The European Central Bank’s response to the crisis

The great crisis of the 21st century has posed formidable challenges for economic policymakers throughout the world. The challenges have been particularly great for central banks, because of the importance of financial components in the genesis and development of the crisis, and because monetary policy is the most flexible, and, in the short-term, the most powerful economic policy instrument, although, as will be seen later, its ability to address certain types of shocks is limited. For the European Central Bank (ECB), things have been complicated by the fact that the crisis caught it at the start of the complex European monetary integration project, which, moreover, was based on institutional pillars that have proven to be insufficient in significant respects.