From Menace to Mundane: Moral Hazard and the Politics of the European Central Bank's Government Bond Purchases

During the Eurozone’s Sovereign Debt Crisis, the ideational consensus that shaped the foundation of Economic and Monetary Union was destabilized by disagreement on unconventional monetary policies (UMPs), specifically government bond purchases. In the ECB’s 2021 strategy review, however, UMPs were confirmed as standard elements of the ECB’s toolbox. What happened? One argument frequently presented to question the legitimacy of UMP is that they undermine the prior objective of EMU of avoiding moral hazard. We analyse the politics of UMP by focusing upon how top officials in four major Eurozone central banks have discursively constructed the relationship between the ECB’s purchase of sovereign debt and moral hazard. We find that top central bank officials aligned to a large degree on the non-necessary causal relationship between government bond purchases and moral hazard, which reinforced its legitimacy and eventual acceptance as ‘conventional’.