However, the role of the governments to put their finances in order have taken a new twist with the recent election results where the anti-austerity candidates have won with a sweeping majority. This has put the ECB in the spotlight again because the bank wants the governments to make tough choices to reduce its debt. ECB wants Greece to implement its agreed restructuring plan because it does not want to intervene again until the governments take steps. The ECB does not want the banks and governments to get addicted to the funding it receives and wants them to do their role in the debt crisis as well (Buell, 2012).
The ECB cannot mandate governments to act in a certain way because of the limitations that come with the European Union Treaty. The role of the ECB is highly limited because it does not have over-reaching powers like the Federal Reserve in the U.S. For example, the bank cannot issue ECB bonds and so, they can try to revitalize the ailing economies only through other means such as pumping in billions of euros to the financial system and hope that the governments take the action necessary to fix their debt problems like implementing strict austerity measures.
Despite all this coaxing, what the ECB does not want is Greece's exit from the euro zone because its total exposure to this country alone is at around EUR 152 billion. In such a scenario, the ECB may have to pump in...
This would give the governments a chance to continue to service their burden without increasing the burden of stronger economies such as Germany. This could work in the long-run because it gives ECB more powers to handle the present crisis as well as anything that may come up in the future. Also, this expanded role gives ECB more authority than merely pumping in cash when the interest rates go above 6% because the economies of Italy and Spain are enormous. The national debt of these countries have to be held broadly by a varied group of investors and financial institutions rather than just the banks and the ECB indirectly. For these reasons, the measures suggested by Varoufakis may augur well for the future of the EU.
References
Kulish, Nicholas. 2012. Central Bank becomes an unlikely hero in Euro crisis. The New York Times. [Online]. 20, January. Available at: [Accessed 9 May 2012].
Buell, Todd. 2012. Political Turmoil throws ECB back in the spotlight. The Wall Street Journal.[Online]. 9, May. Available at:
