The European Central Bank

12 Key excerpts on "The European Central Bank"

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  Central Bank Independence and the Future of the Euro

  • Panicos Demetriades(Author)
  • 2019(Publication Date)
  • Agenda Publishing

    (Publisher)

  1 Central bank roles: historical context From financing wars to inflation targeting: a brief history of central banks

  Central banks are institutions that issue currency, provide banking services to governments and commercial banks and have responsibility over monetary policy, including setting short-term policy rates (at which they provide short-term liquidity to commercial banks through monetary operations). Often central banks have responsibilities relating to financial stability, which sometimes include regulating and supervising commercial banks and, more recently, resolving banks that are failing.

  Central bank legal frameworks vary considerably from country to country, largely reflecting differences in attitudes shaped by diverse historical experiences. A key feature of The European Central Bank (ECB), unlike the United Kingdom’s Bank of England (BoE) and the United States’ Federal Reserve (the Fed), is that it is explicitly prohibited by the Treaty on the Functioning of the European Union (article 123 – known as the monetary financing prohibition) from financing government deficits. Moreover, although all three central banks have mandates in which price stability is central, price stability is the ECB’s overarching objective: it can support other goals, including financial stability, growth and employment, only to the extent that they do not interfere with price stability. By contrast, the Fed has a dual mandate set in law: it aims to maximize employment and stabilize prices (as well as moderate long-term interest rates). The Bank of England’s objectives are set annually by the government, however. Ever since the bank was granted operational independence, in 1997, the main aim of monetary policy has been the achievement of low and stable inflation; other government objectives, including employment and growth, have been subordinated to price stability – very much like the ECB. Nevertheless, although, in the BoE case, the mandate can be changed by the government in any given year, the ECB’s mandate cannot change without a revision in the TFEU; such a change requires unanimous agreement by all EU member states.

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  Economic and Monetary Union

  • Michele Chang(Author)
  • 2016(Publication Date)
  • Red Globe Press

    (Publisher)

  64 The European Central Bank (ECB) opened its doors in 1998 and immediately became the second most powerful central bank in the world (after the US Federal Reserve). The ECB emerged from the post-global financial crisis era as a major actor in international affairs and a key player in EU policymaking. It has built upon its solid reputation for technocratic competence and has seen its authority expand into financial supervision and advising govern-ments on economic reforms, arguably becoming a political actor in the process. ECB President Mario Draghi has been credited with single-handedly ending the euro area crisis in the summer of 2012 by vowing to do “whatever it takes” to save the single currency (Draghi 2012 a). But with a higher profile came additional responsibilities that potentially impinge upon its primary (treaty-mandated) task of pur-suing price stability. In addition, the ECB has always served as a magnet for those accusing the EU of bestowing too much power on unelected officials; with its increased competences, the argument that the ECB acts as a technocratic rather than a political actor becomes more tenuous. This chapter begins with the original economic and political rationale for the design of the ECB. The second section outlines its institutional structure. The third section looks at the political and institutional development of the ECB, focusing on its emergence as a key actor in European economic governance. The fourth section goes over the debates surrounding the rise of the ECB before con-cluding the chapter. Institutional Configuration and Legal Mandates The story of The European Central Bank begins in Frankfurt, both literally and figuratively. As noted in Chapters 1 and 2 , the founda-tion of Economic and Monetary Union was an independent central bank with a primary mandate of price stability. In other words, the Chapter 3 The European Central Bank

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  The European Central Bank

  The New European Leviathan?

  • D. Howarth, Kenneth A. Loparo, Peter Loedel(Authors)
  • 2004(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The nature of policy-making differs considerably from the ‘supranationalism’ in monetary matters where the ECB is dominant. The European bank’s role in both the ‘hard’ – binding – co- ordination of fiscal policy (Art. 105 TEC and the Stability and Growth Pact) and ‘soft’ – largely unbinding – co-ordination of macroeconomic and employment policies (Art. 99 and 128 EC) is more subtle and not yet fully fleshed out. 66 Nonetheless, the ECB is an important part of the 102 The European Central Bank institutional set-up in these areas of policy-making which directly influence the manner in which it carries out its monetary policy respon- sibilities. Collectively, these policy processes form part of a ‘stabilization state’ (Dyson 2000). Unlike the regulatory state, the instruments of stabilization will need to be used in a discretionary and sometimes discreet manner given the likelihood of problematic political impli- cations in many of the Euro-Zone member states. According to the TEU, the ECB is expected to be involved in a ‘constructive dialogue’ with the other institutions engaged in this co- ordination – crucially the Council. Opportunities for constructive dialogue are invariably increased by the right of one ECB Executive Board member (normally the President) to attend Council/Eurogroup meetings where matters pertaining to the tasks of the ESCB are discussed. Two members of the ECB Executive Board – along with representatives from national ministries of finance and central banks and the Commission – also attend meetings of the Economics and Financial Committee, where the negotiations on the details of macroeconomic policy co-ordination take place. The presence of the President of ECOFIN/the Eurogroup and a member of the Commission at ECB Governing Council meetings – and their right to submit motions – also contributes to the constructive dialogue (Art. 113(3) TEC) (Everson 1999). The precise role of the ECB in these policy areas varies.

