At the 20th anniversary of the European Central Bank (ECB) in mid-2018, this paper reviews how its exceptional monetary accommodation during 2013-2017 to fight low inflation again brought it far into the realm of politics. The fiscal and quasi-fiscal aspects of the ECB’s non-standard monetary measures around the zero lower bound for its key interest rates demonstrated that low-for-longer interest rates and building up an outsized central bank balance sheet unavoidably has political consequences. While targeted at restoring price stability for the euro area, in line with the ECB’s mandate, its unusual monetary interventions in the fiscal domain might ultimately undermine public support for its political independence. This conclusion could hold especially when these non-standard monetary actions would have to be repeated at the arrival of the next cyclical downturn. The answer to this endogenous threat to the ECB’s independence is that euro area governments put their long-standing political paralysis aside and start managing the aggregate economic policy mix alongside and in dialogue with the ECB. This would give political backing to the ECB’s exceptional monetary operations at the zero lower bound and enhance democratic accountability.
