Central banks have been given an explicit mandate to maintain price stability and have been protected by legal provisions guaranteeing their independence. In the euro area, the ECB’s mandate to safeguard price stability, its independence and a prohibition of monetary financing of government deficits are enshrined in the Treaty on the Functioning of the EU.
Credible, stability-oriented monetary policy frameworks are assets that are costly to acquire and must not be put at risk. Yet, growing doubts about government’s ability to deliver sustainable public finances could at some point also cast doubt on the sustainability of the prevailing regime of monetary dominance.