Selective Bond Purchases – May the ECB Chose Winners and Losers?

Abstract

The European Central Bank (ECB) is currently facing major challenges. Fragmentation of government bond yields across Member States of the European Economic and Monetary Union, based on different economic and fiscal policies, hampers a uniform transmission of monetary policy. At the same time, climate-related financial risks need to be addressed. In recent years, the ECB is meeting these challenges by making selective bond purchases and deviating from the principle of market neutrality. This study discusses whether such selective interventions by the ECB are justified from economic and legal perspectives. We conclude that choosing winners and losers, discriminating on the grounds of social, economic, environmental, or other grounds is beyond the ECB’s competence and outside of the ECB’s democratic foundation.