Has Euro Area Monetary Policy Become Redistribution by Monetary Means? ‘Unconventional’ Monetary Policy as a Hidden Transfer Mechanism

Published date01 November 2016
Date01 November 2016
Has Euro Area Monetary Policy Become
Redistribution by Monetary Means?
UnconventionalMonetary Policy as a
Hidden Transfer Mechanism
Klaus Tuori*
Abstract: This article takes an unconventional perspective on Eurosystem monetary policy
by asking whatkind of redistributive effectsit might have had. Any monetary policycan have
redistributive effects as it alters the environment in which economic agents, households and
companies, operate. Some benet and somestand to lose from decisions by the central bank.
However, monetary policy generally does not aim at redistributive implications; indeed, in
the Euro area context it does not have a mandat e to do so. Against this background it is
not irrelevant how the large number of Eurosystem monetary policy measures during crises
should be assessed. The a rticle claims that in par ticular the government bond purchase
programmes by the Eurosyst em and massive liquidity sup port to banks could have had
redistributive eleme nts even in a prominent role. T he Eurosystem has become th e nal
guarantor of Member States in trouble and their banking sectors, even reinforcing the link
between the two. This focus has potentially pushed the Eurosystem to neglect its primary
objective but also its broader implications f or the Euro area economy and societies more
I Introduction
It is no secret that,since 2007, the European systemof central banks (the Eurosystem)has
taken a number of unconventionalmonet ary policy measures, inc luding large-scale
acquisition of sovereign bonds of Euro areacountries in secondary markets. Lessnoticed,
but equally relevant, is t hat the Eurosystem has at the sa me time made extensive
unconventionaluse of some partsof its standard operational framework. This is the case
with the massive and long-term renancing operations of 2011 and 2012, through which
1 trillion were injected into the Euro area nancial system.
In this article, I consider whether unconventionalmonetary policy, as designed and
implemented by the Eurosystem, has or has not pushed the Eurosystem to act beyond
its powers and to go beyond what its mandate requires, and in the process potentially
compromised its independence, vis-à-vis both Member States and nancial institutions.
In particular, I will consider whether some of these policies have resulted in hidden
transfers, either to Member States or in favour of particular actors within the nancial
sector. In each and every oc casion on which it acts, the Eurosystem produces
arguments to justify the dec isions involved. From a sta ndpoint internal to the
reasoning of the argument, these claims seem persuasive enough. However, the more
* University of Helsinki.The author wishes to thank DanielP. Wyatt for his research assistance.
European La w Journal, Vol. 22, No. 6 , November 2016, pp. 8 38868.
© 2017 John Wiley & SonsLtd. 9600 Garsington Road, Oxford,OX4 2DQ, UK
and 350 Main Street, Malden,MA 02148, USA
the measures deviate from t he well-designed and thor oughly analysed standa rd
monetary policy template, in brief, the more unconventionalmonetary policies
become, the stronger the reasons to assess the measures from a perspective broader
and more comprehensive than that used by the Eurosystem itself. For those and other
related reasons, it seems pertinent and necessary to consider whether the arguments put
forward by the Eurosystem are persuasive enough, or, on the contrary, whether good
reasons exist to conclude that the Eurosystem has acted either beyond its powers (ultra
vires)orin a way contrary to what its independence requires, or both. That in a nutshell
is the very purpose of this article: to determine whether the line of reasoning of the
European Central Bank (ECB) holds when tested aga inst this set of comprehensive
The article isstructured in three parts. In therst part, I present a concise descriptionof
the history and policy too ls of the Eurosystem, wit h a view to providing reader s less
familiar with European cen tral banking with the back ground knowledge necessa ry to
make sense of thesubsequent parts of the argumentation. In the second part,I reconstruct
Eurosystem monetary policy since 2007and evaluate its distributive consequences, and in
particular the potential distributive effects of: (1) the issuance of banknotes; (2) the
provision of liquidity to nancial institutions; (3) the payment system of the Euro area,
the so-called TARGET2; (4) the provision of emergency liquidity assistance to nancial
institutions(and in actual practice, to nationalnancial systems); and (5) theacquisition of
sovereign bonds. The thi rd part holds the conclusi ons, where I consider what t he
distributive implications of Eur osystem policy tell us about what kind of centra l bank
the EuropeanCentral Bank actually is, andwhat kind of community of debt theEuro area
has come to be through the decisions and reforms taken in the name of containing and
overcoming the crises.
II The Eurosystem
A Composite, Quasi-Federal Structure
The Eurosystem
is the Euro area central banking system. Despite the fact that most
public discussion and indeed a good deal of legal scholarship assumes that the
European Central Bank, wi th headquarters in Frankfu rt, effectively runs Euro pean
monetary policy, the fact of the matter is that the ECB is but the tip of a quasi-federal
central banking system, of which national central banks (NCBs) also form fundamental
Not only is the composite character of the Eurosystem closely related to the composite
character of the European Union as a whole, but also the quasi-federal design of the
Eurosystem results from a fundamental decision at the core of the constitutional design
of the Eurozone, namely the strict separation of national responsibilities for public debt
(the wall of separationbetween national exchequers, as codied in Article 125 TFEU).
As a result, NCBs have retaine d separate, independen t legal personality and
autonomous operative capacities regarding most if not all monetary policy operations
The Eurosystemconsists of the ECB and nationalcentral banks of the Euro areacountries. It is the preferred
term for Euroarea monetary policy function.It has the same decision-makingbody as the ECB, in the shape
of the Governing Council. This can create some confusion, as decisions of the Euros ystem are formally
decisions by the ECB.In this article, the Eurosystem is used unless theissue relates only to the ECB and not
the whole central banking function of the Euroarea.
European Law Journal Volume 22
©2017JohnWiley&SonsLtd. 839

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