The ECB started its QE called the PSPP in 2015 as a new monetary policy measure. By purchasing vast monthly amounts of main Member State government bonds, the ECB aimed to force investors towards riskier assets, which in turn, was to increase asset prices and support bank lending, and ultimately lead to growth and inflation. Constitutionally, QE was a new type of complication for the European Macroeconomic Constitution. The ECB became the largest creditor of Member States it was prohibited to finance. The constitutional assessment of the PSPP combines the analysis of the CJEU’s Weiss case that contains very limited constraints for the ECB, and more economic-constitutional and thus substantive analysis. One key question is whether the PSPP is monetary policy, which can be analysed through its objectives, its economic content and examples of other central banks that mostly support an affirmative conclusion. The euro area constitutional structure adds further complications that were also raised in the FCC’s Weiss judgment. The PSPP has arguably broader implications for other areas of economic policy, as it facilitates Member States public finances and increases wealth differences by increasing asset prices, as well as making the ECB deeply dependent on Member States public finances.

The pandemic was a new and unforeseen event for the ECB and for the European Macroeconomic Constitution. The ECB took measures on multiple fronts to support Member States in their health, social and also public finances crises. The main approach was to support households and companies through the pandemic, so that the recovery would be as steep as the decline. Various forms of financing to households and companies were accompanied with relaxation of supervisory criteria to allow banks to continue lending. The largest measure was PEPP, a massive asset purchase programme for government bonds and also other debt securities. The responses to the pandemic raised similar constitutional questions as before: were the responses part of the ECB’s task to conduct monetary policy; could they be based on other tasks; did they respect the fiscal responsibility of the Member States and the prohibition of central bank financing; what was the impact on the ECB’s independence; and were other elements of the European Macroeconomic Constitution affected? The unforeseen and extreme circumstances promote a lenient assessment, but some issues still raised doubts. The backstop role of the PEPP could be problematic, and potentially is the relaxation of banking supervision criteria.

The chapter describes and analyses the principles of European Macroeconomic Constitution and how it guides the ECB and EU in its macroeconomic governance. The principles can be divided into objectives and safeguards. The main objective of the economic constitution, integration through internal market, continues but gets price stability as the main macroeconomic objective, and to an extent a more elaborated open market economy principle to guide EU institutions. The safeguards start from central bank independence that are further defined by the prohibition of central bank financing and a narrow central banking model without explicit value judgments. Member States remain responsible for the other areas of economic policy with the obligation of sound fiscal policy. The principles form a logical whole and complement the earlier microeconomic constitution. However, the assumptions and theory backgrounds of the two constitutions differ substantially, which has many implications, including for the role of law and courts as well as independent experts, such as the ECB. These implications have even become apparent already in the earlier case law by the CJEU.

The chapter analyses how the ECB was granted responsibility over prudential supervision as part of the EU banking union. This changed the EU perspective on financial services from internal market issue to a macroeconomic financial stability issue. The ECB now supervises directly the largest banking groups in the euro area and monitors the supervision of all other banks as well. The ECB’s role in the banking union raises new types of constitutional questions and requires a different analytical framework. A formal legal assessment, particularly on the legal basis for conferring specific tasks on the ECB under Article 127(6) TFEU, is complemented with a broader economic constitutional analysis. Here, the context in which the banking union was initiated is particularly important. The chapter also discusses the merits and caveats of combining banking supervision and monetary policy, where the conflict of interest is the main caveat particularly for an independent institution such as the ECB. It is also concluded that the supervision could return to the internal market setting and again be separated from monetary policy in the future.

The series of crises started with the global financial crisis that gained speed with the collapse of Lehman Brother in Autumn 2008. The ECB as any other major central bank became deeply involved in solving the crisis, which had eroded banks’ ability to trust each other. The ECB provided increasing amounts of liquidity to banks, and in many ways replaced interbank markets with its own operational framework. Other exceptional measures included easing and expanding of accepted collateral, purchases of high-quality covered bonds issued by banks. The constitutional analysis culminated on the question, whether the ECB measures can be classified as monetary policy. Generally, the provision of liquidity, even in some unusual forms, and its rationales were even classical monetary policy and similar to other central banks. The main objective was stability and sufficient liquidity in the euro area financial markets. The ECB did not give financial assistance to a Member State or their banks, and its independence was maintained. Only the later three-year LTROs could be assessed somewhat differently.

