My current research focuses on a critical assessment of the challenges faced by the European Central Bank (ECB) during the period 2007-2015, when the worst recession and financial crisis in the post-war era were unfolding, and the ECB was facing the first major crisis in its history.
The crisis was a test of the robustness of the European Monetary Union's overall monetary policy framework in the face of financial instability and major cyclical shocks. Today, after 20 years of the euro's existence, an assessment of this monetary policy framework is necessary.
The European Central Bank is a stateless central bank. More specifically, it is a central bank whose capital is provided by 19 different states, each of which has its own sovereign authority over fiscal policy and, until recently, its own financial supervisory authority. Under the Maastricht Treaty, the ECB was conceived as an independent central bank with a narrow remit focused on price stability. The Treaty created a set of rules to organize the relationship between monetary and financial authorities, rules which were supposed to ensure "monetary dominance", i.e. a hierarchy within which the objective of price stability would always prevail in decisions and regulations made by the European Central Bank.
However, this explicit hierarchy is undermined by every financial crisis, in every country concerned. To preserve financial stability, central banks must intervene in the markets, in a way that inevitably has distributive effects and gives rise to the risk of moral hazard. For the European Monetary Union, this is particularly problematic, as such interventions are likely to be country-specific, as has indeed been the case. In this situation, the central bank becomes a de facto transfer channel between member states, and this threatens the cohesion of the Union. I try to show that this cohesion is a necessary condition for the credibility of the European Central Bank as a lender of last resort, since this is directly linked to its financial credibility. In the absence of an institutional framework for financial and monetary coordination, the European Central Bank's power to halt self-fulfilling liquidity crises is severely limited, and the Eurozone is more exposed to financial crises than other regional groupings.