Monetary Policy Ecb During the Financial Crisis

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The ECB’s monetary policy during the Financial Crisis

Abstract
This paper is written to describe the monetary policy of the ECB during the global financial crisis. It in short addresses the causes and the according implications for the European Economy and describes in depth what the ECB has done to opt for economic growth again. Additionally it is argued what worked well and what could have been done differently. The financial crisis is the most severe meltdown of the global economic system since the great depression of the 1930s and had a significant impact on the developed world, and the Euro zone which will be central during this paper.

Universidad Carlos 3 de Madrid
Madrid, 15 December 2012
Akkermans, M. 100301962
Postulart, C. 100300234
Poelstra, T. 100300232
van de Sande, C.P.H.M. 100301103
Course: Economics of European Integration
Group: 60M
Professor name: Carlos San Juan Mesonada, Victor Emilio Troster Writing Assignment: Final Essay

Universidad Carlos 3 de Madrid
Madrid, 15 December 2012
Akkermans, M. 100301962
Postulart, C. 100300234
Poelstra, T. 100300232
van de Sande, C.P.H.M. 100301103
Course: Economics of European Integration
Group: 60M
Professor name: Carlos San Juan Mesonada, Victor Emilio Troster Writing Assignment: Final Essay

Table of Contents
1 Introduction……………………………………………………………………………… 3 2 How did the financial crisis started……………………………………………………. 4 3 Implications and effects of the credit crunch on the European economic market…. 5 4 The ECB’s actions……………………………………………………………………… 6

Monetary objective of the European Central Bank……………………………. 7
Measures undertaken by the ECB……………………………………………… 8 5 Where the ECB actions successful………………………………………………….. 12 6 Criticism on the ECB…………………………………………………………………. 13 7 Conclusion…………………………………………………………………………….. 17 8 Bibliography……………………………………………………………………………18

1. Introduction
The global financial crisis starting in the summer of 2007 is regarded to be the worst financial meltdown since the great depression in the 1930s. This paper focuses on the implications of the credit crunch in the European Union and the monetary policy of the European Central Bank (ECB) accordingly. The roots of the global financial meltdown are to be found in the United States with the burst of the housing bubble, the sub-prime mortgage crisis. The sub-prime mortgage crisis initiated the collapse of several large financial institutions in the United States, the bailout of banks by national governments and rapid downturns in stock markets all over the world. According to the timeline given by the ECB official website June 15, 2007 was the first day where a high financial vulnerability became all too apparent. This in turn led to decreasing confidence in the complete financial sector. This In particular implies that large banks did not want to lend money anymore to other financial institutions, evidently leading to liquidity shortages and further drying up of the global financial market. As the world nowadays is very interlinked and geographical distances get more and more marginalized, as already was the case in 2007, a disruption as seen in the United States got quickly overseas and thereby affected all big financial institutions worldwide. It is the duty of the European Central Bank to guard and oversee European financial institutions to ensure price stability in the Euro zone. Thus keeping inflation low and prevent deflation, in short, protecting the value of the common currency, the euro, against such global trends and events. As financial institutions in the European Union had tremendous corporate interests in the United States, the stock markets were plummeting here evenly hard. Additionally, numerous financial institutions and banks within the European Union got into serious problems leading to a significant number of bailouts where several banks even got nationalized. The financial system was sick. Financial products had become more and more...
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