By Hans Bentzien
FRANKFURT (Dow Jones) — ECB Director Frank Elderson has recalled that the Governing Council of the European Central Bank (ECB) is largely self-assessing the proportionality of its monetary policy measures. In a webinar by the Institute of International & European Affairs, Elderson said, according to the published text of the speech, that the ECB carries out this check itself in accordance with its new monetary policy strategy for every decision. In contrast, examinations by the European Court of Justice (ECJ) were limited to finding obvious errors.
ECB President Christine Lagarde recently said that the ECB would also use new instruments to counteract an excessive increase in government bond yield differentials (spreads). The net purchases under the PEPP pandemic program, which gave the ECB some flexibility in government bond purchases for this purpose, will soon no longer be available. Against another instrument to limit spreads, the OMT program, an appeal had been brought before the Federal Constitutional Court – but without success.
ECJ can only look for obvious errors
“It is important to note that the scope of the proportionality test performed by decision-making bodies such as the Governing Council differs from the scope of judicial scrutiny that a court would undertake when assessing the proportionality of public sector measures,” Elderson said. ECJ President Koen Lenaerts recently explained this in detail at an ECB conference.
“He explained that when assessing proportionality, the Court applies judicial review limited to obvious errors,” said the ECB director. With this approach, the Court recognizes that, within the limits of their competence, bodies such as the ECB have a margin of appreciation on technical issues that go beyond the competence and expertise of the ECJ.
Lenaerts had said in November 2021: “Monetary policy issues are usually controversial. These decisions – whether political or technical – do not fall within the jurisdiction of the Court.” In several judgments, the ECJ had defended the ECB against allegations made by Germany that it was violating European law and exceeding its powers.
CJEU demands proper examination procedure from ECB
At the same time, according to Elderson, the ECJ requires that bodies like the ECB have due process in place to ensure that, within the margin of appreciation, all factors and circumstances relevant at the time of a policy decision are taken into account – including the impact of the measures on others policy areas and the existence of less radical means to achieve the stated goal.
According to the ECB Director, the testing framework used by the ECB consists of two elements – the economic and the monetary and financial analysis. “Economic analysis focuses on real and nominal economic developments, including activity, employment, price and wage developments,” Elderson said.
Monetary and financial analysis examines monetary and financial indicators such as bank and non-bank lending, asset prices and financing conditions. “The focus here is on observing how our monetary policy decisions are transmitted through the financial system to the wider economy and assessing whether any disruptions to this mechanism could harm our goal of price stability,” explained the ECB’s governor.
In a controversial ruling on the PSPP government bond purchase program (part of the APP), the German Federal Constitutional Court accused the ECB of not having sufficiently demonstrated the proportionality of this measure. Since then, ECB officials have repeatedly emphasized that the ECB pays attention to the “proportionality” of its policy. The statements of the ECJ President also referred to this process.
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(END) Dow Jones Newswires
March 24, 2022 10:33 ET (14:33 GMT)