frank elderson : proportioning policy action to the evidence making the monetary policy strategy of the european central bank concrete keynote speech by mr frank elderson, member of the executive board of the european central bank and vice - chair of the supervisory board of the ecb, at the institute of international & european affairs webinar, frankfurt am main, 24 march 2022. * * * as no doubt all of you joining me here today, we at the european central bank look with horror at the distressing reports from ukraine. the human suffering and destruction we see in our part of the world remains difficult to fathom. our hearts and minds are with the people of ukraine. with those who are still in harm ’ s way, and with those who have been forced to seek refuge elsewhere, mainly in the european union. these events are a stark reminder about what the european union stands for : peace in europe, being united in diversity, shared principles and the rule of law. the rule of law that also governs the institutions – including the ecb – that within their mandate serve european citizens. today, i want to outline to you how the ecb will continue to contribute to this greater purpose by delivering on the mandate bestowed upon us by the european treaties. the mandate to deliver price stability in the euro area. you may be aware that last summer the ecb announced a new monetary policy strategy after concluding a comprehensive review. a review in which we engaged with a wide range of stakeholders, including european citizens, to learn lessons and better understand the concerns of those we serve with respect to monetary policy and the broader economy. understandably, one of the key elements of our new strategy which received a lot of attention was the new, symmetric 2 % inflation target over the medium term. this replaced our earlier medium - term inflation aim of below, but close to 2 %. together with our new strategy, we also published a roadmap outlining actions to incorporate climate change considerations in our monetary policy. and i am very happy that this roadmap is drawing an equal amount of interest and appreciation from among our stakeholders. today, however, i will focus on another specific element of our new strategy that tightly binds together many of its constituent parts. a principal component that underpins the evidence - based foundations of our monetary policy strategy. it is the compass that guides our actions when taking monetary policy decisions. i am talking about the role of proportionality in our monetary policy deliberations. bear with me

these next twenty minutes and i will talk you through how, we as monetary policymakers assess the proportionality of our policy actions, illustrated with experiences of lawyers and construction workers, and how we apply this framework in the current circumstances. the legal principle of proportionality as a trained lawyer, let me start by providing you with some legal background on proportionality. to do so, i will take you back to 1882 when the prussian royal administrative court delivered the kreuzbergerkenntnis, or kreuzberg judgement. this was a groundbreaking verdict that for the first time explicitly established that a public authority – in this case the police – cannot pursue the public good in full discretion without any limitations to the sacrifice of individuals and their legal positions. the verdict annulled an ordinance issued by the police that banned owners of land around the kreuzberg war memorial in berlin from constructing buildings above a certain height, to keep the view of the monument clear. the court argued that with the ordinance, the 1 / 6 bis central bankers'speeches police had exceeded their mandate. to put it simply : the ruling made it clear that the police were only responsible for public security, and not for safeguarding aesthetic interests. the verdict signified an important step in the development of modern societies. acknowledging that their actions intrude on the lives of citizens, public sector authorities began limiting their actions to what is strictly necessary to achieve the established objectives. since then, proportionality has evolved to become a fundamental principle in many legal systems. the proportionality principle is a cornerstone of the institutional structure of the european union, laid down in article 5 of the treaty on the european union. and all its institutions are bound by it in the pursuit of their respective mandates. it requires them to carefully assess the necessity and suitability of policy action to deliver on the mandate, while also considering whether this policy action is less intrusive compared with other options for achieving the same goal. needless to say, this requirement also applies to the ecb. proportionality in policy deliberations thus, systematically assessing the proportionality of our monetary policy actions is exactly what we set out to do – and made even more explicit in our new monetary policy strategy – when the ecb governing council meets to discuss monetary policy every six to seven weeks. it is important to note that the scope of the proportionality assessment of policy decision - making bodies like the governing council differs from the scope of the judicial review that a court would conduct when