HEC Research Papers Series,
HEC Paris

Abstract: All pillars of the Economic and Monetary Union (EMU) recently unleashed an array of measures to transform the economy towards climate neutrality. With the Green Deal, the ECB’s Strategy Review and the growing body of sustainable finance legislation, climate considerations have entered the traditional mandates governing the conduct of financial, fiscal and monetary policy. The cross-sectional nature of climate issues reinforces the interdependence and coordination of EMU policies. The present study explores changes to EMU architecture and discusses the institutional and legal implications of the novel role of climate in the coordination of EMU policies. It addresses the relationship between Treaty mandate and policy leeway, specifically the way in which the European Central Bank extends its focus on price stability to account for climate considerations and the fiscal legal framework relies on flexibility to incentivize climate investment. It also tracks the emergence of climate stability as an EMU concept adding to existing concepts of price, fiscal and financial stability.

Keywords: Climate policy; monetary union; sustainability

JEL-codes: E52; E62; F64; Q54; Q58

27 pages, January 14, 2022

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