VoxEU: The changing tasks of the ECB

17 July 2015

The ECB’s monetary policy has evolved rapidly over the past decade – from the adoption of the euro to the recent implementation of quantitative easing. What the effectiveness of its policies?

The ECB’s monetary policy has come a long way. Starting from changeover to the euro on 1 January 2002, the adoption of the twin pillars (ECB 2015) and, most recently, the implementation of quantitative easing (QE) in early 2015, the ECB’s monetary policy has been evolving rapidly.

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Several findings stand out.

• First, the application of a single monetary policy to the very diverse economies of the Eurozone has entailed a pronounced pro-cyclicality in its real economic effects in the EZ periphery.
• Second, failure by the Euro Summit and the Eurozone to set up adequate policy and institutional responses to the after-shocks of the Lehman failure and the sovereign debt crisis placed the burden to stabilise financial markets almost entirely on the ECB.

As a result, the ECB has become not only the lender of last resort in the sovereign debt markets, but also a direct enforcer of fiscal discipline and structural reforms commitments by indebted EZ countries.

• Third, persistent economic depression and deflation eventually convinced the ECB to adopt a strongly expansionary monetary stance, including unconventional tools.

That the ECB could legally perform all of these tasks bears witness to the flexibility of the TFEU and its Statute, but its tools and operating procedures were stretched to their limits. The place of the ECB amongst EU policymaking institutions has been greatly enhanced, but this has entailed repeated intrusions into the broader domain of economic policies, with consequences for the institutional balance in economic policymaking within the EZ that have yet to be ascertained.

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