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  United States of Europe

  European Union and the Euro Revolution

  • Manoranjan Dutta, Badi H. Baltagi, Efraim Sadka(Authors)
  • 2011(Publication Date)
  • Emerald Group Publishing Limited

    (Publisher)

  Source: ECB; see also Scheller, 2004; pp. 114–116. 94 The United States of Europe The ECB is responsible for processing the applications of all the new members of the EU for their membership of the Eurozone. Even the three out-members, as members of the EU Free Trade Area, belonging to one common membership of the WTO with one vote, are required to relate their respective national monetary policies to that of the Eurozone. Whether the three out-members will adopt the euro remains an open issue (see Chapter 1). The General Council provides a forum for the exchange of views regarding the ECB’s monetary policy. For this broader agenda, the ECB collects relevant statistical information from all EU member countries. Having a comprehensive database alone can optimize the process of information sharing. 5.2.4. The administrative structure of the ECB The establishment of the ECB as the historic supranational central bank of the EU warranted careful resolution of fundamental issues relative to central banking. The equality of each member country and the synthetic integration of its banking laws, formulated historically by its respective governments, had to be addressed. One way in which to accomplish this objective was to invite all the governors of the NCBs to serve as ex-officio Table 5.4b.

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  The European Central Bank

  The New European Leviathan?

  • D. Howarth, Kenneth A. Loparo, Peter Loedel(Authors)
  • 2003(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The nature of policy-making differs considerably from the ‘supranationalism’ in monetary matters where the ECB is dominant. The European bank’s role in both the ‘hard’ – binding – co- ordination of fiscal policy (Art. 105 TEC and the Stability and Growth Pact) and ‘soft’ – largely unbinding – co-ordination of macroeconomic and employment policies (Art. 99 and 128 EC) is more subtle and not yet fully fleshed out. 66 Nonetheless, the ECB is an important part of the 102 The European Central Bank institutional set-up in these areas of policy-making which directly influence the manner in which it carries out its monetary policy respon- sibilities. Collectively, these policy processes form part of a ‘stabilization state’ (Dyson 2000). Unlike the regulatory state, the instruments of stabilization will need to be used in a discretionary and sometimes discreet manner given the likelihood of problematic political impli- cations in many of the Euro-Zone member states. According to the TEU, the ECB is expected to be involved in a ‘constructive dialogue’ with the other institutions engaged in this co- ordination – crucially the Council. Opportunities for constructive dialogue are invariably increased by the right of one ECB Executive Board member (normally the President) to attend Council/Eurogroup meetings where matters pertaining to the tasks of the ESCB are discussed. Two members of the ECB Executive Board – along with representatives from national ministries of finance and central banks and the Commission – also attend meetings of the Economics and Financial Committee, where the negotiations on the details of macroeconomic policy co-ordination take place. The presence of the President of ECOFIN/the Eurogroup and a member of the Commission at ECB Governing Council meetings – and their right to submit motions – also contributes to the constructive dialogue (Art. 113(3) TEC) (Everson 1999). The precise role of the ECB in these policy areas varies.

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  Europe and the Euro

  • Alberto Alesina, Francesco Giavazzi, Alberto Alesina, Francesco Giavazzi(Authors)
  • 2010(Publication Date)
  • University of Chicago Press

    (Publisher)

  And unlike the United Kingdom, where regulation and supervision resides in a single institution, financial oversight in the euro area is at the national level and each country is di ff erent. In drafting this history, we have benefited from many studies that analyzed ECB policy, from its rate-setting patterns to its e ff ectiveness in securing price and economic stability to its communication e ff orts. The ECB itself has been an excellent source, reflecting its admirable penchant for self-assessment. 1 1. The Monetary Policy of the ECB, first published in 2001 and revised in 2004, as well as Issing et al. (2001) are early examples of comprehensive explanations and assessments. The First Decade of European Central Bank Policy and Beyond 329 But there is no shortage of outside reviews and critiques. 2 Furthermore, we now have nearly a decade of data with which to characterize the economic outcomes of ECB policy. However, our unique advantage arises from a series of seventeen extended interviews conducted between June 2007 and February 2008 with a range of current and former ECB policymakers, and with other policymakers and scholars who viewed the evolution of the ECB from privileged vantage points outside the institution. The questionnaire that we employed as a basis for the interviews forms appendix A of this chapter. Appendix B reports the prominent themes in response to these questions. Abbreviated biographies of the interviewees are in appendix C. The ground rules for our interviews were straightforward: we asked each interviewee to review and correct an edited transcript of the interview, add-ing or deleting anything they wished. While we have used their responses to inform our judgment and understanding, all direct quotes in either the main text or the footnotes have been approved by the interviewees. We are very grateful for their generous support, especially considering that our interviews were conducted during the financial crisis that began in August 2007.

