Policy brief

The European Central Bank in the COVID-19 crisis: whatever it takes, within its mandate

To keep the euro-area economy afloat, the European Central Bank has put in place a large number of measures since the beginning of the COVID-19 crisis

Publishing date
20 May 2020
Grégory Claeys

This Policy Contribution was prepared for the European Parliament’s Committee on Economic and Monetary Affairs (ECON), as an input to the Monetary Dialogue of 8 June 2020 between ECON and the President of the European Central Bank. The original paper is available on the European Parliament’s webpage (here). Copyright remains with the European Parliament at all times. The author is grateful to Agnès Bénassy-Quéré, Maria Demertzis, Francesco Papadia, Stavros Zenios, Nicolas Véron and Guntram Wolff for their comments and suggestions, as well as Aliénor Cameron for her excellent research assistance.

  • Central banks have taken drastic steps to keep their economies afloat during the COVID-19 lockdowns. In the euro-area, the European Central Bank (ECB) has eased significantly the conditions of its refinancing operations and has announced a new asset purchase programme. This response has triggered fears of a significant increase in inflation, and concerns about whether the ECB measures are compatible with its pricestability mandate and with the limits set by the EU Treaties.
  • Accelerating inflation is not an immediate threat, as the euro area will experience in 2020 its deepest recession ever recorded. Initially, the pandemic took the form of a supply shock, but second-round effects have now generated a massive aggregate demand shock. The overall impact on prices will depend on which of these two shocks dominates, but at this stage, it seems that deflationary forces are likely to dominate and bring headline inflation into negative territory in the near future.
  • An expansionary monetary policy is thus clearly warranted for the ECB to fulfil its price-stability mandate. Moreover, given the severity of the shock, there is currently no trade-off between the ECB’s primary mandate and its secondary macroeconomic objectives, which all point in the same direction. New measures implemented by the ECB also seem to respect the legal boundaries set by the EU Treaties and the criteria set by the EU Court of Justice in its rulings on previous ECB asset purchase programmes.
  • However, the legal situation has been complicated by the 5 May 2020 ruling of the German Constitutional Court (GCC) on the ECB's 2015 Public Sector Purchase Programme. The ECB is not under the GCC's jurisdiction and it is difficult to predict how the legal situation will evolve, but from an economic perspective, if the ECB were to abide by the more stringent rules dictated by the GCC, it would make it harder for the ECB to fulfil its primary mandate and secondary objectives.
  • The ECB’s current actions and the increase in the size of its balance sheet, even if it were to prove permanent, should not restrict significantly its ability to increase rates to fulfil its price-stability mandate. The ECB would have enough tools at its disposal to counter a surge in inflation if it were to happen.
  • While the ordering is clear between the ECB's primary price-stability mandate and its secondary objectives, the secondary goals are not ranked by priority, possibly creating difficult trade-offs. Dealing with these is a political task and the ECB should welcome some clear guidance from the European Parliament and EU Council on which secondary objectives are the most relevant for the EU in a particular situation.

Recommended citation

Claeys, G (2020) 'The European Central Bank in the COVID-19 crisis: whatever it takes, within its mandate', Policy Contribution 09/2020, Bruegel

About the authors

  • Grégory Claeys

    Grégory Claeys, a French and Spanish citizen, joined Bruegel as a research fellow in February 2014, before being appointed senior fellow in April 2020.

    Grégory Claeys is currently on leave for public service, serving as Director of the Economics Department of France Stratégie, the think tank and policy planning institution of the French government, since November 2023.

    Grégory’s research interests include international macroeconomics and finance, central banking and European governance. From 2006 to 2009 Grégory worked as a macroeconomist in the Economic Research Department of the French bank Crédit Agricole. Prior to joining Bruegel he also conducted research in several capacities, including as a visiting researcher in the Financial Research Department of the Central Bank of Chile in Santiago, and in the Economic Department of the French Embassy in Chicago. Grégory is also an Associate Professor at the Conservatoire National des Arts et Métiers in Paris where he is teaching macroeconomics in the Master of Finance. He previously taught undergraduate macroeconomics at Sciences Po in Paris.

    He holds a PhD in Economics from the European University Institute (Florence), an MSc in economics from Paris X University and an MSc in management from HEC (Paris).

    Grégory is fluent in English, French and Spanish.


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