European Central Bank

The European Central Bank (ECB) (also in other languages) is one of the world's most important central banks, responsible for monetary policy covering the 13 member countries of the Eurozone.

The ECB was established on June 1, 1998 and its headquarters are located in Frankfurt, Germany.

1 Structure and organisation
2 Objectives and Tasks
- 2.1 Objectives
- 2.2 Tasks
3 Criticism of the ECB
- 3.1 Inflation target
- 3.2 Independence
4 Other languages
5 Trivia
6 References
7 See also
8 External links

[edit] Structure and organisation

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).

[edit] Executive Board of Directors

Main article: Executive Board of the European Central Bank

The Executive Board consists of six members which are elaborating the strategies for the bank's policy. They are nominated by unanimous decision of all eurozone Member States. By tradition, four of these six seats are reserved for the Eurozone's four big central banks of France, Germany, Italy and Spain^{[citation needed]}.

Jean-Claude Trichet

[edit] President of the European Central Bank

Main article: List of Presidents 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 succeeded and is the current president.

[edit] 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 27 member states of the European Union. Only governors from national banks inside the eurozone take part and are responsible for the decision-making process.

[edit] Objectives and Tasks

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[edit] 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 economic growth under Article 2 of the Treaty of the European Union (otherwise known as the Maastricht Treaty).

[edit] 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.

It has several tools for this purpose:

Main refinancing operations, in which money is injected into the banking system as an auction.
Deposit facility: private banks depositing overnight.
Marginal lending facility: ECB lending to private banks overnight.

In addition to monetary policy the ECB's other tasks are:

the conduct of foreign exchange operations and the holding and management of the official foreign reserves of the eurozone countries. Official reserves total over €40 billion of which over 30% are gold reserves of the Bundesbank and around 20% of the Banque de France. All gold and foreign exchange reserves of the national central banks remain their assets but, under the Maastricht treaty, are at the disposal of the ECB.
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 for both within the EU and internationally in respect of tasks entrusted to the Eurosystem.

[edit] Criticism of the ECB

Night view of the Euro sculpture.

There are two main criticisms of the ECB:

[edit] Inflation target

Many economists have stated the ECB should adopt a symmetrical inflation target, much like the one the Bank of England follows.^[1] The Bank of England's inflation target is 2% plus or minus 1%, whilst the ECB's 'below but close to 2%', is less clearly defined.

Some critics think the objectives given to the ECB are inappropriate. The ECB sets interest rates in order to control inflation. Some feel this too narrow an objective, leading to decisions on interest rates that are inappropriate given the wider needs of the economy. This kind of criticism about what targets should be used, are made of many central banks and not just the ECB.

The 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 in the Irish property bubble. Low rates have been set to avoid deflation in the eurozone as a whole.

[edit] Independence

The ECB was established as a central bank designed to operate independently of political intervention. Its objectives and powers were politically established, but decisions on how those powers are best used to achieve the objectives are left in the hands of the ECB itself, this is known as operational independence. Many national banks in the EU are outside the eurozone and independent, e.g. the Danmarks Nationalbank or the Bank of England and also have similar arrangements.

There is a consensus amongst economists that an independent central bank is the best way to avoid manipulation of the macroeconomy for political purposes^{[citation needed]}.

Some see the ECB's independence as undemocratic and criticise the decision-making processes and objectives of the ECB, asserting that the ECB is 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^{[citation needed]}. 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.

The ECB is accountable to the European Parliament and the Council of ministers. The council 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. It is required by law for the ECB president to present an annual report to the plenary sitting of Parliament. Furthermore, the ECB president or their deputy reports to the Parliament's monetary affairs committee four times a year; this can be more frequent at either the Parliament's or the ECB's request.

European citizens may influence the policy decisions of the ECB indirectly via the formal, national democratic electoral process. However, if changes in economic assumptions are expressed via formal democratic means, elected politicians may have little power to directly transmit these changes to the ECB.

[edit] Other languages

The bank is known by various names across Europe:

Bulgarian: Европейска централна банка
Catalan/Valencian: Banc Central Europeu
Czech: Evropská centrální banka
Danish: Den Europæiske Centralbank
Dutch: Europese Centrale Bank
Estonian: Euroopa Keskpank
Finnish: Euroopan keskuspankki
French: Banque centrale européenne

German: Europäische Zentralbank
Greek: Ευρωπαϊκή Κεντρική Τράπεζα
Hungarian: Európai Központi Bank
Irish: Banc Ceannais na hEorpa
Italian: Banca centrale europea
Latvian: Eiropas Centrālā banka
Lithuanian: Europos centrinis bankas
Maltese: Bank Ċentrali Ewropew

Polish: Europejski Bank Centralny
Portuguese: Banco Central Europeu
Romanian: Banca Centrală Europeană
Slovak: Európska centrálna banka
Slovenian: Evropska centralna banka
Spanish: Banco Central Europeo
Swedish: Europeiska centralbanken
Turkish: Avrupa Merkez Bankası

[edit] Trivia

The 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.