The Intervention of ECB in the Eurozone Crisis information
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In 2009–2010, due to substantial public and private sector debt, and "the intimate sovereign-bank linkages"[1] the eurozone crisis impacted periphery countries. This resulted in significant financial sector instability in Europe; banks' solvency risks grew, which had direct implications for their funding liquidity. The European central bank (ECB), as the monetary union's central bank, responded to the sovereign debt crisis with a series of conventional and unconventional measures, including a decrease in the key policy interest rate, and three-year long-term refinancing operation (LTRO) liquidity injections in December 2011 and February 2012, and the announcement of the outright monetary transactions (OMT) program in the summer of 2012.[2] The ECB acted as a de facto lender-of-last-resort (LOLR)[3] to the euro area banking system, providing banks with cash flow in exchange for collateral, as well as a buyer of last resort (BOLR)[3] (For example, In the OMT), purchasing eurozone sovereign bonds. However, the ECB's policies have been criticised for their economic repercussions as well as its political agenda.
Despite a 2007-2009 intergovernmental bailout by central banks, financial regulators, and treasuries; and the implementation of austerity measures, the Greek government was forced to seek outside financial assistance. However, such aid did not occur quickly, as European leaders debated whether and how to assist the country. The newly elected Greek government admitted in late 2009 that the country's budget deficit was substantially higher than formerly claimed, and far more than the eurozone's stability and growth pact guidelines permitted. The euro crisis began when prominent rating agencies lowered Greece's credit ratings in December 2009,[4] causing Greek bonds to significantly soar. The catastrophic consequences of the EMU sovereign debt crisis on the banking sector and overall economy, strongly urged the ECB to responsibly ensure financial stability, which led to sudden, unprecedented and controversial policies. The primary objective of those measures was to boost the liquidity of banks that were significantly impacted by large holdings of government bonds issued by EMU member states in crisis in their asset portfolios.
Effectively, the ECB used both traditional and nontraditional monetary policy tools and measures. The ECB lowered the key policy interest rate, in April 2010 from 1% to a remarkably low rate of 0.75% in July 2012,[5] and reduced the minimum reserve requirements from 2% to 1% in December 2011.[6] In addition, through its standard repurchase agreement auctions, the ECB provided additional liquidity to market players. Then, it increased the contract period of some repo transactions and implementing full allotment.[7]
^Acharya, Viral V.; Steffen, Sascha (2016). "Lender of Last Resort Versus Buyer of Last Resort The Impact of the European Central Bank Actions on the Bank-Sovereign Nexus". SSRN Electronic Journal. doi:10.2139/ssrn.2762265. ISSN 1556-5068. S2CID 219372842.
^"Technical features of Outright Monetary Transactions". European Central Bank. 2012-09-06. Retrieved 2022-06-16.
^ ab"Award Details". 2020-02-01. doi:10.52546/pc.gr.143317. Archived from the original on June 16, 2022. {{cite journal}}: Cite journal requires |journal= (help)
^Creswell, Julie; Bowley, Graham (2011-11-30). "Ratings Firms Misread Signs of Greek Woes". The New York Times. ISSN 0362-4331. Retrieved 2022-06-16.
^"Official interest rates". European Central Bank. 2022-06-08. Retrieved 2022-06-16.
^"ECB Monthly Bulletin, February 2012" (PDF). Economic and Monetary Developments.
^Eisenschmidt, Jens; Hirsch, Astrid; Linzert, Tobias (2009). "Bidding Behaviour in the ECB's Main Refinancing Operations during the Financial Crisis". SSRN Electronic Journal. doi:10.2139/ssrn.1396702. hdl:10419/153486. ISSN 1556-5068. S2CID 167910206.
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