The ECB’s New Role

by Henry Farrell on December 6, 2012

I’ve a review in the new issue of _The Nation_ of Harold James’ history of the euro (Powells, Amazon) which does the usual annoying-reviewer-trick of taking a book and using it to talk about things that the reviewer rather than the book’s author wants to talk about. I think this works better than it sometimes does, since the book has lots of juicy (for administrative history values of ‘juicy’) details about the arguments behind the creation of Economic and Monetary Union, which have obvious implications for politics today. Anyway, “judge for yourselves”: if you’re interested …

bq. In September, the European Central Bank announced that it had taken decisions on a “number of technical features regarding the Eurosystem’s outright transactions in secondary sovereign bond markets.” The ECB did all it could to make these decisions sound like a nonevent. It claimed that the new policy measures—which it gave the incomprehensible-seeming label Outright Monetary Transactions—had the dull but laudable aim of safeguarding “appropriate monetary policy transmission and the singleness of the monetary policy.” As it turns out, Outright Monetary Transactions are anything but simple “technical features.” They have scant relevance to monetary transmission or to conventional monetary policy. Instead, they allow the ECB to do something that it is not supposed to do: intervene in the market for government debt.