On 16 February, the European Parliament (EP) adopted a resolution offering a solution to the long-neglected secondary mandate of the European Central Bank (ECB), but failed to acknowledge the link between our dependence on fossil fuels and price stability.
In the Strasbourg plenary vote of Thursday 16 February, the European Parliament adopted its annual resolution on the ECB. This report is voted upon every year to allow the European Parliament to adopt a unified view on the policies implemented by the ECB, and suggest recommendations ahead of the future challenges that the bank will face.
The report is the outcome of long negotiations that took place over a time period characterised by inflation peaks that the Monetary Union had never experienced before in the 31 years since its formation. Nevertheless, MEPs stood united and adopted the resolution with a strong majority of 376 votes in favour, 96 against, and 35 abstentions.
German Greens’ MEP Rasmus Andresen led this year’s resolution towards an unprecedented breakthrough: directing the ECB a way to act more strongly on its secondary objectives.
The European Parliament will help the ECB deliver on its secondary mandate
For the first time ever, MEPs included a whole section on “secondary objectives” in the resolution. These refer to the goals of the EU economic policies that, without prejudice to price stability, the ECB must support when implementing its monetary policy, as required by Article 127 of the Treaty on the Functioning of the European Union. These objectives include full employment, protection of the environment, social progress and more.
However, the law remains vague, leaving in question the legitimacy of the ECB decisions on which objectives it should act upon, other than price stability. As a technocratic institution staffed by unelected officials, the Central Bank does not have the democratic authority to specify or prioritise these objectives, which leaves it to deal with a legal requirement without the necessary instruments to fulfil it.
Positive Money Europe has long followed the debate on the ECB’s secondary mandate, arguing that it’s been neglected for years due the difficulty of the Central Bank deciding which objectives to prioritise independently when implementing its monetary policy.
To overcome this deadlock, civil society representatives and experts have suggested that the European Parliament should play a stronger role in prioritising the ECB’s secondary objectives. In previous declarations, President of the ECB Christine Lagarde has herself recognised the possible role of the EP in the interpretation of the ECB’s secondary objectives. She said: “Clearly, [the secondary objectives] have to be taken into account, particularly if those secondary objectives are stated very clearly by the other institutions, and in particular by the European Parliament”.
Positive Money Europe, together with high-level experts, has proposed that the Parliament’s annual resolution on the ECB should be used as a space to provide a political interpretation of the ECB secondary mandate.
Paragraph 28 of the text adopted today reflects this proposal, as it “suggests taking advantage of this resolution to provide input to the ECB on secondary objectives”.
The section continues by strengthening the EP’s accountability over the ECB, and calling on the bank to “devote a specific chapter in its annual report to explaining how it has interpreted and acted upon its secondary objectives and to presenting the effects of its monetary policy on the EU’s general economic policies” (paragraph 31).
It’s a great achievement for civil society to see that the European Parliament is finally acknowledging the issue and is ready to offer its support to the ECB to provide inputs on its secondary objectives, as advocated for by Positive Money Europe.
As documented in a recent report by Positive Money Europe, the lack of clarity around the ECB’s secondary mandate has been causing a frustrating stalemate for too long. With today’s vote, the European Parliament offers a sensible solution, but it’s now up to both EP and the ECB to raise their game accordingly – with wisdom and open-mindedness.
Conservatives fail to acknowledge fossilflation
As in previous years, the resolution also shows that there is a general consensus within the European Parliament on the importance of greening monetary policy to prepare for the challenges the environmental breakdown will pose for the ECB to maintain price stability. In a dedicated section, the resolution welcomes the progress made by the ECB on its climate action plan.
However, it’s quite disappointing that Members of the European Parliament (MEPs) could not agree on stating the obvious about the nature of the inflationary pressure. Indeed, during the plenary session, MEPs voted against a proposal by the Greens group to add that “addressing the climate emergency and the euro area’s dependence on fossil fuels not only touches upon the ECB’s secondary mandate but also upon its primary mandate, given the serious threat these issues pose to price stability”.
The lack of a majority (312 votes against, 189 in favour and 5 abstentions) for such a basic fact reveals a worrying lack of understanding by many MEPs about our dependence on fossil fuels is jeopardising price stability, both in the short run and the decades to come.
Failure to state the obvious is awkward when the ECB itself has repeatedly acknowledged it. Isabel Schnabel, for instance, was clear in stating that “[fossilflation] is to blame for much of the recent strong increase in euro area inflation”, while Fabio Panetta confirmed that “appropriate public policies that compress the demand for fossil fuels and stimulate the production of cheaper renewable energy sources can help to contain inflationary pressures and may even help to reduce inflation”.
When looking through the lenses of fossilflation, it becomes clear that green monetary policy is not merely a ‘nice to have’, but should become an absolutely necessary tool to drive a smooth green transition. Positive Money Europe will thus continue to work to ensure policymakers in Europe understand the need to align macroeconomic policy with sustainability and the fight against climate change.
The text of the Parliament’s resolution is available here.