The politics of the ECB’s market-based approach to government debt

The European Central Bank’s (ECB) market-based treatment of government debt was an important cause of the 2010–2012 eurozone crisis. This article analyses the political dynamics that govern the ECB’s approach to government debt from the earliest discussions on Economic and Monetary Union to the COVID-19 pandemic. The first part of the article traces the process of institutional transformation that led the ECB to introduce its strict market-based approach in 2005. I explain this development in terms of a strategy of depoliticization that brings the ECB to introduce a rigid and rule-based approach to designing its collateral framework. The article’s second part explains why the ECB stuck to the market-based approach in the eurozone crisis but not in the pandemic crisis. Although its ill-defined constitutional role led the ECB to disavow its agency earlier, in March 2020, it had become clear that this strategy had stopped working and it was quickly abandoned in the face of a new bond market panic.