Abstract

ECB 2.0: Bye-bye Bundesbank

Over the past three years, the ECB has taken on a more proactive role in helping to solve the euro crisis. In this, the bank has gradually moved from its Bundesbank-like origins to an understanding of central banking more akin to the Italian model. In this note, we explain why we believe this is good news, although it may sound alarming for some northern Europeans. At the same time, a more Banca d"Italia-like position of the ECB does not mean the euro area has turned into an Italian monetary union altogether, as some have argued. The reason is that European fiscal policies are rather turning more ’German". ECB 2.0 does not necessarily mean more inflation either. And even if it does, some inflation would probably be less costly than the threat of a deflationary decade that is hanging over Europe today.