10 Dec 2015

Countries under Adjustment Programmes: What role for the ECB?

Daniel Gros

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Author: Daniel Gros

Series: CEPS Special Report No.124    No. of pp: 17

Providing ‘technical assistance/advice’ on programmes for countries under financial stress is well within the mandate of the European Central Bank (ECB). Being fully part of the Troika, however, is a different role. Formally the ECB does not participate in the ‘decision-making’ on programmes (decisions are taken by the Finance Ministers – and the IMF). However, the ECB is part of the ‘decision-shaping’ process. These two roles have often been confused. The ECB should interpret its formal role in future ESM (European Stability Mechanism) programmes as narrowly as possible. Providing advice but avoid taking part in the operational work of programme surveillance. The ECB should de facto leave the Troika.

At any rate, future incidents like the Italian or Spanish letters will be superseded by the OMTs (outright monetary transactions) and an Irish-type situation would be shaped by the legal framework of the Bank Recovery and Resolution Directive (BRRD) and the potential funding from the Single Resolution Fund (SRF).

An additional issue for the ECB is internal coherence: Its six-member Executive Board manages the participation in the Troika, monetary policy is decided by the Governing Council and banking supervision is under the Supervisory Board, separated in principle by Chinese walls from the (rest of the) ECB.

This study was requested by the European Parliament’s Economic and Monetary Affairs Committee and is also published on the European Parliament website www.europarl.europa.eu/committees/en/econ/monetary-dialogue.html. It is republished here by CEPS with the kind permission of the European Parliament.

Daniel Gros is Director of CEPS.