Central Banks, Politicians and Reform: Analysing institutional reform after the financial crisis

This paper examines the research question:  How and why has the European Central Bank (ECB) been transformed by the 2008 financial crisis?  In doing so it examines the relative explanatory merits of partisanship, ideas and functional spillover in accounting for this. The ECB has been a controversial actor throughout the financial crisis – diverging from its Bundesbank model. At each stage of the crisis (mortgage market dysfunction; full blown banking crisis; currency crisis, and recovery) the ECB has become more active going beyond its treaty remit.  This will cumulate later this year when this enhanced capability is formalized under the Single Supervisory Mechanism and Single Resolution Mechanism.  This quasi-political role played by the ECB is on par with developments in other western economies at similar stages of the crisis. Both the Bank of England and US Federal Reserve have had to engineer ever more creative ways of injecting liquidity into their economies without stoking massive inflation in a bid to stimulate economic activity and foster financial stability.  What is more interesting about the ECB is that it does not serve a single polity in the same sense that other central banks do.  In acting to secure the future of the euro, the ECB has broken away from the path dependency of the impartial Germanic-style that has dominated its culture since its creation.  This paper sheds light on the as yet insufficiently explored explanations for this critical change.