12/03/2020

The European Central Bank’s involvement in the fiscal disciplining of EU member states through its collateral policies has not been discussed much by central banking scholars. It is only in recent years that any literature has emerged, but the overall orientation of this work is troubling. From both sides of the long-standing intellectual divides on matters of European Monetary Union, calls are made for the ECB to deepen and enhance its role in the fiscal disciplining of member states. If this path is taken, the consequences for financial stability in Europe will be severe. The ECB’s collateral policies need reform – but in the exact opposite direction: collateral policies must be unequivocally non-discriminatory and countercyclical. This set of collateral policies is essential if the ECB is to be able to effectively pursue a market-maker of last resort role in times of crisis – which in turn is a sine qua non if the ECB is to be successful in tackling future market liquidity crises.

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