Uncharted Territory: The European Central Bank’s Role in the Troika

The involvement of the European Central Bank in the “Troika”, the tripartite committee established for the surveillance of the economic adjustment programs in the euro crisis is unprecedented in the history of central banking. Thereby the ECB entered unchartered territory by acting beyond monetary policy. The ECB’s different approaches towards debt restructuring and banking sectors within the programs pose a puzzle against the background of its equal treatment of member states in other policy areas. I propose a comparative case study of the economic adjustment programs in Greece, Ireland, Portugal and Cyprus that aims to explain the ECB’s actions in the four program countries. The paper sheds light on the internal and external factors that shape the ECBs behavior in the Troika by applying institutionalist theories. The key argument is that the actions of the ECB are driven by a policy paradox it faces in dealing with the crisis ridden member states: The ECB needed to provide additional money to ensure liquidity in financial markets and member states’ banking systems in order to maintain the monetary union. However it also had to convince market actors and the public of its own sound balance sheet and that the ECB remains focused on monetary stability. Drawing on data from a larger research project as well as on interviews with ECB staff and national authorities, this paper improves our understanding of the ongoing Eurozone crisis and contributes to the literature on changes in the role and scope of central banks.