Redesigning the money system for Europe’s economy
The way the European Central Bank (ECB) manages money determines if our economy serves ordinary citizens or just wealthy big players. We need to redesign the ECB’s tools to ensure our money flows fuel a better world and a healthy planet.
What we do for fairer monetary policy
We are actively working to reshape the debate around central banking in Europe. We demand a monetary system that truly works for all Eurozone residents and businesses.
1- We conduct original research on complex technical aspects of central banking, such as the ECB’s operational framework, providing concrete, feasible proposals for reform.
2- We are leading a coalition focused on monetary policy and inequality, uniting diverse voices to push for systemic change.
3- We collaborate with leading economists, experts, and central bankers to advance a monetary scenario that prioritises citizens’ needs and sustainability alongside price stability.
The problem: when 'stability' stifles progress
The workings of the ECB might seem complex, but the core issue is simple: its traditional rulebook is often outdated.
The ECB's primary focus is keeping prices stable, mainly by raising interest rates. However, this conventional approach has major flaws:
It stifles investments needed for home renovations, clean sustainable energy, and modern infrastructure.
It disproportionately harms lower-income households already grappling with rising living costs.
It hands billions in windfall profits to private banks, simply for holding reserves at the ECB.
The ECB is a big EU institution. It's not only expected to control price increases but – as outlined in the EU Treaty – it is legally supposed to serve the broader objectives of the European Union. This includes social progress, full employment, and environmental protection. When money flows primarily serve big banks and corporations, the ECB has a powerful duty to shift investments towards public good.
We demand concrete steps for a fairer monetary system
The disconnect between the ECB’s goals and real-world needs has significant repercussions. We believe we need bold reforms to realign monetary policies with broader societal needs and sustainability, such as:
1. Build a future-fit operational framework - The operational framework is the ECB's technical rulebook – its 'toolbox' for managing interest rates and providing funds to banks. The ECB recently revised this framework, recognizing the importance of environmental challenges. But their current plan is too slow and too small (for example, with long-term green funding arriving late and at a limited scale).
We propose making long-term ECB funding a bigger, structural part of the system. This means the ECB should:
use tools like green-targeted long-term refinancing operations (Green-TLTROs) to offer cheaper funding specifically to banks that:
increase lending for clean initiatives (like home renovations and clean energy).
require banks to bring genuinely green assets as collateral in exchange for cheaper funding.
This is the most direct way for the ECB to achieve its objectives: lower borrowing costs for clean energy projects, leading to warmer homes, cleaner air, and reduced reliance on volatile and foreign fossil fuels.
2. End banks’ windfall profits - When the ECB raises interest rates, commercial banks earn billions in easy profits, simply by earning interest on their large cash reserves held at the ECB. This is an unfair transfer of public money.
We urge the ECB to address these windfall profits. A simple, feasible step is to increase the non-remunerated minimum reserve requirements for banks. This measure would reduce the excess liquidity in the banking system and curb the extraordinary, unearned profits that banks are currently raking in.
The ECB could also apply a differentiated ('tiered') remuneration to bank reserves. This means high interest would only be paid on a portion of the reserves, ensuring necessary stability without giving away public money when rates are high.
3. Promote monetary and fiscal coordination - For too long, central banks and governments have often acted in isolation. Finding a balanced approach is crucial for Europe’s future stability.
Central banks and governments must work together towards shared, concrete goals: price stability, full employment, and a sustainable economy.
New EU fiscal rules (like capping budget deficits at 3% of GDP) could force governments into damaging austerity measures, limiting the public money available for essential social and environmental progress. We must ensure coordination supports investment, not cuts.
4. Reduce inequality - An expanding body of empirical research demonstrates that monetary policy significantly affects inequality. At the same time, when income and wealth inequality gets worse, the differences in how much people and businesses spend and invest can create an unpredictable economy that is hard for the ECB to manage.
By actively incorporating considerations of inequality into its policy framework, the ECB can help make our entire financial system fairer and more stable for everyone. In doing that, the ECB can be a key-actor not only for the green transition, but for a just transition, leaving no one behind.
