Populism and the ECB

While the EU treaty grants the ECB a much higher degree of independence than this is the case for other central banks, the ECB is nonetheless dependent on public support to remain credible vis-à-vis financial markets. This is particularly the case when it comes to emergency measures, for which the ECB’s balance sheet is “put to work” and that have potential fiscal implications. The political support from governments, however, is in turn dependent on a shared belief among governments that the integrity of the euro area is indispensable. Moreover, given that the ECB’s emergence measures imply transfers of financial and fiscal risks, European rules need to be in principle respected. One defining feature of populist movements, however, is a disdain for any binding European rules. A stronger populist voice after the European elections therefore weakens the willingness of countries with a strong fiscal position to support ECB emergency measures. That said, the “whatever it takes ” mantra will still appl y in the end and the ECB will make us e of its balance sheet to prevent any systemic risk if needed . The hurdle for acting, however, may be higher in a more populist Europe.