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European monetary integration has from the outset faced a potential ‘free rider problem’. The essence of the problem is that one or more member states may be tempted to borrow heavily from the European Central Bank (ECB) regardless of the impact on inflation for the entire Eurozone. Inflation for the whole area depends of course on the behaviour of all member states. The 1992 Maastricht Treaty – which reflected the monetary orthodoxy of the German Bundesbank – tried to pre-empt the free rider problem, with the key clauses 121 to 126 including both a prohibition on overdraft finance to national governments and a no bailout provision. The article shows how the ECB’s responses to three crises – the Great Financial Crisis of 2007 and 2008, the recession of the early 2010s, and the COVID-19 medical emergency – have led to enormous expansion of its balance sheet. The Bundesbank’s monetary orthodoxy has been abandoned and the constraints on the ECB balance sheet in the Maastricht Treaty have been disregarded, while inflation has risen to the highest levels since the introduction of the single currency
