The European Central Bank (ECB) is a central bank for the euro, mandated with administering the monetary policy of the members within the euro area or Eurozone. ECB has played a crucial role in the current economic crisis. At the end of 2009, the sovereign debt crisis materialized among European states, which aggravated in 2010 (Alessi 2012). The most affected countries included Portugal, Ireland, and Greece, before sweeping across Europe drastically. The roles ECB took in resolving the current debt crisis were in line with its objective as mandated by Article 2 of the ECB Statute, which included maintaining price stability, and Article 3, which includes implementing monetary policies.
Implementing Monetary Policies
In response, the European Central Bank (ECB) played the role of “lenders of last resort” to the Government and banking sectors by introducing new regulatory policies to oversee the behavior of the European government and financial institutions in Europe (Malo de Molina 2013).
For instance, between 2009 and 2013, ECB introduced the multilateral surveillance rules to coordinate fiscal and monetary policies across Europe, which have been effective in promoting discipline among national governments. ECB also provided banks with cash for collateral and term funding to avoid bank (bailouts) failures and to maintain an orderly market (Olivares-Caminal 2011).
Financial support was granted to Ireland, Spain, Portugal, Greece, and Cyprus, based on strict conditions of helping the national government to restore their economies to sustainable paths. This avoided debt dynamics from deteriorating (Panico & Purificato 2013).
ECB has also promoted price stability. Between 2009 and 2013, ECB introduced non-standard measures, such as the policy of full allotment in its refinancing operations against suitable collateral. It also extended the maturity of its refinancing operations to three years and adjusted the interest rates (European Central Bank 2013). These two measures were intended to make it easier for credit institutions to offer adequate credit to national economies at favorable terms to ensure price stability (Panico & Purificato 2013).
To ensure this, ECB strengthened policy coordination. ECB had to improve policy coordination among the EU member states. For instance, in 2011, the European Parliament implemented a legislative package on economic governance, called the “six-pack” (European Central Bank 2013). Within the perspective of fiscal policy, the package strengthened the Stability and Growth Pact (SGP) that was targeted at monitoring the compliance of the member states with the decided budget deficits (Zilioli 2012).
In 2013, a package of legislation called two-pack was implemented to improve the budgetary coordination, through the introduction of a common budgetary timeline and assessment of budgetary plans for the EU member states and the euro area (Eurozone 2014). It was also intended to improve financial and economic surveillance in the euro area, using a mechanism where member states that experience adverse financial difficulties or economic instability are subjected to improved surveillance by the European Commission (Eurozone 2014).
The European Central Bank has an obligation to those countries that have not adopted the euro. While all UE Member States are part of the Economic and Monetary Union which requires them to take economic measures in coordinating economic policies that benefit the European Union as a whole, not all EU Member States, including the United Kingdom and Denmark are in the euro area (European Commission 2014). This means that in circumstances that would require maintenance of price stability and implementation of sound monetary policy for the Eurozone, the bank would also have an obligation to EU member states not to use Euro.
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