A Quick Look at the ECB

The European Central Bank is the bank of the Eurozone. The ECB is an interesting case study in the centralization of economy policy. Central banks in general are highly centralized structures of economic policy, but the ECB is an even stronger example of centralization because it is a single international policymaker which is substituted for a large number of national central banks.

The key research question is on whether or not the ECB is good for the economy. In many ways the answer to this question can signal credibility for neokeynesian policy or its opposition. If central, coordinated policy results in a gain to annual per capita GDP growth rate we have a reason to think neokeynesian is comparatively accurate, and otherwise we have a reason to think it is comparatively inaccurate.

This is a difficult question and one I won’t conclusively answer in this article, but I will outline three methods of resolving the question and I will take a quick, non-rigorous look at the data.

I think we can take four approaches to the question:

  1. Look at the period after the ECB was established but before the financial crisis. Did the Eurozone benefit?
  2. Look in particular at the financial crisis. Consider the United States to be the control group. Did the Eurozone recover more quickly than the United States?
  3. State that there is simply not enough data to answer the question because the ECB is fairly young. We should wait some time and have a more robust study. (Of course, there is massive potential opportunity cost to this approach.)
  4. A mix of the prior methods.

Quickly, let’s take a glance at a few Google charts. The ECB was established in 1998 and the financial crisis began in 2008 in Europe and ended in 2010. We are primarily concerned with the position or level of these lines and to a smaller extent we might care about their slopes.

All data is World Bank data, passed through Google’s Public Data Explorer for graphing.

First, the full Eurozone:

Next, the Eurozone without outliers. These outliers have been hand selected and you may criticize my choices, but in comparing the two graphs I think you will generally agree with the decisions. The graph without outliers is not important because it is in anyway better, but it is useful because it makes it easier to eyeball the general trends. A rigorous analysis would be more concerned with regression analysis than eyeballing, but I don’t feel like doing that right now.

Lastly, an average of the European economy vs the United States. Note that the European average includes non-Eurozone countries. However, the question on whether the ECB is good for the economy might properly extend to its effect on Europe in general, or perhaps the whole world. It is not simply the case that ECB economic effects occur only within member countries. Additionally, using the simple average makes the comparison much more visually clean.

So let me state what I see:

  1. In US v Europe comparison I don’t see a significant difference except that the bottom doesn’t hurt as bad for the US and it seems to have recovered to a bit higher level in the aftermath.
  2. With the full Eurozone, the highest highs and the lowest lows both occurred without the ECB.
  3. With the clean Eurozone, the highest highs occurred without the ECB, but the lowest lows occurred with the ECB.
  4. Looking at all the charts, it does seem like economic growth slowed much more quickly after 2000, but because this effect is also present in the US it doesn’t seem attributable to the ECB.
  5. It is difficult to tell if the economic growth slowing after 2000 was larger in the Eurozone.


  1. It seems, at least for the present time, that an analysis of ECB effectiveness is inseparable from the financial crisis.
  2. There may be something to the idea that ECB stabilizes economic growth – lowering the maximums, but raising the minimums.
  3. There may be something to the idea that centralized economies have a harder time dealing with outlier economic shocks like the financial crisis.
  4. There may be something to the whole stability versus performance maximization trade-off.
  5. In normal circumstances, such as 1998-2006 before the crisis, there seems to be no significant difference in efficiency. However, this is a dangerously small sample of time.
  6. It’s pretty obvious that ECB didn’t result in surprising growth.
  7. So it could be a wash, or there could be some small downside to centralization. Three additional questions come:
    1. If it is a wash at the macroeconomic level, is it also a wash at the microeconomic level?
      1. The “Greece is stabilized at the cost of Germany” theory.
      2. Additional considerations to individuals, industries, or firms related to monetary policy and banking transactions.
    2. If it is a wash in terms of economic performance, are there reasons outside of economic considerations to prefer existence or elimination of centralized monetary policy?
      1. Political concerns of sovereignty and representational effectiveness
      2. Transparency, accountability, and corruption concerns
      3. Expectations of economic unity leading to peace
      4. Expectations of weak economic ties leading one day to stronger economic, political, and social homogeneity and unity, for better or worse.
    3. If it has been a wash so far, are there additional concerns in a longer run view?

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