The law and politics of independent policy coordination Fiscal and sustainability considerations in the European Central Bank’s monetary policy

Central banks around the world are increasingly shaping, as well as following, broader climate policies, a development we theorize as policy coordination. In this chapter, we study how and why the European Central Bank (ECB), previously narrowly focused on its primary objective of price stability, has moved towards more extensive coordination with the political institutions of the EU. Based on an analysis of actual policies and views held by ECB top officials, we trace the evolution of the practice and ideological backing of ECB coordination with fiscal and climate policies. Our findings document an interesting paradox: although the ECB has increasingly engaged in policy coordination, it has done so on a unilateral basis by choosing on its own whether, when, and with which economic policies it coordinates monetary policy. We refer to this practice as “independent policy coordination”. Analysed against recent case law by the Court of Justice of the European Union, the legal limits to independent policy coordination are only vaguely defined. As it is notoriously difficult to distinguish independent policy coordination from autonomous policymaking by the ECB, we conclude that multilateral coordination, to the extent it remains compatible with the primacy of price stability, would be the next logical step.