Things have not gone as planned. The EMU and the ECB as its guardian were assumed to guarantee stability and prosperity for the euro area, but the reality has been anything but. Consequently, the ECB is a very different creature today from what it started off as – or indeed what is should be on the basis of the European Macroeconomic Constitution. Most changes have taken place as reactions to new and unforeseen situations, and could be defended on economic grounds, if not always on the grounds that were presented by the ECB itself. Unsurprisingly, the ECB has described the measures it has adopted as successes, which follows a long history in central banking of claiming successes and never admitting mistakes. However, in order to sketch ways forward, it is first necessary look at where are now and what are the main constitutional problems at hand. A broad economic and constitutional assessment reveals two main interrelated imbalances. First, the increasingly discretionary reach of the ECB and its constitutional model of a narrow central bank, which also relates to the aim to control the ECB through constitutional objectives that are becoming increasingly vague. Second, the increasingly political scope of the whole European Macroeconomic Constitution on one hand and the reliance on the ECB as its main guardian on the other hand, has led to a serious overburdening of monetary policy.

The sovereign debt crisis shook the foundations of the euro area economic framework and ECB. It marked a clear change from the past. The chapter describes the events, starting with the Greek situation, and continuing to the problems related to Italy and Spain. For the ECB and European Macroeconomic Constitution, the main issues related to measures that were increasingly directed at easing economic and financial market stress concerning individual Member States’ public finances. Hence the constitutional concerns over the ECB’s legal mandate became more pronounced and contested. The chapter analyses the ECB’s verbal interventions, drafting and involvement in rescue plans, but also the role of the longer-term financing for banks in creating the vicious link between banks and sovereigns is discussed. The main constitutional conclusions relate to the ECB’s activities outside the sphere of monetary policy. They could be deemed alarming for the independence of the ECB, but they also could have distorted the institutional balance within the EU. Furthermore, the role of LTROs in encouraging banks to purchase government bonds underlines the problem with extending the reach of monetary policy measures.

The chapter analyses the three foundations of the new EU framework for macroeconomic governance, the European Macroeconomic Constitution. The provisions of the Maastricht Treaty stem from a rich background that informs about the content of the provisions and how they were assumed to lead to a successful monetary union. First, the economic constitutional thinking, originally by the German ordoliberal can be considered the philosophical foundation that informs how and why constitutional law addresses economic issues, particularly the monetary order. Second, longer evolution in central banking on one side and development in macroeconomic and monetary theory on the other side form the economic foundation. It informs about the assumption and content of various economic concepts and particularly about the 1990s broad consensus on central banking economics. Third, the institutional foundation is built on the institutional, legal and political development of the Community towards the establishment of the EMU. In the early 1990s, these three foundations happened to meet at the same intellectual crossroads that made EMU possible.

The last chapter is devoted to the fundamental transformation of the European Macroeconomic Constitution and particularly its objectives during the last decade that has also changed the ECB from a central bank of stability to a central bank of crisis. The great promise of the EMU that the properly designed and constitutionally protected macroeconomic framework would guarantee economic stability and prosperity has failed. In particular, the sole focus on price stability objective and constraints for national economic policy failed to ensure economic, fiscal, or even financial stability. The ECB 2021 strategy review tried to reflect these changes. The chapter analyses, how the ECB could seek to readjust its role in the euro area economy by incorporating new objectives. The discussion starts by analysing how and why the role of price stability has changed, which is followed by assessments of how the broader stability objective have gained more practical and eventually also formal importance. Furthermore, the objectives of structural economic adjustment and increasingly environmental sustainability are discussed as the new candidates for the objectives of the European Macroeconomic Constitution and the ECB. As an Epilogue, the book concludes with a broader forward-looking perspective on the options available.

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.

The chapter analyses the fate of the constitutional principles of the European Macroeconomic Constitution after the recurring crises. The measures by the ECB stretched the principles to the limits and beyond. The objectives of internal market and price stability fared relatively well, but the principle of open market economy less so. However, the institutional choices and safeguards were all seriously altered, where the prohibition of central bank financing and Member States responsibility for sound fiscal policy were among the key principles that were the most fundamentally transformed. This, apart from the concerns about the constitutionality of individual measures, raises fundamental questions about the European Macroeconomic Constitution. The accountability and even legitimacy of the ECB relied on its unique position as a central bank of an economic constitution. It empowered it, gave it independence, but also constrained and controlled it. The chapter argues that the preconditions for an independent expert role of the ECB have been challenged by its measures and the inability of the judicial review to sustain sufficient boundaries. Consequently, the accountability and legitimacy of the ECB have been compromised, and with that also the rule of law with regard to the EMU is under threat.