In a vote on 9 February, Members of the European Parliament (MEPs) told the European Central Bank (ECB) to incorporate climate-related risks in its policies. The Parliament also formally agreed to start negotiations with the ECB to formalise its accountability framework.
On Tuesday (9 February 2021), the European Parliament adopted its annual resolution on the European Central Bank Annual Report. Although the report is not binding, it is an effective scrutiny tool which allows MEPs to evaluate the ECB’s past and current activities and make recommendations on the bank’s future. Please find the report here.
As in last year’s report, this year’s resolution is particularly valuable as it was voted on while the ECB’s strategy review is in full swing. As a result, MEPs had to make the most out of the vote in order to provide clear guidance on the path which the strategic review should follow.
As we explain below, the adoption of the report by center-right MEP Sven Simon, reconfirms and strengthens the proposals adopted last year, and brings in policies which Positive Money Europe has championed throughout 2020.
ECB must proactively integrate climate-risks in policymaking
Overall, the Parliament’s report broadly supports a greening of the ECB’s monetary policy, including by carrying out a “proactive and qualitative risk management approach which integrates climate change-related systemic risks” – a precision which was added thanks to an amendment tabled by a group of MEPs led by Aurore Lalucq.
On the same note, MEPs “call on the ECB to align its collateral framework with climate change-related risks and to disclose its level of alignment with the Paris Agreement, as well as examining such alignment in the banking sector”. Leading by example, the Bank of England has already published its own climate related financial disclosures, including on its corporate quantitative easing (QE) portfolio. Earlier, on 4 February, the European Central Bank and the 19 National Central Banks of the euro area agreed to publish sustainability data on their own portfolios as part of a push to enlist the financial system in fighting climate change.
However, MEPs failed to question the notion of market neutrality, as proposed by an amendment tabled by the Renew Europe group and supported by Positive Money Europe (link to briefing here). The Parliament rejected the proposal to support “the ECB’s intention to revisit the principle of market neutrality, in accordance with its commitment to pursue carbon neutrality”.
Despite the Parliament’s rejection, the debate around the market neutrality principle will continue as part of the ECB’s strategy review, as ECB President Christine Lagarde, Executive Board members Frank Elderson and Isabel Schnabel and Governing Council members Klaas Knot and François Villeroy de Galhau have recently declared.
ECB must look at wealth inequality
While addressing strong recommendations on climate change, MEPs also tackled further important issues, calling on the ECB “to examine the impact of its policies on wealth inequality”. Positive Money Europe has previously challenged the traditional view that monetary policy, and particularly QE, does not affect inequality in a blog post on the topic last year.
In addition, the European Parliament “highlights that deflation poses significant risks to the euro area economies, which might call for strong ECB intervention”, which could open the door for more expansionary policies such as helicopter money.
European Parliament will start negotiating a revamp of the ECB’s accountability framework
Last but not least, MEPs “call for the negotiation of a formal inter-institutional agreement to formalise and go beyond the existing accountability practices regarding monetary functions”.
The Socialists and Democrats political group in the European Parliament have announced that negotiations on this will formally start soon. Positive Money Europe has been vocal on this for the past two years, and we recently published a report on how ECB accountability could be improved. We look forward to seeing how the proposal takes shape, ready to bring forward our ideas to create a more accountable ECB through our advocacy activities.
Apart from the rejection of the proposal concerning market neutrality, we are happy to see that the report reflects many of our campaign calls. Positive Money Europe will continue monitoring these developments and make sure civil society contributions are taken into consideration, especially in the framework of the ongoing strategy review.