It has been said that “there have been three great inventions since the beginning of time: fire, the wheel, and central banking [1] ”. Central banking has become my business since January this year, but I feel I am getting my fair share of the other two as well: being behind the steering wheel of the ECB during this crisis turned out to be in the line of fire.



Let me give you an example. Back in November 2011, we were faced with acute tensions in financial markets; entire market segments had become dysfunctional. The danger of a credit crunch was real. There was an anticipation of an inevitable catastrophe. You may remember the headlines: “The euro has a 50% chance of making it to Christmas [7] ”, or “Ten days to save the eurozone [8] ”.

The announcement of our long-term refinancing operations was a sentiment changer. The feared severe credit crunch has not materialised. The euro is still here – and here to stay. But the question “what if the ECB had not acted” remains unanswered. There is no evidence what would have happened in such a counterfactual. This makes justifying our action with reference to such a counterfactual an uphill struggle.


The uncertainty embedded in the “what if” question is exacerbated by the discontinuity between the short term and the longer term in the interaction between markets and policy-makers. Let me explain.

Markets mainly focus on the immediate future; on the emergency measures to fight the crisis: here, a central bank can be very effective. The ECB can change the market situation within minutes, by adjusting its interest rate, market interventions if needed, adapting its collateral rules, or simply communicating its assessment. This creates certainty, for now.

However, for the longer-term, considerable uncertainty remains: short-term fixes do not change the structural features of European economies and markets. Those depend on the countries’ economic policies, which take time to design and implement. Firm commitments from governments can help reduce this uncertainty, but can never eliminate it.

The trade-off between the short term and the long term creates a fundamental communication challenge for the ECB. If short-term crisis fighting is successful, for instance through ECB actions, some of the longer term challenges might never be addressed. The immediate pressure subsides, and incentives for governments weaken. More than once did we witness this during this crisis.

By contrast, if the fire-fighting in the short-term does not succeed, there may not be a longer term to think about.

Our communication is walking a tightrope: markets need reassurance that the ECB will do what is within its power and mandate to guarantee that the euro will not to fail. At the same time, governments need to have the right incentives to tackle the longer-term challenges.