What About the ECB's Reputation as a Competent Central Bank?

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Friday, 07 May 2010 05:43

In an article on the Greek crisis, the Post noted that the European Central Bank (ECB) could: "use its essentially limitless ability to create money to stanch the crisis." It then added: "though doing so could hurt the long-term credibility of the central bank as an inflation fighter that does not yield to politics."

It is not clear how rescuing Europe's economy implies that the ECB had decided to "yield to politics." This is an invention by the Washington Post. Central banks are supposed to intervene to help economies in this sort of crisis, that is why governments create them. If the ECB fails to act to stem this crisis, when it obviously has the power, its reputation and Europe's economy will suffer serious consequences.