A Decade of “Whatever It Takes”
The European Central Bank has long managed to skirt uncomfortable questions about its implicit role in setting conditions for domestic policymaking within highly indebted member states. But with a new asset-purchasing tool, the underlying politics of this apparently technocratic approach will be easier to discern.
PRINCETON – This month marks an important anniversary. On July 26, 2012, the European Central Bank’s relatively new president, Mario Draghi, famously declared that, “the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” It was a brilliant (and apparently ad-libbed) move, furnishing Draghi with his well-deserved reputation as the savior of the euro.
Now – just five days before this month’s anniversary – the ECB has announced another potentially game-changing move. With its new Transmission Protection Instrument (TPI), it will seek to reduce the spreads between member-state government bonds in cases where yields are being driven up by market pressure or speculation, rather than by fundamental problems of economic sustainability. Coincidentally, Draghi resigned as Italy’s prime minister on the same day.
In July 2012, the ECB sought to circumvent a key question: What conditions should a central bank impose when it purchases government debt? Should an unelected institution with a mandate to ensure price stability also decide which national governments and enterprises will receive funding? These questions have weighed on the minds of critics who worry that the ECB is blurring the distinction between fiscal and monetary policymaking.