A ‘license to innovate’ – the politics of money at the European Central Bank

Kerstins Rum Session 1: Central banking – a science or an art? organized by Lars Fredrik Øksendal and Anders Ögren


Ingrid Hjertaker


Central banking has seemingly undergone tremendous change since the 2008 financial crisis, with the major central banks, such as the Fed, the European Central Bank and the Bank of Japan, broadly viewed as having become more powerful. Yet, absent any significant changes to central bank mandates, any change to de facto power needs to be both theoretically conceived and empirically supported. This is especially important for the case of the European Central Bank – for which claims of increased power have been the most pronounced, and changes to mandate entirely absent. The European Central Bank is broadly considered to be the central bank designed to best fit the “ideal” of the central bank independence-model; a highly independent, rule-based central bank narrowly focused on maintaining price stability and (then thought) explicitly forbidden from acting as lender of last resort. Yet, some years into the euro crisis, the European Central Bank was innovating on unconventional monetary policies even more so than the Fed, with open-ended asset purchasing programs and targeted long-term repurchasing arrangements. During the Covid pandemic, the ECB was even admitting that its asset purchases would target member states in crisis. This paper does not compare the European Central Bank’s response to the euro crisis and the pandemic as separate cases, but instead examines ECB actions and public communication over the 2007-2022 period as a single, evolving case, a ‘critical juncture’ in the development of a new central banking regime. Analyzing central bank press conferences, reports, speeches and press coverage over this period, including the launch of the Transmission Protection Instrument in 2022, I demonstrate a process of continuous learning over time. I argue that through specific failures and controversies, as well as from successes, the European Central Bank has learned both what kind of policies it can pursue and how it should frame them to maintain legitimacy. In so doing it has reestablished and deepened its bureaucratic autonomy while maintaining its reputation vis-à-vis political audiences. The ECB has in practice been given a “license to innovate”, in other words a license to conduct monetary policy as art, while still maintaining that it is a science. This license arguably makes the ECB more powerful than it used to be. Yet, at the same time, the ECB along with other major central bank, face deeply financialized and liquidity-dependent global markets, partially of their own making, against which they are ‘powerless’ to do anything but backstop.


No PDF available.