6 - The Prelude to the Sovereign Debt Crisis: Events, ECB Verbal Interventions and EU Rescue Programmes

Summary

The sovereign debt crisis shook the foundations of the euro area economic framework and ECB. It marked a clear change from the past. The chapter describes the events, starting with the Greek situation, and continuing to the problems related to Italy and Spain. For the ECB and European Macroeconomic Constitution, the main issues related to measures that were increasingly directed at easing economic and financial market stress concerning individual Member States’ public finances. Hence the constitutional concerns over the ECB’s legal mandate became more pronounced and contested. The chapter analyses the ECB’s verbal interventions, drafting and involvement in rescue plans, but also the role of the longer-term financing for banks in creating the vicious link between banks and sovereigns is discussed. The main constitutional conclusions relate to the ECB’s activities outside the sphere of monetary policy. They could be deemed alarming for the independence of the ECB, but they also could have distorted the institutional balance within the EU. Furthermore, the role of LTROs in encouraging banks to purchase government bonds underlines the problem with extending the reach of monetary policy measures.