European Central Bank
The
European Central Bank (ECB) (also in
other languages) is one of the world's largest
central banks, being in charge of
monetary policy for the
European Union's official currency, the
euro, which is used by over 300 million Europeans in 12
EU countries.
The ECB was established on
June 1,
1998. The headquarters are located in
Frankfurt am Main,
Germany.
The organisation of the ECB is modelled on that of the
German Bundesbank and
Landesbanken.
The ECB is governed by a board of directors, headed by a
President, and a board of governors, consisting of the members of the board of directors and representatives of the local central banks within the
European System of Central Banks (ESCB).
Objectives
The primary objective of the ECB, and the wider
ESCB, is "to maintain price stability" within the
euro area, i.e., to keep
inflation low. The present target is to keep inflation below, but close to, 2%.
In addition, and without prejudice to the objective of price stability, the bank has to support the economic policies of the
European Union. These are designed to foster a high level of
employment and sustainable and non-inflationary
growth under Article 2 of the
Maastricht Treaty - formally known as the Treaty of Europe.
Tasks
The major task of the ECB is to maintain a
monetary policy for the
euro area in pursuit of the objectives set out above. The
current monetary policy is published on the ECB website.
In addition, according to article 105.2 of the
Treaty of Rome which established the
European Community, the other basic tasks are:
* the conduct of
foreign exchange operations;
* the holding and management of the official
foreign reserves of the
euro area countries (portfolio management).
* the promotion of the smooth operation of payment systems.
The following are described by the ECB as 'further tasks':
*
Banknotes: the ECB has the exclusive right to authorise the issuance of
banknotes within the
euro area.
* Statistics: in cooperation with the
National Central Banks, the ECB collects statistical information necessary for fulfilling the tasks, either from national authorities or directly from economic agents.
* Financial stability and supervision: the
Eurosystem contributes to the smooth conduct of policies pursued by the authorities in charge related to the prudential supervision of credit institutions and the stability of the financial system.
* International and European cooperation: the ECB maintains working relations with relevant institutions, bodies and fora both within the
EU and internationally in respect of tasks entrusted to the
Eurosystem.
European System of Central Banks
The
European System of Central Banks (ESCB) is comprised of the European Central Bank (ECB), and the local
central banks of the 25 member-states of the
European Union. Only governors from national banks inside the
eurozone take part and are responsible for the decision-making process.
Executive Board of Directors
The Executive Board consists of six members which are elaborating the strategies for the bank's policy. Four of these six seats are reserved for the Eurozone's four big central banks of France, Germany, Italy and Spain.
President of the European Central Bank
In 1999
Wim Duisenberg, the former president of
De Nederlandsche Bank, and former finance minister of the Netherlands became the first president of the ECB.
In November 2003
Jean-Claude Trichet followed and is still president today.
The ECB hold reserves of over € 4.0 billion of which just over 30% are gold reserves of the
Bundesbank and ca 20% from the
Banque de France.
The goal of the ECB is to provide liquidity to the banking system while keeping the inflation low. It has three tools for this purpose:
* The
main refinancing operations, in which money is injected into the banking system as an auction.
* The deposit facility. Private banks can deposit extra money during the night.
* Marginal lending facility. It lends to the private banks the negative money they could have during the night.
Each of these tools works with a different interest rate. At July 2006 they are 2.75 for the refinancing operations, 1.75 for deposits and 3.75 for lending.
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Night view of the Euro sculpture. |
There are two main lines of criticism within the ECB.
Independence
Critics focus on the independence of the institution. The ECB was established as a
central bank designed to operate independently of political intervention. Its objectives and powers were politically established, but the decisions as to how those powers should best be used to achieve the objectives was left in the hands of the ECB itself.
However, as many national banks in the EU are outside the eurozone and independent (the
Danmarks Nationalbank or the
Bank of England for instance), this argument could also apply to them.
Some see this independence as undemocratic and therefore criticise the decision making process and objectives of the ECB, asserting that the economic goals of the ECB are
hard-wired to be secretive and independent from most citizens of the European Union, and to be isolated from
feedback mechanisms regarding the influence of the money economy on
human rights violations or the natural
environment.
