Neglecting climate change endangers ECB independence
Does the European Central Bank have a duty to help combat climate change?
The European Union is determined to recover from the pandemic in a sustainable way. It has agreed on unprecedented fiscal stimulus, lifted the fiscal rules and is borrowing as a real union for its recovery. The European Central Bank keeps the cost of this fiscal expansion low. Fiscal and monetary policy are working in tandem to get the European economy back on its feet.
This is not the case when it comes to the direction of this stimulus. While the European Council, Commission and Parliament have set strict green standards for recovery spending, the ECB is doing the opposite.
The share of carbon intensive companies in its corporate asset purchase programme is twice as big as their share in the economy. While European governments are trying hard to keep global warming below two degrees, their central banks are lowering the cost of capital for the biggest polluters.
This conflict between monetary policy and climate objectives is not only a problem for the ECB’s asset purchase programme. It applies to all its instruments, including its refinancing operations for banks, and the very foundation of monetary policy: its collateral framework. As the Banque de France concluded in a recent report: ‘neither the Eurosystem eligible collateral universe nor the collateral pledged is “aligned” with the climate targets of the European Union’
But change may be coming. This summer the ECB will present the conclusions of its strategy review. ECB President Christine Lagarde wants to ‘explore every avenue available in order to combat climate change’. For this, she will need support from her colleagues in the governing council
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