Political leadership of the European Central Bank

Abstract

What role did the European Central Bank (ECB) play in EU governance, regarding the financial, the economic and sovereign debt crises? How should we understand ECB leadership from a theoretical perspective? Based on speeches, literature review and interviews, this contribution concludes that by using policies such as the Securities Market Programme and by promising to do whatever it takes (e.g. Outright Monetary Transactions the ECB supported the euro-area faced with an unprecedented crisis. Its two presidents during the crisis periods were leaders in that they managed to get the ECB followers (its Governing Council; EU member states) willing to take part in a common enterprise solving the sovereign debt crisis with the bank using exceptional monetary policy tools. This contribution argues that both Presidents Jean-Claude Trichet and Mario Draghi exercised transformative leadership and were willing to take action when no other leaders were willing or able to lead.

Keywords:

• Mario Draghi
• Economic and Monetary Union
• euro area
• European Central Bank
• political leadership
• Jean-Claude Trichet

Acknowledgements

The author would like to thank Thomas Christiansen, Erik Jones, Manuela Moschella, Ingeborg Tömmel, and all the participants of the workshop on ‘Political Leadership in the EU’ held 19–21 November 2015 in Osnabrück as well as the reviewers of Journal of European Integration for helpful comments and suggestions on earlier drafts of this contribution. Special thanks go to the European Commission Erasmus+ programme – Jean Monnet ‘Policy debate with academic world’ for funding the project, 565351-EPP-1-2015-1-CA-EPPJMO-PROJECT.

Notes

1. This section draws on an extended version reported in Verdun (2013).

2. Lehman Brothers, the US investment Bank, filed for bankruptcy on 15 September 2008 (The Economist 15 September 2008). This event is often heralded as having escalated the 2007–2008 financial crisis (for an insightful account of the unfolding of the financial crisis see Sorkin 2009).

3. Under Article 125 (1) Treaty on the Functioning of the European Union (TFEU), the ‘Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project’. Also, Member States shall not assume such liability for other Member States, but this is ‘without prejudice to mutual financial guarantees for the joint execution of a specific project’.

4. TFEU Article 122(2) (ex article 100 TEC), enables the EU to provide financial assistance to a Member State ‘in difficulties or seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control’.

5. European Council Decision 2011/199/EU of 25 March 2011 amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro, published in OJ 2011, L 91/1 of 6 April 2011. The additional text reads as follows: ‘The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality’ (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:091:0001:0002:EN:PDF).

6. Article 136 TFEU indicated the need to set up an instrument to ensure financial stability. In the end it materialised in the form of the Treaty Establishing The European Stability Mechanism, concluded between all the Member States whose currency is the euro. This treaty was signed on 2 February 2012 and entered into force on 27 September 2012. The European Stability Mechanism was inaugurated in Luxembourg on 8 October 2012. For the treaty text see: http://www.european-council.europa.eu/media/582311/05-tesm2.en12.pdf; for the information on the completion of the ratification see European Parliament (2013), see also Council of the European Union (2012) and ECB (2011).

7. The outright monetary transactions (OMT) is the successor to the ECB’s securities markets programme (SMP). The OMT confirms the ECB’s de facto role as lender of last resort, with limitations: first, the ECB’s purchase of government bonds will be limited to secondary markets, even though it allows, in principle, for the unlimited purchase of government bonds. Second, the OMT is subject to strict conditionality (of fiscal consolidation and economic reform). Member States seeking to benefit from it must first seek financial support from the EU and from the IMF (for a discussion see Hodson 2013).

8. Personal interview with a member of the ECB staff, August 2007.

9. Four interviews, of about one hour in length, were held with key informants, between 16 April and 6 May 2016, based on a semi-structured questionnaire.