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The accusation of Greenpeace to the ECB of helping polluting companies makes it clear that there is now a demand for “green” monetary policy to which central banks, which are spending so many words on the subject, must give an answer in accordance with the expectations that they themselves are helping to create. Otherwise there is a boomerang risk, starting from the reputational aspects.
Last Monday, the ecological organization Greenpeace turned the spotlight on the new course that the ECB has started since the beginning of the pandemic, as regards the policy of purchasing securities issued by private companies. In this course, the need to increase the injection of liquidity has prompted the central bank to lower the standards in terms of the riskiness of the securities purchased. Highly polluting companies, such as Lufthansa, International Airlines Group, Renault and Technip, benefited from this choice, Greenpeace points out. The indictment comes on top of a previous report by various environmental organizations – including Greenpeace – which states that 59% of private securities can be used as collateral for European Central Bank loans – totaling € 1.6 trillion – are issued by polluting companies.
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The choices of the ECB are criticized on the basis of two different criteria. In the first place, they appear to be in contrast with the general zero-emission target, to be achieved by 2050, which many governments and international institutions claim to share. Secondly, they seem to clash with the specific objective of monetary policy to be as neutral as possible.
The observations expressed by Greenpeace have an advantage, which is to turn the spotlight on a crucial question: what is meant by monetary policy neutrality, when introducing the topic of environmental impact? The answer comes from a premise: the ECB must take into account the environmental issue from at least three points of view: as a manufacturer that provides a public service; as responsible – although not the only one – of banking supervision; as guarantor of the purchasing power of the euro.
The third perspective is the one most directly linked to monetary policy; within this perimeter, redefining neutrality has two major implications. On the one hand, the ECB must ask itself how the environmental impact modifies its knowledge of the economic system on which it is called upon to intervene: it is the “macroeconomic” effect on both the production creation mechanism and the price formation mechanism. Only taking this innovation into account will the ECB be able to properly define its strategy. Given the strategy, the related tactical implementation will also have to take into account the new environmental sensitivity. Let’s take securities transactions on the financial markets. The principle of neutrality of monetary policy implies the goal of minimizing risk taking: for those who produce public money, it is the first criterion. Consequently, the challenge becomes that of knowing how to calculate the “microeconomic” effect of environmental risk on the securities that the central bank decides to use for its operations.