The ECB to the Rescue: The Brave New World of Central Banking in the Euro Area

Most central banks faced challenging political environments during the global financial crisis and its aftermath.  But the European Central Bank’s is by far the most complex.  This paper examines the strategic interaction between the ECB and the governments of the euro area in the response to the sovereign debt crisis. Drawing upon in-depth interviews and tracing the process of key ECB decisions, the paper demonstrates that the ECB used the crisis to extract commitments from governments to reform economic policy and complete the institutional architecture of the euro area.  The analysis casts earlier debates over democratic legitimacy and independence of the ECB in new light and adjudicates among alternative theoretical explanations of European integration.