Joint Call: 21st century central banking needs a renewed democratic mandate


In March 2020, the European Central Bank had to intervene massively to prevent a financial meltdown on top of the economic crisis caused by Covid-19. This is not a one-time phenomenon: over the past crisis-ridden decade, the scope and nature of the ECB’s interventions has expanded substantially. Such an interventionist stance has become a permanent feature of twenty-first-century central banks as they try to address new challenges and stabilize an ill-regulated financial system.

This motivated the recent online conference “Next Generation Central Banking: climate change, inequality, financial instability”, which brought together academics, central bankers, think tanks, civil society activists and politicians in front of an audience of over 800 participants from all around the globe.

Drawing from the conference we conclude that central banks’ extensive interventions, however necessary to safeguard price and financial stability, also have significant side effects: they increase inequality and exacerbate the ecological crisis. It has been shown, for instance, that the ECB’s asset purchases have a bias to carbon-intensive companies. All of this shows that monetary policy is not neutral – and has never been. The ECB’s policy entails a wide range of choices. This considerable discretion calls for improving its democratic legitimacy and clarifying its mandate in light of the new requirements of today’s huge social and ecological challenges.

One of the reasons for central bank interventions is the inherent instability of the financial system. In order to take the ECB off the front lines and stabilize the financial system, shadow banks should be tightly regulated, thereby lessening the need for central bank intervention.

We welcome that central banks are starting to take climate risks into account, as part of their primary mandate of price and financial stability. The ECB must now integrate climate risks in its own monetary policy operations. But the ECB needs to go further: it needs to stop supporting high-carbon industries and align its entire monetary policy framework on the transition to a low-carbon economy, including its conventional policy such as repo lending against collateral and its unconventional policies such as corporate large-scale asset purchases (CSPP) or Targeted Longer-Term Refinancing Operations (TLTROs).

Current monetary policy relies almost exclusively on financial markets for its implementation and its transmission to the real economy. This has not proven very effective in achieving ECB’s inflation target in the past decade. Moreover, it has fuelled increases in asset prices, which have significantly worsened  inequality. The ECB should acknowledge this and develop alternative options to reach the real economy more directly, and to better support the labour market and lower wages. This is key for a sustainable recovery in Europe after the COVID-19 crisis.

The macro financial regime we live in requires central banks to play an active role in markets, especially sovereign bond markets to meet their price stability mandate. However, this also defines governments’ fiscal space. As ECB board member Isabel Schnabel recently stressed, the current macroeconomic situation has rendered fiscal policy more important and effective than monetary policy and should therefore not be constrained by central bank decisions. This requires not just a redesign of the EU’s current fiscal framework, as a recent public letter argued extensively, but also a new mechanism of coordination between monetary and fiscal policy whose mandate is to secure the flourishing of an inclusive, stable and sustainable economy.

The ECB is a key actor in the EU’s economic policy, but it lacks clear renewed guidance in support of the EU’s core policies, in line with the EUs commitments under international law in the Paris Agreement. This is why, to add legitimacy for the ECB acting on its “secondary objectives”, a formal procedure should be developed by the European Parliament, specifying and prioritising the policy objectives that the ECB should pursue beyond its primary mandate.

The ECB is currently conducting its first strategy review in 17 years. Now is the time to establish a comprehensive agenda for the ECB in light of the social-ecological transformation towards a resilient, equitable and climate friendly economy.



Bernard Bayot, Financité

Andrea Binder, Global Public Policy Institute Berlin

Ollivier Bodin, Greentervention

Benjamin Braun, Max Planck Institute for the Study of Societies

Frances Coppola, Author “The Case for People’s Quantitative Easing”

Hielke Van Doorslaer, Ghent Institute for International Studies

Daniela Gabor, UWE Bristol

Michael Jacobs, Sheffield Political Economy Research Institute, University of Sheffield

Stanislas Jourdan, Positive Money Europe

Wojtek Kalinowski, Veblen Institute for Economic Reforms

Jens van ‘t Klooster, KU Leuven and University of Amsterdam

Benoît Lallemand, Finance Watch

Frank van Lerven, New Economics Foundation

Giuseppe Mastruzzo, International University College of Turin

Matthieu Méaulle, Associate member, PHARE, Université Paris 1 Panthéon-Sorbonne

Pierre Monnin, Council on Economic Policies

Maria Nikolaidi, University of Greenwich

Saule Omarova, Cornell University

Paola D’Orazio, Ruhr University Bochum

Ronan Palmer, E3G

Michael Peters, Finanzwende

Josh Ryan-Collins, Institute for Innovation and Public Purpose, University College London

