The Institutional Innovation of the Lender of Last Resort Facility in the Eurozone

Abstract:

The eurozone has experienced a liquidity squeeze since the outbreak of the European debt crisis, leading to a crisis of confidence. Whether the European Central Bank (ECB) can become the Lender of Last Resort (LLR) has become the focus of discussions. The author begins by clarifying the definition of the LLR, and then analyses the possibility of the ECB or other institutions assuming the role of the LLR, taking into account the eurozone’s special economic governance model and legal framework. As the conclusion shows, with the introduction of Outright Monetary Transactions (OMTs), a debt-purchasing programme, the ECB and the European Stability Mechanism (ESM) will jointly act as the eurozone LLR.