The ECB does not publish or invite comments on its proposed decisions. After publication of its actions and decisions, ECB web pages do not solicit direct comments by citizens. It is thought that details of internal meetings are not made public in order not to reveal internal splits in the board of governors.
European citizens may influence the policy decisions of the ECB very indirectly via the formal, national
democratic electoral process. However, even if changes in economic assumptions are expressed via formal
democratic means, elected politicians have very little power to transmit these changes to the ECB.
Still, the ECB is accountable to the
European Parliament and the council of ministers. It appoints the ECB president and vice-president and other members of the ECB's executive board. The nominees must be approved by Parliament first, and then by the council of ministers before they can assume their roles in the institution.
Also, it is required by law for the ECB president to present an annual report to the plenary sitting of Parliament. Furthermore, the ECB president and other members of the executive board are present in the Parliament's monetary affairs committee who meet regularly. These meetings take place four times a year, but can be more frequent if any side would want to.
It is important to add that it is generally accepted by economists that the independence of the Central Bank is the best way to avoid selfish manipulation of the macroeconomy for political purposes.
Inflation targets
Some critics feel that the objectives given to the ECB are inappropriate. The ECB sets interest rates in order to control inflation, but does not take into account objectives such as employment and
exchange rate stability. Some feel this as a too narrow set of objectives, leading to decisions on interest rate that are inappropriate given the wider needs of the economy.
Many British economists have stated that the ECB should adopt a symmetrical target rate, much like the one that the
Bank of England follows.
The unusually low interest rates set by the ECB have been criticized as being inappropriate for regions of Europe with property bubbles. These low interest rates are a factor of the
Irish Property Bubble. Although it must be said that it has an economic reason, to avoid
recession in many important countries of the eurozone (
France,
Germany and
Italy mainly) that would slow the growth of the rest of the European countries.
The bank is known by various names across Europe:
*
Catalan/Valencian:
Banc Central Europeu*
Czech:
Evropská centrální banka*
Danish:
Den Europæiske Centralbank*
Dutch/Flemish:
Europese Centrale Bank*
Estonian:
Euroopa Keskpank*
Finnish:
Euroopan keskuspankki*
French:
Banque Centrale Européenne*
German:
Europäische Zentralbank*
Greek:
Ευρωπαϊκή Κεντρική Τράπεζα*
Hungarian:
Európai Központi Bank*
Italian:
Banca centrale europea*
Latvian:
Eiropas Centrālā banka*
Lithuanian:
Europos centrinis bankas *
Maltese:
Bank Ċentrali Ewropew *
Polish:
Europejski Bank Centraly*
Portuguese:
Banco Central Europeu,
*
Slovak:
Európska centrálna banka*
Slovenian:
Evropska centralna banka*
Spanish/Castilian:
Banco Central Europeo*
Swedish:
Europeiska centralbankenThe current ECB building in Downtown Frankfurt is only its temporary home. The ECB ran a large international architecture competition in 1999 for a new tower in Frankfurt, Eastend. At present the winning design scheme of Vienna based architects
Coop Himmelbau is under construction. (
Winning design by Coop Himmelb(l)au for the ECB's new headquarters in Frankfurt/Main)
On
January 5 2003, a man stole a small
motor glider and flew it over downtown Frankfurt, circling
skyscrapers and threatening to crash into the ECB. He landed safely after about two hours and was arrested. The man, a 31-year-old mentally disturbed German student named
Franz Strambach, told a television station he wanted to call attention to
Judith Resnik, a U.S.
astronaut killed in the 1986
Space Shuttle Challenger disaster.
*
Institutions of the European Union*
Euro*
Bank of England*
Bank of Japan*
Federal Reserve*
People's Bank of China*
European Central Bank*
Bank for International Settlements BIS in Basel *
Historical Currency Charts based on the data published daily by the ECB*
The European Central Bank European NAvigator
