The Defender of Last Resort: Financial Political Power and the Role of the European Central Bank Since the Crisis

This paper examines the political role of the ECB since the 2008 financial crash and Eurozone crisis. While much has been made of the ECB’s monetary performance in the aftermath of crisis, this paper turns its focus towards the bank’s political interventions, arguing that ECB activity has been a major factor in preserving the political-economic salience of financial firms within Europe. This is demonstrated through an assessment of three areas of financial sector policymaking in the post-crisis era: bank stress-testing; bank bailout programmes; and regulatory reform of the financial system. In each of these areas, I provide evidence that the ECB has acted as a ‘defender of last resort’ for the financial sector through the construction of highly lenient stress scenarios, opposition to creditor losses, and public advocacy of a conservative approach to regulatory items (e.g. Basel III requirements and the Financial Transaction Tax). In explaining this political defence of the European financial sector, I contend that since the turn of the century, the ECB has developed a deeply symbiotic interdependence with the smooth functioning of liberalised financial markets, a fact that is structurally driven by the growing financialisation of major European economies. I juxtapose the ECB’s post-crisis activity with that of the European Commission, which has recently come to adopt a considerably more sceptical approach to the development of liberalised/deregulated finance within the EU. The paper challenges the prevailing orthodox view of ‘independent’ central banking and has important implications for the democratic functioning of EU policymaking.