Gerhard Schick, Finanzwende

Paul Schreiber, Reclaim Finance

Carolyn Sissoko, UWE Bristol

Adam Tooze, Columbia University

Barbara Unmüßig, Heinrich-Böll-Stiftung

Frank Vanaerschot, FairFin

Alessia Del Vasto, Positive Money Europe

Luca Visentini, General Secretary, European Trade Union Confederation

Joscha Wullweber, Witten/Herdecke University

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Beyond crisis mode: building a resilient society

The global Covid-19 pandemic and the actions necessary to contain it have caused unprecedented social and economic impacts. Once again it shows how susceptible our societies are to crises. Billions of people are worried about their health, their jobs and their incomes. To limit the economic damage and to prevent it from being compounded by a financial heart attack, governments and central banks have been forced to engage in massive interventions. The inequalities in our societies have been cruelly exposed.

This shock comes against the backdrop of the mounting climate emergency, and when the effects of the great financial crash of 2008 and the eurozone crisis that followed it are still with us. We have in effect been living in a state of continual crisis for over a decade. So why have we been left so unprepared?

Financial, ecological and health crises are often compared to “acts of god” that are beyond our control. This is dangerously misleading. While we cannot completely avoid shocks such as a novel virus or a financial bubble, whether these turn into economic and social crises is under our control. We cannot limit ourselves to reactive and improvised politics and economic policy when in the midst of a crisis. In light of the last decade of economic distress and the climate emergency that is already upon us, we need a progressive politics of resilience.

Such a politics must be concerned with the timely identification of risks, and to tackle the social and economic processes that contribute to them. It must develop the capacity to enable our society and economy to handle the shocks that will arise, to adapt and reconstruct more robustly and to recover in a more sustainable and equitable way.


We can create better systems to mitigate crises

While the emergence of novel viruses is a natural phenomenon, there is growing evidence that a food system based on intensive agriculture and the loss of biodiversity strongly contribute to the frequency of such events. However the nature of the ensuing pandemic depends on human action. The differences between countries in their response to the virus is already visible. The speed at which the virus spreads, and how many lives it claims, are things we can control.

The ongoing climate emergency is omnipresent. Recent years have seen devastating bushfires in Australia, Africa and North America, droughts in Europe, while many other places face floodings. These events cannot be avoided completely. However, the enormous amount of carbon our economies burn, which makes these events more likely, is something we can control.

The financial crisis of 2008, which exposed our economic system as unstable and vulnerable, was due in large part to insufficient regulation. Household incomes have barely recovered since, and the rise of inequality and precarious work has made our social systems less resilient. Financial shocks are bound to happen occasionally, but weak regulation increases their likelihood and the impacts they have on the real economy.

Each crisis has its specific causes. However, they all share common features in the nature of our economies and political processes:

  • Favouring short-term returns and efficiency over long-term resilience and stability. Our systems overemphasize short-term economic gains while neglecting the crucial importance of developing long-term infrastructure and the contingency planning needed for crises. Wealth extractive returns are still valued more highly than wealth-creating investments. The goal of labour market efficiency has led to an increase in precarious work.
  • Prioritizing economic growth over public goods and wellbeing. The austerity paradigm led to the underfunding and privatization of health and social infrastructure. Wealth and income inequality has increased, making our society less resilient overall, while asset-holders have profited. As the return on capital has become greater than general growth, the basis for a cohesive economy and society has eroded and large parts of the population have been made more vulnerable.
  • The domination of political decision-making by powerful special interests. Policies are often captured by special interests or developed for political advantage, while ignoring scientific and economic advice about risks.


Economic policy was on the wrong track

The response to the 2008 financial crisis was effectively to go back to business as usual. Policy has in practice reduced the resilience of the system, primarily through austerity and regulatory reforms which have not tackled the short-termism of the financial system. These problems lasted up to the pandemic, with governments continuing to bail out banks as recently as December 2019 in Italy and Germany and turmoil in financial markets in September 2019.

