The Single Monetary Policy and Decentralisation: An Assessment

Monetary policy in the Eurosystem is ‘one and indivisible’, an exclusive EU competence. However, there remains an operational distinction: while the decision-making stage is centralized at the ECB, the implementation stage is decentralized at the level of the National Central Banks (NCBs). In response to the crisis the Eurosystem operational framework has undergone major changes with the introduction of non-standard monetary policy instruments as well as the recourse to emergency liquidity assistance or lender of last resort (LOLR). Against this background, we assess the balance between centralization and decentralisation, considering in particular the LOLR function both as regards market liquidity assistance (ECB competence) and individual liquidity assistance (national competence, NCBs). We discuss measures which may improve the simplicity, transparency and cost efficiency of the existing operational framework and facilitate the effective exercise of accountability by the European Parliament. We further recommend that the role of the ECB in the provision individual liquidity assistance be reconsidered in the light of Article 18 ESCB Statute (European System of Central Banks) and the advent of banking union. We also argue that data on Emergency Liquidity Assistance (ELA) should be reported, albeit with a lag, and that all banks provide a disclosure policy.