Is the ECB well-equipped to deal with upcoming financial instability and crises?

Lino Sau, Emanuele Citera and Domenica Tropeano

Chapter 1 in Central Banking, Monetary Policy, and the European Central Bank, 2025, pp 2-19 from Edward Elgar Publishing

Abstract: The European Central Bank (ECB)took over the decision-making powers of national central banks in 1999, the year the Eurozone was created. In this chapter, we investigate the project's main features while also looking for shortcomings that have become particularly evident since the outbreak of the Eurozone crisis.First, we investigate the ECB's “original sin,” namely the idea that solely focusing on price stability would minimize financial instability. Then, we draw attention to the need to strengthen the ECB's lender of last resort (LOLR) role in the event of banking and sovereign debt crises. Finally, we examine how financial stability in the Eurozone can only be ensured by an ECB role complementary to other policy measures and greater integration and (fiscal) cooperation among countries (more symmetrical adjustments).

Keywords: European Central Bank; Monetary policy; Financial stability; Lender of last resort; Central bank independence; Eurozone (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035324262
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