Excess Reserves in the Eurosystem. An Economic and Legal Analysis.

Estimates suggest that international reserves of the Eurosystem could be reduced by one third to half ($130-$170 bill.) of its existing level after the introduction of the Euro. While the ultimate decision, whether and how to use these excessive reserves (public debt repayment, financing of a fund, financing of a tax cut) is a political one, some general results can be stated: First, since reserves earn interest revenue, a large part of which is transferred to the government anyway, moderate (but still positive) economic gains can be expected from a reserve reduction. Second, reserve reductions exceeding a certain threshold require the ECB's approval, which could, however, only be rejected if the envisaged measures were inconsistent with the ECB's monetary and exchange rate policy. Given that unintended macroeconomic effects can easily be avoided by a carefully planned and coordinated reserve reduction, such a rejection by the ECB - which is subject to the review by the European Court of Justice - is only hard to justify. Equally important from a legal point of view is that reserve reductions, effected as transfer of an extraordinary gain to the government, do not constitute monetary financing as prohibited under Art. 101 EC Treaty. Finally, reducing reserves to an adequate level would also eliminate incompatibilities and conflicts of interest between monetary and investment policy by the central banks and reduce their field of operation to their core task: the conduct of monetary policy. Thus, a carefully planned and coordinated reserve reduction can be supported from both an economic as well as legal point of view.Series: EI Working Papers / Europainstitu

OLAF or the Question of Applicability of Secondary Community Law to the ECB

On January 14 2000, the Commission sued the ECB on grounds of infringement of a regulation which concerns the investigations conducted by the European Anti-Fraud Office. This, for the time being, is the culminating point in the controversy between the Commission and the ECB, which reflects the still ongoing process of adaptation of the inter-institutional relationships to the changes which resulted from the commencement of the third stage of EMU, and of defining the ECB�s powers. This article is intended to add to the discussion of the legal status of the ECB, which is indeed a highly controversial topic. The author concludes that the ECB, far from being a third party to the European Community (EC), or a �new Community�, is a highly developed instrument of the Community which was set up in order to help to achieve the Community�s objectives.EMU; European Central Bank; European Commission; European Court of Justice; European Anti-Fraud Office; European law; non-contractual liability; legal personality; law

Economic and Legal Issues in Reducing the Eurosystem's Excess of International Reserves

Economic studies suggest that the Eurosystem's international reserves ($370 billion) could be reduced by up to half of its existing level. The article discusses the likely size and distribution of excess reserves and proposals for their uses. Small economic gains can be expected from a reserve reduction, as well as an elimination of incompatibilities and conflicts of interest between the conduct of monetary and investment policy. A careful and co-ordinated reserve reduction would pose no threat to financial stability, making it also admissible from a legal perspective against the background of Art. 31 of the ESCB (European System of Central Banks) Statute. Finally, transferring reserves as an extraordinary gain to the government does not constitute monetary financing as prohibited by Art. 101 EC Treaty. Copyright Blackwell Publishing Ltd 2004.