In 2012 the monetary policy strategy changed fundamentally. The ECB was forced to take over the function as lender of last resort for public households, cut the refinancing rate to zero and start quantitative easing.

The ECB as lender of last resort for public budgets

Mario Draghi became president of the ECB on 1 November 2011 during an acute economic situation and stayed in this position until 28 October 2019. At this point the EMU had slid into a second recession and the financing problems of public budgets in a number of EMU states had increased. This was very clearly demonstrated by the rising interest rates that governments in a number of countries had to pay. At the same time in most EMU countries unemployment became more severe. It was not a question of if but when the euro area would break apart.

In this dramatic situation, the ECB overcame the EMU's greatest shortcoming at the time. It assumed the function of lender of last resort for public households; it had no other choice. Without a lender of last resort for public budgets, the monetary union would hardly have survived. In a memorable speech on 26 July 2012, Draghi initiated the turnaround: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough” (ECB 2012: para 19). And he added: “Now to the extent that … the size of these sovereign premia hampers the functioning of the monetary policy transmission channel, they come within our mandate” (ECB 2012: para 27). Angela Merkel certainly supported Draghi's course privately; at least there was no public criticism of it.

In September 2012 as a result of the ECB's change of strategy, outright monetary transactions (OMT) as a new monetary policy instrument were introduced. They allowed the unrestricted purchase of government bonds, so that state bankruptcy was ruled out. However, the promise of unlimited purchases of government securities was and is only valid if the country concerned falls under the EFSF/ESM rescue umbrella and follows the Troika's conditions.