This declaration speaks volumes as to the threat the euro was, and continues to be, under. The first signs of the problems to come emerged in August 2007 with the advent of the broad financial crisis. In the eurozone, this latermorphed into a sovereign debt crisis and its corollary, a crisis of the euro itself, that is still not fully resolved. In this chapter, I examine some of the key measures taken by the ECB to deal with the banking and sovereign debt crisis in the euro area and the ongoing work to preserve the euro. The potency of some of these measures derives from the richness of the underlying collateral framework.

That the euro would eventually encounter difficulties was not a surprise to many economists. The potential problems with having a common currency for a dispersed set of countries such as those in the euro area have been articulated numerous times by several commentators, including one of the most influential macroeconomists of our times, the late Milton Friedman, who viewed the introduction of the euro as a mistake. In August 2002, he reiterated this point by saying that “I will be surprised if you do not have very serious problems arising in the next five years or so among the 12 countries in the euro regime.” As we now know, Friedman's prediction came true.

The unconventional monetary policies introduced by the ECB in response to the crisis are outlined in Table 3.1 and reviewed in Chapter 3. The main focus in the current chapter is on the full allotment policy (October 2008) and on the asset purchase programs announced in the ECB press conference on September 4, 2014. The former facilitated a growth in the ECB's balance sheet by around EUR 1 trillion, and there were indications from Draghi on September 4, 2014, that the new asset purchase programs being introduced would have similar impact.