The battle of ideas on the euro crisis: evidence from ECB inter-meeting speeches

ABSTRACT

The European Central Bank (ECB) has often been portrayed as highly resistant to ideational change. This paper paints a different picture. A battle of ideas dominated the academic debate on the euro crisis: one view stressed crisis-stricken countries’ fiscal laxity, whereas the other highlighted the systemic roots of financial turmoil. I argue that the failure of policy experiments inspired by the fiscal discipline view favoured the ECB’s adoption of systemic risk ideas, which shaped its crisis response. Empirically, I use an innovative technique combining automated text classification and unsupervised scaling methods to detect ideational variation in ECB Executive Board members’ public speeches. Results indicate that the ECB has progressively moved from a fiscal to a systemic narrative of the euro crisis. Significantly, this shift anticipated and accompanied the ECB’s commitment to unlimited bond purchases in summer 2012. Evidence suggests that this ideational turn was incremental and driven by policy learning dynamics.

KEYWORDS:

• Economic ideas
• euro crisis
• European Central Bank
• political economy
• quantitative text analysis

Acknowledgments

The author is a Communications Specialist at the European Central Bank and is himself alone responsible for the views expressed in the article, which do not necessarily represent the views, decisions or policies of the European Central Bank. Previous drafts of the paper were presented at the 2018 MPSA Annual Conference in Chicago and the 2019 EUSA Biennial Conference in Denver, as well as in two seminars at the European Central Bank. The author thanks conference and seminar participants for helpful comments, and is especially grateful to Thomas Sattler, Maurizio Ferrera, Manuela Moschella, Vivien A. Schmidt, John Freeman, David Schäfer, Frank Schimmelfennig, Stefania Secola, Siria Angino, Susanne Pihs-Lang, Pia Carter, and the anonymous reviewers. The author acknowledges financial support from the Swiss National Science Foundation, grant no. 165480.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Federico Maria Ferrara is a doctoral candidate at the University of Geneva and a Communications Specialist at the European Central Bank.