6 - Contractual Change and Central Bank Action

Summary

Not only the member states should be given credit for the survival of the single currency. The European Central Bank deserves credit too. Throughout the crisis it resorted to ‘unconventional’ measures that have proven crucial for the stability of the currency union, especially its government bond programmes SMP and OMT. This chapter examines these programmes and argues that they are an intrinsic part of the transformation of the euro. Since the Bank’s mandate and constitutional position ultimately rest on the Founding Contract between the member states, it could not intervene in bond markets without a prior change in this Contract through which states committed themselves to a different currency union based on a broader stability conception. Only such a contractual change, and confirmation of it through concrete action, could provide the necessary political cover for bond purchases that pushed the boundaries of the Bank’s original mandate.