MEPs adopt 'historic' resolution on ECB

High inflation is a "concern", said Andresen, but interest rates only affect domestic spending. It does not directly affect the price of imported goods like gas, the dominant driver of inflation over the past year.

Moreover, every monetary choice — even efforts to reduce the inflation rate — inevitably benefits some at the expense of others. This makes monetary policy political. Yet due to fierce central bank independence, there is no political debate. One of the concerns raised by Andresen on behalf of the parliament is that the bank has "ignored" explaining how its policies affect the economic objectives of governments such as preventing climate change or policies aimed at employment and alleviating inequality.

The ECB is primarily mandated to manage price stability, but under its lesser-known but equally important second mandate, it is also obligated to support government policies. "Let me state this in no uncertain terms: the ECB's secondary mandate is legally-binding," Andresen told Lagarde on Thursday and called on her to devote a specific chapter in the bank's annual report explaining how its money management has impacted society.

Climate policy

ECB chief economist and executive board member Isabel Schnabel previously warned monetary tightening and higher borrowing costs "may slow down decarbonisation."

The union is legally obliged to reduce emissions to zero in 2050, and Andresen tasked the ECB to account for the impact of higher interest rates on the EU's green objectives.

"We need to develop tools so that the tightening of monetary policy will not harm needed green investments," said Andresen on Thursday. "Green monetary policy is 'not nice-to-have' but necessary."

In a compromise put forward by Andresen in January, he called to implement so-called dual rates, offering lower borrowing rates for investments in home renovation and clean energy.

A majority in parliament rejected this, but Andresen pledged to "keep the debate going."

And Lagarde has previously said climate change and economic development are "obviously" part of its mandate but also said it is up to the other EU institutions, "particularly the EU Parliament," to interpret this.

Independence

"The ECBs ability to take all necessary measures free from political interference is essential to deliver on its mandate," Lagarde said, which is to bring inflation down to two percent. "But with this independence also comes great responsibility."

Lagarde said: "The choices we make significantly affect society, so being accountable is a necessary counterweight to our independence. That means we need to explain our policies and be attentive to the public's concerns."

The EU treaty that outlines the role of the ECB offers little detail on what 'government policies' and 'secondary objectives' the central bank should concern itself with, leaving much room for interpretation and debate.

Thursday's resolution is not legally-binding, but it has shifted the needle that will allow central bankers and elected officials to debate the impact of powerful monetary tools on issues of core societal importance on a new footing—something that hasn't existed in the union before.

"It is now up to parliament and the ECB to raise their game with wisdom and open-mindedness. If they do, today's vote will become historic," said Adua Dalla Costa, policy officer at the British think tank Positive Money Europe.