VA year ago, quite a few smart-ass thought that the European Central Bank couldn’t raise interest rates once because the eurozone would collapse like a house of cards. Since then, the ECB has raised interest rates several times without the eurozone collapsing; the current hike in interest rates even took place in an environment characterized by great nervousness about the future of banks. This proves that the ECB has found its line. This line is correct.
The substantial growth of the global financial markets has destroyed the supposedly perfect world of monetary policy from a quarter of a century ago. Central banks are not only committed to the stability of the value of money, but today they also have to make a de facto contribution to the stability of financial markets. At least since the financial crisis of 2008 and 2009, they have been claimed as insurers against major macroeconomic risks, because no other entity stabilizes a faltering financial system so quickly and with such large amounts.
Of course, there is a risk that central banks will abuse this role – that is every insurer’s lot. But there will always be episodes of temporary unrest on the financial markets in the future; even the best regulation will not be able to prevent a bank from getting into trouble from time to time. Central banks will not always have to intervene. Occasionally, however, as is currently the case with Credit Suisse, it can make sense.
Central banks must learn to combine the two tasks. Key interest rates remain the dominant instrument for ensuring monetary stability. Central banks have other instruments at their disposal to ensure the stability of the financial markets, such as the temporary provision of credit lines. The ECB had too little confidence in the fight against inflation for too long. She finally shows the necessary consistency.