U n i v e r s i t e P a r i s 1 P a n t h é o n - S o r b o n n e P a r i s , 3 J u l y 2 0 1 7 The European Central Bank Managing Conflicting Policy Interests G e o r g e s U g e u x A d j u n c t P r o f e s s o r C o l u m b i a L a w S c h o o l
1. Central Banking 101: monetary policy 2. The ECB: a uniquely structured central bank 3. ECB, national central banks and their policy agendas 4. Sovereign debt crises 5. Negative interest rates 6. Open Market Operations and Quantitative Easing 7. The regulatory structure and the European Banking Union 8. Bank intervention 9. The scope of the ECB: the ever growing balance sheet 10. Monetary and Fiscal Policies without a European Treasury 11. Proposals for a reform agenda of the ECB 2
The ECB 1. Central Banking 101: Monetary policy 3
The ECB 1. Central Banking 101: Monetary policy: the ECB ▪ The European Central Bank and the national central banks together constitute the Eurosystem, the central banking system of the euro area. The main objective of the Eurosystem is to maintain price stability: safeguarding the value of the euro. ▪ The European Central Bank is responsible for the prudential supervision of credit institutions located in the euro area and participating non-euro area Member States, within the Single Supervisory Mechanism, which also comprises the national competent authorities. It thereby contributes to the safety and soundness of the banking system and the stability of the financial system within the EU and each participating Member State. ▪ We at the European Central Bank are committed to performing all our tasks effectively. In so doing, we strive for the highest level of integrity, competence, efficiency and accountability. We respect the separation between our monetary policy and supervisory tasks. In performing our tasks we are transparent while fully observing the applicable confidentiality requirements. Source: https://www.ecb.europa.eu/press/tvservices/webcast/html/webcast_pc.en.html 4
The ECB 1. Central Banking 101: Monetary policy: the Eurosystem ▪ The European System of Central Banks (ESCB) established under the Treaty on European Union (TEU) is made up of the European Central Bank (ECB) and the national central banks of all the Member States of the European Union (EU), regardless of whether or not they have adopted the euro. ▪ The Eurosystem, in turn, groups together the ECB and the national central banks of the Member States whose currency is the euro. ▪ The ECB constitutes the core of the Eurosystem and the ESCB. It is responsible for implementing the euro area’s monetary policy. ▪ NCBs of the euro area perform the duties entrusted to them according to the regulations established by the ECB. NCBs can also perform other duties outside the Eurosystem independently, providing the governing council does not consider that these activities interfere with the tasks and objectives of the Eurosystem. ▪ The Eurosystem is responsible for: ▪ defining and implementing monetary policy ▪ conducting foreign exchange operations ▪ holding and managing the euro area’s foreign currency reserves ▪ promoting the smooth operation of payment systems ▪ ECB carries out specific tasks in the areas of banking supervision, banknotes, statistics, macro prudential policy and financial stability as well as international and European cooperation 5
The ECB 1. Central Banking 101: Main functions The Eurosystem comprises the ECB and 19 NCBs 6
The ECB 1. Central Banking 101: Monetary policy transmission mechanism 7
The ECB 2. The ECB: A uniquely structured central bank • ECB: a central bank of 19 or 28 member states • Eurozone: ECB as the central bank of the Eurozone monetary union • United Kingdom: the Brexit dilemma 19 19 19 9 8
The ECB 3. ECB, national central banks and their policy agendas 9
The Eurozone 4. The European debt crises: the indebtedness 10
The Eurozone 4. The European debt crises: the Italian risk 11
The Eurozone 4. The European debt crises: the Greek saga and the troika 12
The ECB in action: Key issues and Challenges 5. Negative interest rates 13
The ECB in action: Key issues and Challenges 6. Open Market Operations and Quantitative Easing 14
The ECB in action: Key issues and Challenges 6. Open Market Operations and Quantitative Easing 15
The ECB in action: Key issues and Challenges 6. Open Market Operations and Quantitative Easing 16
The ECB in action: Key issues and Challenges 7. The regulatory structure and the European Banking Union 17
The ECB in action: Key issues and Challenges 7. The regulatory structure and the European Banking Union 18
The ECB in action: Key issues and Challenges 7. The regulatory structure and the European Banking Union 19
The ECB in action: Key issues and Challenges 8. Bank intervention Italian banking crisis: Banca Monte dei Paschi di Siena 20
The ECB in action: Key issues and Challenges 8. Bank intervention Spain Banco Popular 21
The ECB in action: Key issues and Challenges 8. Bank intervention: the failure of the European Banking Union The European banking union falls short in Italy The Financial Times Draghi: il bail-in non ha previsto tutti i casi Why Troubles at a Midsize Italian Bank Worry the E.U. New York Times Roma ignora las normas europeas 22
The ECB project: multiple mandates and conflicts of interest 9. The scope of the ECB: the ever growing balance sheet 23
The ECB project: multiple mandates and conflicts of interest 9. The scope of the ECB: the ever growing balance sheet The ECB balance sheet 24
The ECB project: multiple mandates and conflicts of interest 10. Monetary and Fiscal Policies without a European Treasury The European budget without European taxes The “stretched” mission of the ECB Financial stability? A Bermuda Triangle 25
The ECB project: multiple mandates and conflicts of interest 11. Proposals for a reform agenda of the ECB ▪ Stick to Monetary policy and force the EU to deal with fiscal policies and reforms ▪ Balance sheet reduction: matching the Fed? ▪ Transparency and its limits ▪ Autonomy vs independence ▪ Governance structure ▪ Mechanism to deal with conflicts of policies 26
The ECB project: multiple mandates and conflicts of interest 11. Proposals for a reform agenda of the ECB 27
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