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Read the case -- The Euro in Crisis Decision Time at the European Central Bank And answer the following questions:

1. How do central banks set monetary policy?

2. Evaluate the ECBs response to the financial crisis of 2008-2010. How would you assess the ECBs performance during the economic crisis? What was their analysis of the problem?

3. Why did the ECB wait until August 2008 to begin lowering interest rates? Why did the ECB not lower its core interest rates below 1%? Why did the ECB not increase its balance sheet as aggressively as the U.S. Fed? The ECB responded less aggressively than the US Federal Reserve to the crisis. Why? What has been the cost of the ECBs more moderate response?

4. Should the ECB announce a purchase of Greek sovereign debt? Will doing so protect or destroy the euro? Will doing so create moral hazard? If so, for whom? Policymakers within the ECB were most worried about the moral hazard it would create in Brussels. What do they mean by that? Will this move help or hurt EU efforts to deal with fiscal coordination?