The European Central Bank has been heralded as the lone saviour of Europe by pursuing a policy of bond purchasing, a measure which has been castigated by analysts and other central bankers as self-destructive.
In a debate in the European Parliament yesterday (29 August) MEPs and the EU's rotating Polish Presidency showed their overwhelming support for the European Central Bank's (ECB) leadership in a crisis that exposed a vacuum in authority in EU policymaking.
"Personally I have no doubts that the actions taken by the ECB in August managed to save Europe," Jacek Rostowski, the Polish finance minister told the audience of lawmakers at the debate.
The head of the ECB, Jean-Claude Trichet, also defended his decision to go against the better judgement of some of his colleagues at the ECB and buy Spanish and Italian bonds earlier this month.
"We had no choice but to embark on non-standard measures, but we also did this with measure and appropriate reflection of the risks," the outgoing head of the ECB said.
This month the ECB has undertaken the largest purchase of bonds in its lifetime. The central bank bought up Spanish and Italian bonds in a move to buffer them from landslides in US debt markets.
"I also have no doubts that the actions taken are not only legal but also absolutely necessary," the Polish finance minister continued.
Leadership needed in face of slow EU decision-making
He was joined by a chorus of MEPs who lavished praise on the central banker at a time when real leadership was in short supply.
"Because we take so much time to make a decision, the buying of bonds is necessary. Even though it is criticised it is fully justifiable. It underlines the ECB's independence and counteracts speculation on financial markets,” Werner Langen, a German centre-right MEP said.
Though nobody disagreed, many were worried that the ECB was taking over a role that the EU's many decision-makers, the European Commission, the Council and the European Financial Stability Facility, had failed to fill.
"The ECB cannot plug all political shortcomings in the long term,” Sylvie Goulard, a French centrist MEP from the Liberals and Democrats group said.
"It is incredible how much the ECB has been criticised. It was the only institution capable of doing any business," Sven Giegold from the German Greens weighed in.
Critics argue that bond purchasing by the ECB sends the wrong message to countries with poor fiscal policy that there is an unlimited source of liquidity to bail them out.
Trichet's decision earlier this month did not receive the backing of four bankers from the body's governing council including Axel Weber, the German banker who was once predicted to follow in Trichet’s footsteps.
The head of the ECB also attempted to dispel alarm raised by IMF chief Christine Lagarde that Europe's banks needed more bailouts.
"Liquidity is good but more for precautionary rather than spending purposes," Trichet said, adding that recent stress tests had prompted necessary government-backed cash injections into the financial system.
He said the ECB would continue its refinancing operations until mid-January 2012.