Behind the ECB’s Wall of Money

The "wall of money" that the ECB unleashed to markets just before Christmas will have a huge influence on Europe's economy, and an even larger impact on its politics. This approach to ending the eurozone's sovereign-debt might work, but it could also destroy the single market.

BRUSSELS – Throughout the crisis period, the European Central Bank’s behavior has been conditioned by the tension between what it can do and what it is allowed to do.

The ECB is the only institution in the European Union that is able to provide unlimited funding to governments, but its governing statute prohibits government bailouts. Nonetheless, the ECB has provided large amounts of liquidity to the financial system, indirectly softening the pressure on government debt refinancing. For 18 months, it has been buying government bonds – worth more than €200 billion ($254 billion) – on secondary markets under its Securities Market Program. Moreover, it has provided loans to the banking sector, recently launching a three-year refinancing operation that generated demand from eurozone banks for €489 billion.

In his early December address to the European Parliament, ECB President Mario Draghi stressed his commitment to unlimited support of banks to avert the risk of a credit crunch. The wall of money unleashed by the ECB just before Christmas should be seen as a measure matching that commitment.

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