Green Monetary Policy in the EMU and its Primary Law Limits

Abstract

The issue of sustainability has hardly left any sector or area untouched. This also applies to financial markets: the EU Member States are trying to transform their economies into net-zero carbon ones, the Commission has presented a comprehensive action plan on sustainable finance, and the ECB and ESAs are increasingly focusing on ESG risks in their supervision. This wave has also reached the field of monetary policy. The ECB has explicitly declared its intention to green monetary policy.

This chapter aims to contribute to the ongoing debate on European green monetary policy by addressing its primary legal framework. In a first step, the chapter describes the main instruments envisaged by the ECB to green the Union’s monetary policy. In a second step, the conformity of these measures with EU primary law is assessed. It will be examined whether the ECB has the necessary competences and whether other legal principles prevent the transformation to a green monetary policy. As a result, concrete primary law limits for a green monetary policy are derived from the analysis.

Keywords: Green Collateral, Green Bonds, Preferential Purchases, Market Neutrality, Institutional Balance, Price Stability

JEL Classification: E52, E58, F33, K23, Q50, Q58