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  Sveriges Riksbank and the History of Central Banking

  • Rodney Edvinsson, Tor Jacobson, Daniel Waldenström(Authors)
  • 2018(Publication Date)
  • Cambridge University Press

    (Publisher)

  This effect might prove important in the event that electronic money further gains in importance. This is an issue which is relevant for all central banks. Private electronic or digital money like Bitcoin created outside the monetary authority might increase in importance and become a major challenge for central banks (Bordo and Levin 2017). It is still an open question to what extent and with which speed digital money might crowd out central bank money. And it is even more unclear how authorities would react to this challenge – via tight regulation and/or by central banks issuing digital money themselves? 14.6.3 Accountability, Transparency, Communication As a supranational institution, the ECB has no national counterpart. It is therefore accountable to European institutions. The ECB shall publish at least quarterly reports and the annual report on the activities of the Eurosystem shall be addressed to the European Parliament, the Council and the Commission, and also the European Council (Article 15 Protocol). The quarterly presentations by the President of the ECB to the European Parliament (Article 284.3 TFEU) is the occasion when the President explains the activities of the Eurosystem and enters into a dialogue with members of parliament. The ECB has not only succeeded in the fulfilment of these legal obligations. In its performance on accountability it went far beyond legal requirements. As already mentioned, it published its (future) strategy ahead of the start of its monetary policy. From the beginning, after each Governing Council meeting with a monetary policy agenda, the President held a press conference, read an introductory statement, and responded to questions from a large group of journalists. It took many years before other central banks adopted this practice. The ECB published a Monthly Bulletin that was later succeeded by an Economic Bulletin when the interval between meetings was increased to (in principle) six weeks with eight meetings per year.

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  European Union Law

  Text and Materials

  • Damian Chalmers, Gareth Davies, Giorgio Monti(Authors)
  • 2014(Publication Date)
  • Cambridge University Press

    (Publisher)

  (a) Monetary policy Monetary policy is not undertaken exclusively by the ECB. Monetary policy is carried out through the European System of Central Banks (ESCB). 118 This is a composite organisation comprising the ECB and the national central banks (NCBs) of all twenty-eight Member States. 119 Article 127(2) TFEU 2. The basic tasks to be carried out through the ESCB shall be: • to define and implement the monetary policy of the Union; • to conduct foreign-exchange operations consistent with the provisions of Article 219;[ 120 ] • to hold and manage the official foreign reserves of the Member States; • to promote the smooth operation of payment systems. If monetary policy is to be defined and implemented through the ESCB, the ECB has a primus inter pares position within the ESCB. It has, first, a monopoly over the central tool of monetary policy, the authorisation of the issue of euros, and, thereby, the setting of short-term interest rates. Article 128 TFEU 1. The European Central Bank shall have the exclusive right to authorise the issue of euro banknotes within the Union. The European Central Bank and the national central banks may issue such notes. The banknotes issued by The European Central Bank and the national central banks shall be the only such notes to have the status of legal tender within the Union. 2. Member States may issue euro coins subject to approval by The European Central Bank of the volume of the issue. 732 European Union Law 121 Protocol on the Statute of the ESCB, Article 14.3. 122 The Governing Council can only do this with a two-thirds vote cast, Protocol on the Statute of the ESCB, Article 14.4. 123 Article 271 TFEU; Protocol on the Statute of the ESCB, Article 35.6. 124 Article 263(1) and (4) TFEU; Protocol on the Statute of the ESCB, Article 35(1). On judicial review in relation to the ECB, see R. Smits, The European Central Bank: Institutional Aspects (The Hague, Kluwer Law International, 1997) 106–10; P.

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  Monetary Policy, Capital Flows and Exchange Rates

  Essays in Memory of Maxwell Fry

  • William Allen, David Dickinson(Authors)
  • 2002(Publication Date)
  • Taylor & Francis

    (Publisher)

  Of course, all these putative benefits have to be weighed against the considerable costs in time and effort that goes into the process. One colleague mentioned that the labour costs of doing the forecast are tiny compared to the benefits if the forecasts should improve the resulting policy decisions by a tiny fraction. No doubt this is correct, but exactly how can one factor that thought into the administrative decisions about budgets, staffing resources and frequency of forecasts at the Bank? I cannot answer that myself. I hope that others may be able to do so. Whether it is possible to base decisions on an Inflation Forecast adopted by a Monetary Policy Committee would also depend on the make-up of the membership of such committees, if they exist at all in other countries. The membership in the UK has been chosen to facilitate such a procedure; in other central banks, the nature of membership may effectively preclude such a procedure.

