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The ECB could hardly afford political neutrality, even in the monetary union’s “honeymoon phase”. Being a stateless central bank entailed striking compromises between confl icting (national) monetary policy preferences. However, such compromises would often be reached at the expense of theoretical consistency and to the detriment of coherence in the ECB’s monetary policy strategy. And, perhaps inevitably, they would also bear the mark of the dominant partner in the European Monetary System, that is prior to the establishment of the monetary union, now also being the biggest subscriber to the ECB’s capital. Political neutrality and, for that matter, monetary activism on the part of the ECB -as well as liquidity in the euro-area- were largely inadequate during the euro area crisis, especially in its early phase. They were subsequently increased, but at a slow pace and in a preferential fashion, that is, largely to the benefi t of the banking industry. Eventually, the ECB did try to make a virtue of necessity; yet, this could only go so far. Thus, the ECB has reluctantly become the only game in town, its reluctance being mostly associated with the overriding concerns of certain national central banks of the Eurosystem, most notably the Bundesbank; namely, ensuring monetary dominance, averting (at that time illusory) infl ationary dangers, preventing moral hazard, enforcing structural reforms and, not least, fending off any, indirectly emerging, type of transfer union. Therefore, the ECB could have no great ambitions; its lonely game was unlikely to produce a medal-winning policy maker in the world championship of central banking.

Making a virtue of necessity? The economics and politics of the ECB’s monetary policy, 1999-2019