The European Central Bank will be 25 years old at the end of the month. This is not an impressive age for a central bank: the Bank of England was founded in 1694, the Banque de France dates back to 1800. The Deutsche Bundesbank was founded in 1957 from the Bank of German States, which had been founded a few years earlier. Nevertheless, the ECB has experienced all sorts of things in its young existence.

Gerald Braunberger

Editor.

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A few years after its founding, Germany and France, the two most important countries of the monetary union, de facto undermined the new debt criterion of the Maastricht Treaty, according to which one of the supporting pillars on which the European Monetary Union was built began to crumble. Soon after, the Great Financial Crisis erupted, in which central banks had to stabilize the global financial system and thus the well-being of the world economy through the most generous provision of liquidity.

The Great Financial Crisis was followed almost seamlessly by the euro crisis, which in turn could only be overcome with great difficulty through very active action by the ECB. Mario Drahi's famous "Whatever it takes" captured this time in three words for the history books. In those years – with inflation rates still very low, by the way – an alienation from the central bank in the east of Frankfurt, which was always viewed somewhat skeptically anyway, set in in Germany. After it became clear that the European Central Bank was not simply behaving like a clone of the Deutsche Bundesbank, monetary policy became a subject of negotiation before the Federal Constitutional Court several times. The German debates of the time about the euro and the ECB were relentless and did not spare deep personal wounds.

Has monetary union ever been in serious danger?

In retrospect, one reason for the different perspectives on the role of a central bank in potentially systemic (financial) crises becomes clear: The Deutsche Bundesbank was never confronted with a serious financial crisis during its time as guardian of the Deutschmark – nor was the majority of German economists. Anyone who studies the history of monetary policy using the examples of the Bank of England, the Banque de France and the American Federal Reserve System (or the German Reichsbank) will find episodes that confirm what modern research, promoted not least by the German Princeton economist Markus Brunnermeier, shows: price stability, financial stability and sustainability of public finances are – in a thoroughly problematic way – closely linked Concepts.

After the euro crisis subsided, a few rather quiet years followed, which caused heated debates with zero and negative interest rates and bond purchase programs, especially in Germany (despite still very low inflation rates), but then new challenges arose with the pandemic, the subsequent economic upheavals, also caused by Russia's war against Ukraine, and the return of inflation that had been underestimated for a long time. In short, the major issues of our time – demography, climate and energy, geopolitics and globalization – are different than they were 25 years ago. High inflation has gone from being a mental construct to a reality.