Policy Responses in Europe Since the Onset of the Crisis (2007-Mid 2017)

Abstract

The crisis has gone through several phases of varying complexity before abating in mid-2014. It started with the Financial Turmoil in August 2007, followed by the Global Financial Crisis in September 2008, and the Great Recession in 2009-2010. These events exacerbated imbalances that had already been building-up in the euro area. Then, in early 2010 the Sovereign Debt Crisis of the euro area was triggered by unsustainable finances in some countries and overstretched banks. The euro area was then confronted with financial fragmentation, impaired monetary policy transmission, and threats to financial stability. The acute phase of the euro area crisis was followed by weak, and at times negative, growth and a protracted period of disinflation. This paper lists the events as they unfolded against the backdrop of EMU’s changing institutional framework, and governance reforms. As the crisis mutated, monetary policy had to respond to new challenges. The policy toolkit of the ECB has expanded to encompass also longer-term funding operations, purchases of private and public securities, a negative deposit facility rate, all while enhancing its communication and forward guidances. Monetary policy response are working and have supported a steady recovery of the economy and changes in its governance. This transformation needs to be completed in coming years.

Keywords: ECB Monetary Policy, Euro Area, Global Financial Crisis, Monetary Policy Transmission, Credit Easing, Quantitative Easing, Non-Standard Measures, Financial Fragmentation, and Financial Stability

JEL Classification: C32, E31, E58, G1, G2