ECB-Eurogroup Conflicts and Financial Stability in the Eurozone

This paper examines the impact of conflicting ECB and Eurogroup narratives over the nature of the Eurozone crisis and the proper strategy for exiting it. While the Eurogroup prefers a simple austerity-focused policy to ensure distributional outcomes benefiting Northern Europe, the ECB advocates a carefully sequenced combination of growth-enhancing, budget balancing and structural adjustment policies. The confrontation over ECB measures to stabilise the Eurozone through monetary policy is partially and temporary relieved by Commission leniency, and partly through informal German accommodation. A formal adjustment of Eurogroup policy is unlikely, however