The ECB as lender of last resort for sovereigns in the Euro-area

This Bachelor thesis considers whether the ECB acts or not as a LoLR for the sovereigns of the common currency area. If so, does the ECB automatically conduct government financing? First, a description of certain important basics for this topic are given, e. g. the historic definition of a LoLR and the cornerstones of the Eurosystem. Further on the theoretical discussions are enlarged upon the criteria for a central bank to act as a LoLR, especially the extension of the relation between a central bank and the various domestic commercial banks to the situation of a currency union and the interaction between the union’s central bank and the individual sovereigns. Here an answer is elaborated to the question whether a currency union absolutely requires a LoLR for its sovereigns. In a next step the behavior of two major national banks, the Federal Reserve Bank in the US and the Bank of England 10, is analyzed against the background of the economic development in their countries. The question about their role as a LoLR or government bankroller will be analyzed. Using the theoretical doctrines of a LoLR role and the conclusions about the Fed and the BoE, a detailed analysis of the monetary policy decisions of the ECB is provided. All the main non-standard monetary measurements are assessed to that effect whether an indication about the LoLR function of the ECB can be deduced. Finally it becomes obvious that the ECB’s role changed in summer 2012 as President Draghi publically declared the unqualified commitment to save the Eurosystem. This was well received by the agents on the financial markets.