On Monetary Financing

Abstract

This study examines whether non-conventional monetary policies adopted within the European Monetary Union in the wake of successive financial and economic crises, as operationalized through Open Market Operations, have amounted, in practice, to inflationary monetary financing prohibited by the Treaties of the European Union, notably Article 123 TFEU. It contends that the extensive discretionary interpretation of central-bank mandates risks enabling hidden fiscal transfers and artificially price-inflationary demand for market instruments, inconsistent with the price stability mandate.

Drawing on legal governance principles, monetary-law foundations, inflation understood as the currency’s purchasing-power depreciation, and philosophical constraints of sovereignty under the rule of law, the study argues that Member States bear a dual responsibility – to preserve the common currency as a system-wide unit of account, while acting within coordinated economic competences of the European Union economic governance. 

It further argues that, while nominal monetary authority, whether exercised at national or supranational level, must be normatively tied to real economic meaning in order to remain compatible with the constitutional principles of the rule of law, such a substantive understanding simultaneously heightens the risk of discretionary intervention, thereby requiring institutional arrangements capable of constraining discretion, notably the legal separation between fiscal and monetary spheres as a safeguard of the EU fiscal rules and of price stability. The analysis therefore proposes a framework for the European Banking Union grounded in structural separation between spheres, limited discretion, and coordinated competences, aimed at ensuring a triadic balance between price stability, financial stability, and competition.