The European Central Bank (ECB) and the Federal Reserve (Fed) have always been markedly different institutions. Their histories, governance structures, operational frameworks, and policy objectives vary significantly. Perhaps the only consistent similarity was their use of English as a working language.
Differences also emerge in their policies and performance. The Fed has typically acted sooner when intervention was necessary, maintained restrictive measures for longer, and avoided premature acceleration. Recent years illustrate this contrast: the Fed raised interest rates earlier than the ECB in response to surging inflation, pushed rates higher, held them steady for an extended period, and only recently began considering rate cuts—significantly later than the ECB.
In recent weeks, the divergence between the two institutions has widened in two key areas.
Climate policy: Contrasting approaches
A quick glance at the ECB’s website might leave an uninformed visitor thinking they had landed on a sustainability advocacy page rather than a central bank portal. The ECB places significant emphasis on climate-related financial risks. Meanwhile, the Fed recently announced its withdrawal from the Network for Greening the Financial System (NGFS)—a global coalition of central banks and regulators focused on integrating climate considerations into financial supervision. Founded in 2017 by eight central banks, the NGFS now boasts 160 members and observers. The Fed joined in December 2020 but has now chosen to exit, explaining in a succinct five-line press release that the group”s evolving focus exceeds the Fed’s mandate.
Effectively, the US central bank is stepping away from what it sees as a forum drifting toward activism rather than fulfilling a purely financial regulatory role. Unlike the ECB, which played a pivotal role in establishing the NGFS, the Fed was never an enthusiastic participant.
Fed Chair Jerome Powell underscored this stance as early as 2023, stressing that central bank independence must be upheld by focusing strictly on core monetary responsibilities, such as inflation control. “We are not, and will not be, a climate policymaker,” Powell stated unequivocally.
The ECB justifies its climate engagement by arguing that climate change could affect inflation and economic growth. While this may hold true in the long term, many other factors also impact inflation. Economic policies always carry consequences, but does this mean the ECB should take on responsibility for setting those policies? Inflation arises from excessive money supply growth—not from incremental changes in global temperature. The ECB’s primary role is to manage monetary policy, not to reshape environmental strategy.
CBDC and political influence
Another area of divergence is the development of a central bank digital currency (CBDC). The ECB is advancing rapidly with plans to introduce a digital euro and is refining its rollout strategy. In contrast, US momentum toward a digital dollar has come to a halt. Former President Donald Trump has pledged to block CBDC development in the US, citing concerns over privacy, national sovereignty, and financial stability.
Taking stock of these developments, the fundamental difference between the two institutions becomes ever clearer: the Fed remains firmly a central bank, whereas the ECB is increasingly assuming the characteristics of a political institution. The Frankfurt-based institution appears to be evolving into something resembling an EU ministry, or at the very least an extension of the European Commission.
A striking example of this shift emerged in a recent social media post by European Commission President Ursula von der Leyen. She shared a photo with ECB President Christine Lagarde, expressing enthusiasm about collaborating on a new initiative: the Savings and Investment Union. However, there has been no formal announcement of an expanded ECB mandate—such a move would require amending the Maastricht Treaty. The casual manner in which new responsibilities appear to be assigned to the ECB raises serious concerns about adherence to legal frameworks and the rule of law within the European Union.
Notably, Von der Leyen’s post began with “Dear Christine”—an informality rarely, if ever, seen between a Fed chair and a US president. The level of closeness between a politician and a central banker is troubling. However, if both are effectively politicians, the dynamic makes more sense. That, in itself, is deeply concerning.
The ECB’s increasing entanglement in political matters is not just a theoretical issue—it poses a genuine risk to the euro’s stability and, by extension, the broader European project. The “B” in ECB—signifying “Bank”—feels less relevant by the day. In reality, what we are witnessing is no longer ECB policy. Mismanagement is a better term.
Edin Mujagić is an economist, manager of Hoofbosch Investment Fund, and author of the book Turning Point 1971. He writes an ECB Watch column on European Central Bank monetary policy every month for Investment Officer.