European Central Bank (ECB)

The European Central Bank succeeded the European Monetary Institute, which had prepared economic and monetary union, on 1 June 1998 under the Maastricht Treaty, and began to exercise its full powers with the introduction of the euro on 1 January 1999. It first covered eleven members; Greece joined in January 2001. Its first president was Wim Duisenberg, former president of the Dutch central bank. The French government wanted Jean-Claude Trichet, but Germany, the Netherlands and Belgium backed Duisenberg as a guarantor of a strong euro, and under a gentleman's agreement he was to stand down before the end of his mandate in favour of Trichet. Trichet became president in November 2003, Mario Draghi on 1 November 2011 and Christine Lagarde on 1 November 2019.

Article 127 of the Treaty on the Functioning of the European Union makes price stability in the eurozone the ECB's primary objective. In 2003 the bank defined this as inflation "below, but close to, 2% over the medium term", and in 2021 replaced it with a symmetric 2 percent target. The ECB is often called the "most independent central bank in the world": its board members serve long eight-year terms, and governments and EU institutions may not seek to influence its decisions. Unlike the US Federal Reserve, it uses collateralised lending to banks as its default instrument.

When the eurozone crisis began in 2009 with the revelation of Greece's deficit, the ECB's own rules became part of the problem. Article 123 forbids it to buy sovereign bonds directly from governments, and an over-interpretation of this limit kept it from the quantitative easing that the United States and Britain had begun in 2008. Under a rule of 2005, sovereign bonds rated below BBB− could no longer be used as collateral, so a downgrade by the rating agencies could cut off banks' access to ECB funding. President Trichet denied that the ECB would buy sovereign bonds until 6 May 2010, then on 10 May launched the Securities Markets Programme to buy them on the secondary market. Board member Jürgen Stark resigned in September 2011 in protest, considering it equivalent to the prohibited monetary financing.

With the European Commission and the International Monetary Fund, the ECB formed the "Troika". It rejected most forms of restructuring of public and bank debt and pressed the Italian, Spanish, Greek and Irish governments in secret letters to adopt bailout programmes and structural reforms. In October and November 2010 Trichet wrote to the Irish finance minister that emergency liquidity for the country's banks might be suspended unless the government requested a programme. In April and July 2011 the ECB raised interest rates. In a report of 13 March 2014 the European Parliament criticised the conflict of interest between the ECB's role as "technical advisor" in the Troika and its position as a creditor of four member states. In July 2015 it was accused of interfering in the Greek referendum by constraining liquidity to Greek banks.

Under Draghi the ECB became steadily more interventionist. In December 2011 it lent banks €489 billion at 1 percent for three years, and after Draghi declared in London on 26 July 2012 that the ECB was "ready to do whatever it takes to preserve the euro", it announced on 6 September Outright Monetary Transactions (OMT) with no ex ante limit on time or size. The Bundesbank president Jens Weidmann alone voted against. OMT was never actually used, but it brought bond yields down and contributed greatly to ending the sovereign debt crisis. On 22 January 2015 the ECB announced quantitative easing of 60 billion euros a month including sovereign bonds, which began on 9 March.