Chapter 4 is dedicated to the more recent history of monetary policy in the period labelled Great Moderation. We focus on the Federal Reserve Board (Fed), the Bank of England (BoE) the Bundesbank and its successor, the European Central Bank as well as on the South African Reserve Bank (SARB), which offers an interesting and contrasting perspective.

This is followed by a more general analysis of balance sheet operations of central banks against the background of CBI in Chapter 6.

Chapter 5 offers a description and an interpretation of the policy responses of four leading central banks (Fed, ECB, Bank of England and Bank of Japan) to the Great Recession.

States can raise financing through relationships that depend on market accountability or political accountability, respectively, and one can be substituted with the other. In the EU, market accountability as a dominant mode of raising financing has been steadily supplanted in the EU by political accountability in the relationship between debtor states, on the one hand, and creditor states, the EU and the ECB, on the other, thus engendering democratic tensions in the evolution of EU economic governance. One way of solving the widely maligned ‘democratic deficits’ within the EMU would be to restore the market accountability enshrined in the Treaties, as evident in part on the ban on monetary financing, bailouts and state aid. Moreover, market accountability can be likened to the accountability concept of Dawson and Maricut-Akbib, with openness, non-arbitrariness, effectiveness and publicness underpinning various procedural and substantive dimensions of market accountability.

The Eurogroup has played a central role in decision-making in the area of Economic and Monetary Union (EMU) since its very inception. Nevertheless, it is one of those EU bodies that are least understood. This chapter focuses on the political and legal accountability of the Eurogroup, key aspects of which remained ill-defined for a considerable period of time. The discussion begins with the foundations and tasks of the Eurogroup (Section 2). The focus then shifts to the political accountability of the Eurogroup, the emphasis being on its relationship with the European Council and the Economic Dialogues with the European Parliament (Section 3.1). The chapter further looks at its legal accountability, in light of the relevant case law of the Court of Justice of the European Union (CJEU) (Section 3.2). The penultimate section of the chapter provides an assessment of the Eurogroup’s accountability in light of the framework laid down in the introductory chapter to this volume, namely in terms of procedural and substantive ways of delivering the normative goods of accountability (Section 4). Section 5 concludes by outlining the key features of the accountability arrangements and practices pertaining to the Eurogroup.

This chapter provides the volumes general conceptual framework. It begins by addressing why new approaches to accountability are needed, arguing that accountability literature has reached a stalemate as a result of an impasse between deductive and inductive approaches to accountability in the EU. It then argues that overcoming the stalemate requires developing a generalised framework of what accountability is for, deriving four accountability goods to be used in subsequent chapters. The chapter argues that each of the goods can be delivered in procedural or substantive ways, focusing either on the process by which decisions are made or the substantive worth of decisions themselves. The chapter concludes by discussing the strengths and weaknesses of both varieties of accountability before mapping out how the concepts will be applied across policy fields and institutions in subsequent chapters.

The Introduction explains how the ECB was established as a central bank mainly controlled and guided by its constitutional framework. When this constitutional model has been challenged by a series of crises, the carefully designed economic constitutional model has been replaced by a constant flow of ad hoc measures that were largely responses to the economic and political realities of the moment. In the euro area, the economic, financial, sovereign debt and finally pandemic crises have also been constitutional crises. The ECB lacks a nation state’s economic and political will-formation as its counterpart and as its ultimate control. Its main counterpart is the constitutional framework, called the European Macroeconomic Constitution. This special model requires a special EU constitutional law approach to assess the ECB’s measures and to guide it going forward. It is a broadly based constitutional law methodology that could also be defined as economic constitutionalism.

This chapter discusses the currency union’s original set-up. It first discusses the history of European monetary integration, distinguishing between two sorts of motives: one economic, the other political. From the establishment of the European Economic Community up until the Treaty of Maastricht, both have been important drivers of monetary integration. The chapter subsequently turns to the original legal set-up of the euro, in particular its internal policy dimension. The economic and political forces behind the currency union’s creation also exercised great influence on its set-up, which came to institutionalise a stability paradigm. Characteristic of this paradigm was that it granted overriding importance to price stability as a policy goal and argued for a privileged position of the central bank in achieving this. The chapter shows how its influence was most notably evident at the level of aims and principles and in the constitutional position of the European Central Bank. Yet it also shaped the single currency’s economic foundations, in particular, the Union’s limited competences in this area and its focus on fiscal prudence. It even informed the rules governing accession.

Not only the member states should be given credit for the survival of the single currency. The European Central Bank deserves credit too. Throughout the crisis it resorted to ‘unconventional’ measures that have proven crucial for the stability of the currency union, especially its government bond programmes SMP and OMT. This chapter examines these programmes and argues that they are an intrinsic part of the transformation of the euro. Since the Bank’s mandate and constitutional position ultimately rest on the Founding Contract between the member states, it could not intervene in bond markets without a prior change in this Contract through which states committed themselves to a different currency union based on a broader stability conception. Only such a contractual change, and confirmation of it through concrete action, could provide the necessary political cover for bond purchases that pushed the boundaries of the Bank’s original mandate.

This chapter examines four flaws in the most essential assumptions underlying the single currency’s original stability set-up that were exposed by the crisis. The first concerns market discipline. The chapter looks at some of the key explanations for the failure of market discipline, in particular, those professed by the ECB. The second flaw concerns the instrument of public discipline. The shortcomings of this instrument were already visible in the early 2000s when France and Germany violated the Stability and Growth Pact. The chapter analyses these violations, the court case to which they gave rise and the reform of the Stability and Growth Pact that followed it in 2005. The third flaw concerns the excessive attention for budgetary discipline. In its preoccupation with ensuring fiscal prudence, the original set-up was blind to risks stemming from other corners of the economy, especially the banking sector. The fourth flaw is the cardinal one. Geared to safeguarding price stability, the single currency’s legal set-up left another stability dangerously exposed: financial stability. The chapter discusses its importance and the need to have it protected by a ‘lender of last resort’.

The change in the Founding Contract that political leaders initiated on 11 February 2010 put great pressure on the legal set-up of the euro that remained largely unaffected. When the European Court of Justice had to rule on the actions to which the change had given rise it consequently found itself between a rock and a hard place. It was not in a position to strike down actions that had been crucial to the single currency’s survival. Yet, in order to approve of them it had to engage in a Herculean struggle with the law that still largely reflected a stability conception from the past. This chapter examines this approval. Two cases are central: Pringle and Gauweiler. Both cases ultimately turned around the question whether and to what extent the law can accommodate the currency union’s new stability conception, characterized by the need to protect financial stability. Most of the Court’s reasoning in these cases is sound or, where it is strained, could have been justified through the use of different arguments. At one crucial point, however, the Court encounters the limits of what can be justified through legal reasoning alone.

This prologue sets the scene by introducing the book’s main thesis that during the debt crisis, in particular, the years 2010-2012, the European Union has gone through a constitutional transformation. The transformation is characterised by a broadening of the currency union’s conception of stability. Its key manifestations are financial assistance for distressed member states and government bond purchases by the European Central Bank. The transformation can be understood through the lens of solidarity as this makes it possible to conceptualise the unity between the member states and to analyse how political leaders managed to uphold this unity during the crisis. And ultimately, it allows for an understanding of why instead of approving the transformation in Pringle and Gauweiler on the merits, the ECJ should have done so through silence.