The deregulation of labour markets in the name of efficiency, together with lower social security standards and low or even negative real wage growth, has left many low-income households under stress, unable to accrue savings for emergency expenses. Low-income households have been increasingly locked out of decent housing. These and other inequalities have increased society’s overall vulnerability to crises.

In the light of these experiences it is clear that a progressive politics of resilience must be holistic. Our economic system is dynamic, unstable and inegalitarian. It is prone to multiple forms of systemic socio-economic crisis – financial, ecological and through pandemic diseases. And the interconnections run in every direction. What we were beginning to explore in the years before 2020 was the possibility that climate change might trigger a financial crisis. What we are now seeing is that a zoonotic pandemic disease can also trigger an economic crisis, which in turn may trigger financial turmoil.


A transformative policy response 

We must learn the lessons not just of the present crisis but of the last decade of crisis. Policymakers can choose to pave the way towards a more stable and resilient system by reducing vulnerabilities and investing in preparedness. We need precautionary policy making to openly address future risks, and we need institutions that monitor and evaluate those risks and the resilience of our economic and social system.

We believe the central guiding principle for political decision-making is resilience. We need to be prepared for crises, balancing efficiency with resilience. This means:

  • Reducing the risk of climate and ecological crises: by making a decisive step in modifying our systems of energy use towards carbon neutrality.This will require a rapid acceleration in our plans to achieve the Paris climate goals.
  • Reducing the risk of health crises: by preparing pandemic scenarios, investing in equal access to healthcare, building buffers in our healthcare system, reforming our industrialized agricultural system and ensuring food security.
  • Reducing the risk of financial crises: through higher capital requirements and stronger constraints on leverage in the shadow banking system, a financial transaction tax, achieving more equal wealth distribution, aligning the financial system with sustainability goals, and reducing the size of the financial sector relative to the real economy.

In all three the leadership of democratically legitimate governments is indispensable. We must be able to mobilize resources and deploy them for public purposes, with public institutions, including central banks, cooperating according to well-defined processes. A fiscal system suitable for a progressive politics of resilience must be based on increasing the progressivity of the tax system. This should include the much higher taxation of wealth (including real estate and land) and fairer rules for the taxation of multinational corporations and offshore wealth. It must be a vehicle for public investments to mitigate future climate risks and to build health capacity. In today’s circumstances, increasing public debt is a legitimate instrument for funding public policy.


Signatories of this transnational call to action

Some people today are saying that we can only solve the Covid-19 crisis now and must take care of anything else afterwards. Acting on this view would mean failing to capture the opportunity to get out of the current crisis in a transformative way which also helps meet the other huge challenges we face. It makes no sense to continue stumbling from one crisis to another. Now is the time for a progressive politics of resilience – for the transformation of our economic and social system. We commit our efforts to making our system more resilient and to ensure that policymakers act decisively to reduce the risk of future crises.


Finanzwende Recherche gGmbH

Heinrich-Böll-Stiftung, Germany

E3G, Third Generation Environmentalism

Veblen Institute for Economic Reforms, France

New Economics Foundation, United Kingdom

Positive Money, United Kingdom

Institute for Political Ecology, Croatia

Finance Watch, Belgium

EnaBanda, Slovenia

Adelphi, Germany

Finance Innovation Lab, United Kingdom


Ulrich Volz – SOAS, University of London, United Kingdom

Frank van Lerven – New Economics Foundation, United Kingdom

Jonathan Barth – ZOE (Institute for Future-Fit Economies), Germany

Joscha Wullweber – University of Witten/Herdecke, Germany

Daniela Gabor – UWE Bristol, United Kingdom

Rens van Tilburg – Sustainable Finance Lab at Utrecht University, Netherlands

Michael Jacobs – Sheffield Political Economy Research Institute, University of Sheffield, United Kingdom

Adam Tooze – Director European Institute, Columbia University, United States

Irene Monasterolo – Wirtschaftsuniversität Wien, Austria

Giuseppe Mastruzzo –  International University College of Turin, Italy

Sebastian Dullien – Institut für Makroökonomie und Konjunkturforschung, Germany

Gustav Horn – Universität Duisburg – Essen, Germany

Reinhard Loske – Cusanus Hochschule für Gesellschaftsgestaltung, Germany

Thomas Sauer – Ernst-Abbe-Fachhochschule Jena, Germany

Waltraud Schelkle – London School of Economics, United Kingdom

Brigitte Young – University of Muenster, Germany