RENEE MONTAGNE, HOST:
Europe has been in trouble for awhile because of its relentless debt crisis. The difference between China's economic fix and Europe's? China's is one country, the eurozone is made up of 17 countries. Many observers agree that to solve the eurozone's problem those countries have to start operating more like a single country. And there is a force in Europe trying to make that happen. It's the European Central Bank. Here's Zoe Chace from our Planet Money team.
ZOE CHACE, BYLINE: Economist Alan Blinder used to work at a central bank - the U.S. Federal Reserve. And he says central banks don't usually like to use brute force.
ALAN BLINDER: The central bank is normally contemplative, slow-moving, intellectual, and very polite.
CHACE: But they do have one magic power: they can create money. Something that a lot of countries in Europe, right now, really want. And so, says Jacob Kirkegaard with the Peterson Institute, they're using this power to extract concessions from the countries in Europe.
JACOB KIRKEGAARD: Throughout this crisis, the ECB has provided financial support only when the governments have committed to hand over more of their national sovereignty.
CHACE: Did you get that? The ECB only gives you money if you give up some of your independence. The ECB says, for example, to the Greeks, you can't collect taxes the way you're doing it, it's ridiculous. You've got to get better. To the Spanish, your government can't spend so much money. You've got to cut back.
KIRKEGAARD: Because it is so uniquely powerful, the ECB has actually been able to force European politicians to do a lot of the things that they otherwise wouldn't do.
CHACE: Examples. One, August 2011, the Italian government couldn't find many people to lend it money, and it went begging to the ECB. The president of the ECB sent a letter over to Italy, to prime minister Silvio Berlusconi. A secret letter that was leaked online a few weeks later.
KIRKEGAARD: And that letter basically said to Berlusconi, look, we would really like to support your government and Italy in the financial markets, but in order to be able to do that, here is a very long list of domestic reforms you need to do.
CHACE: Italy eventually adopted the reforms. The ECB did help Italy out. As part of the process, Berlusconi was forced to resign and economist Mario Monti took over the country. Blinder says it was a pretty bold move for a central bank - particularly this one.
BLINDER: I was mainly surprised that they were as frank as they were about it. First of all, central banks are not usually frank. You don't associate frankness with central banks. Secondly, within the world of central banks, the Europeans are low on the frankness scale. It's a low standard, and they're low.
CHACE: Nevertheless, example two. December last year. Again, various southern countries scrambling to borrow money. The European governments make a fiscal pact, promising to cut spending, and, crucially, send each of their individual budgets to a team in Brussels for approval. And then, without much fanfare, the ECB comes through with the money. Here's Jacob Kirkegaard again.
KIRKEGAARD: You basically waited until you had the right politicians in power.
CHACE: And the debt crisis quieted down for a bit. Recently though, it's heated up again. Also in the last few weeks, the ECB has launched a new campaign. Lately, every time a governor from the ECB appears in public...
KIRKEGAARD: They have all talked about the need for a banking union.
CHACE: And what is happening now in Europe? No longer will Greeks run Greek banks, and Italians run Italians banks however they want. Now there will be on regulator in charge of all the banks across the continent. Now, it could be dangerous to force countries to the brink in exchange for the money they need. On the other hand, a lot of these changes they're making are changes many observers say they've needed to make for a long time.
KIRKEGAARD: If you are running the risk of being insolvent, well, you know, maybe you could start to think about these things.
CHACE: The European Central Bank didn't want to comment for this story. They don't really like to discuss their plans. Their actions speak for them. But with this new centralized banking union, the ECB seems to have once again pushed these very different countries closer together, Zoe Chace, NPR News.
NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.