The principle of proportionality as a limitation to unconventional monetary policy

• Applicant: Professor Dr. Christoph Ohler
• Subject Area: Public Law
• Term: from 2017 to 2021
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 371535082

The project deals with the principle of proportionality as a constitutional limitation to the existing unconventional monetary policy of the ECB. The term unconventional monetary policy refers to measures taken during a financial crisis in order to combat its immediate adverse effects, and, in a wider sense, to all measures considered necessary after a crisis to bring the economy back to a growth path and restore normal conditions for price stability. In the euro-area, since 2008 interest rates were reduced to zero, and, in parallel, the size of existing programs was considerably extended. In addition, a massive form of quantitative easing took place under asset purchase programs whereby central banks acquire securities issued by private and sovereign issuers. These measures aimed, as it was the case in the widely known OMT program of September 2012, at reducing the immediate risks for the stability of the euro-area. After the end of the crisis, the ECB maintained its unconventional monetary policy to overcome the long-term effects of the crisis and promote a return to normal economic conditions in terms of growth and inflation rates. Yet, this policy involves adverse economic side effects, in particular by risks for the stability of the financial system as yields of institutional investors drop. Institutional investors affected so far are not only banks and insurance companies but also occupational and personal pension schemes.The project will analyze whether and to what extent the principle of proportionality sets limits to these forms of unconventional monetary policy. The relevance of this principle for monetary policy was for the first time confirmed by the CJEU in the Gauweiler case. The decision establishes legal criteria the application of which can be also helpful in the context of measures other than under the OMT program. They lead to an obligation of the ECB to fully monitor, assess and balance the various effects of its measures and, on this basis, state the reasons of its decisions. The purpose of these obligations is to come to an adequate balance of legal objectives and real effects of monetary policy. In this context, it is still unclear which economic effects can be attributed to the monetary policy measures of the ECB, and which cannot. The question of attribution is legally relevant as only effects that are attributable to the ECB can be subject to the obligations described above. Therefore, the project aims not only at developing a better understanding of the concept of monetary stability but also of legal criteria for the attribution of economic effects to monetary policy measures.

• DFG Programme: Research Grants