The European Central Bank (ECB) isn't quite what it sounds like. Though it does issue the euro currency, it is unlike national central banks in that its sole political responsibility is maintaining price stability by avoiding deflation and keeping inflation to a minimum.
While other central banks act as a lender of last resort – something many critics want to see the ECB do – and assume responsibility for encouraging economic growth, the ECB has a much more limited arsenal of powers. So far, Germany has resisted issuing pan-eurozone eurobonds via the ECB, fearing it will result in an environment in which people invest without fear of negative consequences, something known as a moral hazard. Given the constraints on what it can do, ECB chief Mario Draghi's announcement Thursday that interest rates were to be cut from 1.25 percent to record low of 1 percent is in line with continuing policy.
