The European Central Bank’s operational framework and what it is missing

This paper attempts to fill in the gaps in the European Central Bank's framework review

Publishing date: 17 July 2024
Authors: Giulia Gotti Francesco Papadia

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In March 2024, the European Central Bank published the results of a review of its operational framework. After discussing how the ECB operational framework has changed since the Great Financial Crisis, we provide an assessment of the review, which we deem as premature and highlight some gaps it has not resolved. First, the choice of a hybrid system is attractive, but needs a precise specification. Second, the review did not specify the timing of the introduction of structural long-term refinancing operations and a structural portfolio of securities. We find that these measures should be implemented when the level of excess liquidity reaches between €1.3 trillion and €2 trillion, projected between mid-2026 and late 2027. Finally, as the introduction of a digital euro could impact bank liquidity, it is crucial to design a framework that can flexibly increase the supply of central bank liquidity.

Very useful comments on an early draft of this paper were provided by Claudio Borio, Ivo Maes and Nicolas Véron.

About the authors

Giulia Gotti

Giulia was a Research analyst at Bruegel until September 2024. She obtained a MSc in Policy Economics at the Erasmus University in Rotterdam and a BSc in Economics at the University of Bologna.

Before joining Bruegel, Giulia did a traineeship at the European Central Bank in the Fiscal Policies division where she worked in the Debt Sustainability Analysis team. Prior to that, she pursued a Schuman traineeship at the European Parliament in the Economic Governance Unit in DG IPOL.

Giulia is an Italian native speaker. She is fluent in English and has a working knowledge of Spanish.
Francesco Papadia

Francesco Papadia is the chair of the Selection Panel of the Hellenic Financial Stability Fund (HFSF). He was, between 1998 and 2012, Director General for Market Operations at the European Central Bank. He worked previously at the Banca d´Italia, first as Director of the International Section of the Research Department and then as deputy head of the Foreign Department. Mr. Papadia has a degree in law from the University of Rome and attended postgraduate studies in Economics and Business at the Istituto Adriano Olivetti in Ancona and at the London Business School.

Mr. Papadia is the author of a number of publications in the fields of International Economics and Monetary Policy. While collaborating with Bruegel, the focus of his research will be on European and global macroeconomic issues, including governance questions.