By clarifying that “the ECB will neither run out of liquidity nor fail”, Christine Lagarde has put an end to the irrational logic according to which central banks could go bankrupt.
Since the outbreak of the Covid-19 crisis, a debate has emerged on whether we should write off public debts owed to central banks. Despite its technical feasibility, debt cancellation is not the first-best proposal to fight for.
Once upon a time, market neutrality was supposed to be an untouchable holy principle of the ECB’s quantitative easing, but today the ECB has finally made loud and clear this principle should be reviewed.
The recovery fund agreed between EU leaders on 21 July is a big step forward for the European Union’s structure. Unfortunately, it is still an insufficient contribution to the post-pandemic European financial system and the path towards a low-carbon economy. More innovative monetary policies by the European Central Bank will still be needed to complement the EU’s recovery fund in the future.
To avoid leaving the European Central Bank (ECB) at the endless mercy of legal uncertainty surrounding its mandate, it is urgent that EU leaders finally engage in a long overdue revision of the EU Treaty’s monetary financing prohibition rule.