basic tasks constitute a numerus clausus. The other basic tasks are: (a) the conduct of foreign exchange operations consistent with Article 219 TFEU, which is not applicable to the non-euro area Member States, which do not have voting rights in the Council for the approval of the decisions referred to therein;[63] (b) the (closely related) holding and management of euro area Member States’ official foreign reserves; and (c) the promotion of the smooth operation of payment systems.[64]

BOX 1: Specific remarks on the basic tasks – and some related institutional aspects  

First, the Eurosystem’s monetary policy is also single (like the euro) and not common. The field of monetary policy for the Member States whose currency is the euro is one of the (few) exclusive EU competences.[65]

Second, the provision of euro-denominated means of payments in the form of banknotes and coins is governed by Article 128 TFEU and is, thus, not included in the basic tasks of the Eurosystem.

Third, in institutional terms:

(a) In the conduct of its basic tasks, and primarily in relation to monetary policy, the ECB enjoys a high degree of functional, personal, financial, and operational independence, albeit subject to rules governing its accountability and transparency.[66] Similar provisions apply to the NCBs (the granting of this independence being a legal convergence criterion for joining the EMU).[67]

(b) The ECB enjoys in the territories of the Member States such privileges and immunities as required for the performance of its tasks,[68] their terms being defined in Protocol (No 7) “on the privileges and immunities of the European Union”.[69]

(c) The acts and/or omissions of the ECB and the NCBs are subject to judicial control. ECB acts or omissions are open to review or interpretation by the CJEU in the cases and under the conditions laid down in Article 263 TFEU,[70] while the ECB may also institute proceedings in such cases and under these conditions upon a GC Decision. Unless jurisdiction has been conferred upon the ECJ, disputes between the ECB and its creditors or debtors are decided by national competent courts.[71]

(d) The ECB is liable according to the regime provided for in Article 340 TFEU (the NCBs’ liability falling under their respective national legislation).[72] In the case of ‘non-contractual liability’, the ECB must, in accordance with the general principles common to the laws of the Member States, make good any damage caused by it or by its servants in the performance of their duties.

Finally, in the performance of their tasks within the Eurosystem, NCBs must comply with the provisions of the ECB of 2 November 2021 “laying down the principles of the Eurosystem Ethics Framework (ECB/2021/49) (recast)”.[73]

(2) Responsible for the definition of the single monetary policy is the ECB Governing Council (‘GC’). This is the supreme ECB body and comprises the six members of the Executive Board and the Governors of the NCBs of the Member States whose currency is the euro.[74] The GC must adopt the necessary Guidelines and Decisions, including those on intermediate monetary objectives, key interest rates and supply of reserves in the Eurosystem.[75]

(3) The initial ECB strategy for the definition of the single monetary policy was determined (and announced) in late 1998 and has thereafter been specified on an ongoing basis (first in 2003, in light of the experience of the ECB’s first four years of full operation and most recently in 2021, as discussed below), taking account of the latest economic developments. This strategy consisted of three pillars:

First, it was based on a “double-key” formulation of the price stability objective, comprising a quantitative definition of price stability as a yearly increase in the HICP of below 2%, and, within that definition, the aim of maintaining inflation rates in the euro area “below, but close to, 2%”.[76]

Second, it had a medium-term orientation in view of the time lags in the effects of monetary policy on inflation.[77]

Third, the evaluation by the ECB of information collected on price developments in the EU was premised on two types of analysis (“pillars”): an economic analysis, seeking to assess the short-term determinants of price developments, focusing on real economic activity and financial conditions; and a monetary analysis, seeking to assess, within a medium to long-term perspective, the indications for monetary policy resulting from the former analysis.[78]

In particular: the role of the ECB as a lender of last resort – the Emergency Liquidity Assistance (ELA) mechanism.

(1) Even though the definition and implementation of the single monetary policy is one of the basic tasks of the Eurosystem, the ECB it is not acting therein (and even at all) as an LLR to credit institutions established in the euro area.[79] In this respect, the following is remarked:

First, the NCBs of the Member States whose currency is the euro may perform other functions on top of the ones provided for by the ESCB/ECB Statute, such as the management of public debt (acting as “fiscal agencies”), management of reserves of pension funds, micro-prudential supervision of insurance companies and granting liquidity assistance to solvent credit institutions facing severe liquidity problems according to the terms of functioning of the so-called Emergency Liquidity Assistance (‘ELA’) mechanism.

Second, the role of the ECB is set out in Article 14.4ESCB/ECB Statute, which reads as follows:

“[NCBs] may perform functions other than those specified in this Statute unless the [GC] finds, by a majority of two thirds of the votes cast, that these interfere with the objectives and tasks of the ESCB. Such functions shall be performed on the responsibility and liability of [NCBs] and shall not be regarded as being part of the functions of the ESCB.”[80]

Thus, such functions must be performed on the own responsibility of these NCBs and not be regarded as forming part of the ESCB’s functions. An NCB may, however, be required to cease their performance if the GC decides that they interfere with the ESCB’s objectives and tasks. They also have the competence to perform operations for administrative purposes or their staff.[81]

Third, unlike central bank credit these credit institutions can receive through the Eurosystem’s monetary policy operations, last resort lending to solvent euro area credit institutions exposed to (severe albeit temporary) liquidity problems is provided by the NCBs of the Member State in which they are incorporated. This is governed by the provisions on the ELA Mechanism (outside of normal Eurosystem monetary policy operations). The rules and procedural arrangements governing this mechanism are laid down in the Eurosystem’s “Agreement on emergency liquidity assistance” of 9 November 2020.[82] This amended its Agreement of May 2017.[83]

BOX 2: Case law in relation to the ELA Mechanism

In relation to actions for access to ECB documents on the granting of ELA, the General Court of the Court of Justice of the European Union (‘CJEU’ or ‘Court’) has delivered three judgments in applications brought pursuant to Article 263 TFEU[84] for (mainly) violation of Article 4 of ECB Decision 2004/258/EC:[85]

(1) In two of its judgments the General Court (Sixth Chamber) partially annulled the related ECB decisions:

First, in its judgment of 26 April 2018 in Case T-251/15, Espírito Santo Financial (Portugal) v European Central Bank (ECB),[86] it partially annulled the ECB decision of 1 April 2015 partially refusing to disclose certain documents relating to its decision of 1 August 2014 concerning the appellant, in so far as it refused to disclose the amount of credit indicated in the extracts of the minutes recording the decision of the GC of 28 July 2014 and the information redacted from the proposals of the Executive Board of the ECB of 28 July and 1 August 2014. However, by appeal, in its judgment of 19 December 2019 in Case C‑442/18 P, European Central Bank (ECB) v Espírito Santo Financial (Portugal) SGPS, SA,[87] the CJEU (First Chamber) set aside point 1 of the operative part of the General Court’s judgment as far as, by that point, it annulled the above-mentioned ECB decision.

Second, in its judgment of 13 March 2019 in Case T‑730/16, Espírito Santo Financial Group SAv European Central Bank (ECB),[88]