Climate Change Versus Price Stability

This innovative study published by Positive Money Europe uses text analysis of communications between the European Central Bank (ECB) and the European Parliament to examine the role of the parliament in influencing ECB actions on climate change. It finds growing consensus between the two institutions focusing on market neutrality and price stability, but warns that this consensus has been built through pragmatic bargaining and is therefore precarious.

Communications between the parliament and the ECB between 2014 and 2021 were analysed across three publically available accountability forums: monetary policy dialogues, written questions and answers, and EP resolutions on the ECB’s annual reports. The text of these communications was compared against a list of terms related to climate change, organised into seven topics: price stability; financial stability; social affairs; monetary union governance; international developments; payment issues; and climatic issues.

The results show that concerns of European parliamentarians regarding the ECB and climate change have increased dramatically over the last five years, with requests becoming more specific over time. MEPs pushed for the ECB to disclose the climate-related financial exposure of its asset purchase programmes and decarbonise its corporate purchases. They also asked the ECB to incorporate climate risks into its supervision of the banking sector and to introduce climate stress tests.

The study also revealed a dramatic change in how MEPs framed their argument about why the ECB should take a more active role in the fight against climate change, which coincided with Christine Lagarde’s appointment as ECB president.

Until 2019, MEPs relied on one main argument: that the ECB should support EU commitments under the Paris Agreement. However, later that year the conversation between the two institutions developed and converged to focus on criticism of the concept of market neutrality and the relationship between climate change and the ECB’s primary mandate of maintaining price stability. The paper presents detailed case studies of communications in both of these areas.

Exploring reasons for this convergence, the paper argues that it results from a pragmatic adoption of a common repertoire by “green” central bankers and MEPs, forming a “discursive alliance” and allowing them to more effectively address less climate-aware policy makers within their respective institutions. However it also warns that this arrangement is precarious and “hardly tenable in the long term” as a result of underlying political tensions concerning the role and independence of the ECB.