Legal Aspects of the Single Monetary Policy in the Euro Area: From the Establishment of the Eurosystem to the Pandemic Crisis and the Current Inflation Crisis

Abstract

The present study contains a brief presentation and analysis of the legal framework governing the single monetary policy in the euro area, as this developed from the establishment of the Eurosystem until today. It is structured in two Chapters with six Sections:

Chapter I is titled “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 new (2021) monetary policy strategy of the European Central Bank (ECB).

The legal framework governing the implementation of the single monetary policy is discussed in Section B. In this respect, the instruments for its implementation (i.e., open market operations, standing facilities and minimum reserves), the eligible counterparties and the assets eligible as collateral in the Eurosystem are discussed in turn.

Chapter II, which is titled “Implementation of the Single Monetary Policy in the Euro Area in Periods of Crises and some Further Related Aspects”, contains four sections:

The focus in Section C is on the implementation of the single monetary policy following the recent (2007-2009) global financial crisis (GFC) and the subsequent fiscal crisis in the euro area, discussing in detail the ECB asset purchase programmes (APPs) and the programme for 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) the amendments introduced to other APPs. The following Section E discusses the implementation of the single monetary policy under the new monetary policy strategy of the Eurosystem amidst the current ‘inflation crisis’.

Finally, Section F sets out some considerations relating to the impact of monetary policy on financial stability and briefly presents the euro short-term rate (€STR).

Tables 5-7 present (respectively) the evolution of the Eurosystem’s consolidated financial statements/balance sheet during the period 2007-2017 (to highlight the impact of the measures taken after the 2007-2009 GFC and the subsequent euro area fiscal crisis), then during the period December 2019 – January 2022 (to indicate the impact of the measures taken amidst the pandemic crisis) and, finally, in 2022 amidst the current ‘inflation crisis’.

The cut-off date for information included herein is 6 February 2023.

Keywords: EMU, ECB, Eurosystem, basic tasks, monetary policy, new monetary policy strategy, APPs, Pandemic Emergency Purchase Programme (PEPP), financial stability, euro short-term rate (€STR), Global Financial Crisis (GFC), euro area fiscal crisis, pandemic crisis, inflation crisis, digital euro

JEL Classification: E42, E43, E44, E51, E52, E58, F33, F36, F55, G21, G23, G28, K10, K23, K33, N14, N24