The new ECB and its relationship with the eurozone Member States: Between central bank independence and central bank intervention

Abstract

The financial and sovereign debt crisis has had a great impact on the relationship between the European Central Bank (ECB) and the Member States of the Eurozone, a relationship traditionally studied from the perspective of central bank independence. This article takes a different perspective on that relationship, namely that of central bank intervention in Member State economic policy making. It focuses on the pressure and influence exercised by the ECB on the Member States of the eurozone. The two perspectives combined reveal the nature of the ever more frequent and intense interaction between the ECB and the Member States of the eurozone. In the crisis, several different forms can be identified of ECB pressure on eurozone Member States to adopt reforms in the areas of fiscal policy and structural reforms, marking a shift from interaction to central bank intervention. This ECB intervention is parallel to an equally unprecedented intervention by the collective of eurozone Member States in the economic policy of several Member States through the economic policy conditionality linked to financial assistance. The article analyses several instances of ECB intervention, offers an explanation and a theoretical framework for normatively assessing it. The main risk identified for the ECB in this article is that of being perceived as a political or politicized actor, although it is acknowledged that the ECB is confronted with a difficult balancing act. The ECB should be more cautious in its approach, the further an issue is from its core mandate of securing price stability.