Tough Love: How the ECB’s Monetary Financing Prohibition Pushes Deeper Euro Area Integration

This paper analyses the underlying dynamics of institutional change in economic governance in EMU. We show that the crisis revealed significant gaps between the intentions of the designers of EMU and the observed outcome. Building on the path dependence literature we use the framework of historical institutionalism to understand how policy-makers were constrained in their options for the containment and resolution of the sovereign debt crisis. We argue that the principle which prohibits the central bank from financing governments as enshrined in the Maastricht Treaty was a causal factor in fostering reform and deeper integration.