  European System of Central Banks

  Let me turn now, as is appropriate in a Monnet lecture, from navel-gazing concern with UK monetary policy procedures to some thoughts about wider European developments, the ESCB and the Euro. Here the unique feature of such European developments is that the monetary system is federal, covering the Euro-11 countries now and prospectively an even more expanded euro-zone, whereas within the EU most other economic, fiscal and political competences and powers remain at the level of the nation state, at least for the foreseeable future.

  I have already taken the opportunity to comment on certain theoretical and conceptual issues that this may cause in my paper on ‘The two concepts of money’ in the European Journal of Political Economy. Here I want to discuss three more practical, policy-oriented considerations. I should, however, first add here that whereas my comments on the forecasting process of the MPC are obviously informed by my own membership on that committee, my comments on my chosen aspects of the working of the ESCB are personal, made as an independent academic, and are in no way representative necessarily of anyone else on the MPC or in the Bank. Anyhow, the first of my considerations concerns the role of the ECB as a crisis manager and Lender of Last Resort (LOLR). Recently (July 13, 1999), I organized a Conference at LSE on the general subject of the Lender of Last Resort. One of the three sessions of this was on the topic of ‘The ECB and systemic stability in the Eurozone’. There were three papers, authored by three senior expert European professors, Aglietta, Bruni and de Boissieu, and two IMF research workers, Prati and Schinasi. All three papers were unanimously of the view that the prospective

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  Institutional Challenges in the European Union

  • Madeleine O. Hosli, Mika Widgrén, Adrian M. A. van Deemen, Madeleine O. Hosli, Mika Widgrén, Adrian M. A. van Deemen(Authors)
  • 2012(Publication Date)
  • Taylor & Francis

    (Publisher)

  1

  Peter H. Loedel

  Money is more than a part of the economy. Money reflects the state, politics, and culture. The Euro (however) will be a denationalized and de-politicized currency.

  (Hans Tietmeyer, ‘Der Euro: ein entnationalisiertes Geld’,Auszüge aus Pressartikeln, 12 December 1997 (parenthesesmine). (Former Bundesbank President andECB Governing Board Member))

  It's normal for the political side to give suggestions or opinions, but it would be abnormal if these suggestions were listened to. (Wim Duisenberg, ‘Hard Money for a Softer Europe’,

  The New York Times, 5 November 1998.

  (President, European Central Bank))

  INTRODUCTION: THE INSTITUTIONAL DILEMMAS OF AN INDEPENDENT CENTRAL BANK

  The monetary policy of The European Central Bank (ECB) was in many ways supposed to be different than the policies pursued by national central banks like the Bundesbank. As the Financial Times noted, ‘It was not meant to be like this.’2 Contrary to Herr Tietmeyer's declaration above, Europe's monetary policy is extremely politicized. What is immediately and abundantly clear is that the institutional and policy dilemmas faced by the ECB are quite similar to the dilemmas faced by the Bundesbank and other national central banks over the last 50 years (Loedel, 1999b). Despite a substantial amount of political independence, some form of exchange rate relationship, to say nothing of internal political pressure from the euro-12 governments, acts as a direct constraint on the ability of the ECB to pursue an independent monetary policy. The ongoing efforts of the ECB to prop up the sagging euro – which has lost over 20 per cent of its value since its inception in January 1999 – illustrate the dilemmas the bank faces. While the weak euro boosts exports from and employment within the euro-12, the euro's declining value demonstrates the power of the markets over the ECB, contributes to the credibility problems of the bank, complicates trade relationships with non-euro members and the US, and undermines public support and confidence in the euro. These are difficult times indeed for the ECB – politically, economically, and psychologically.3

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  Central Banking Governance in the European Union

  A Comparative Analysis

  • Lucia Quaglia(Author)
  • 2007(Publication Date)
  • Routledge

    (Publisher)

  Overall, the ECB has been a relatively important actor in the external relations of the eurozone as far as exchange rate policy is concerned, as exemplified by the G7 concerted interventions in 2001. It has participated, sometimes with observer status, in international regulatory forums, such as Basel 2, providing some input to the discussion, whereas at other times it has been a full member of the relevant committees, such as in the CCPS, where the member of the ECB Executive Board in charge of external relations was the chair who oversaw the publication of the ‘Core Principles for Systemically Important Payment Systems’ and the ‘Recommendations for Securities Settlement Systems’ in 2001. The degree of participation and influence of the ECB in international institutions has largely mirrored its internal competences or tasks.

  The policies of the ECB

  This second part of the chapter discusses three main policies in which the ECB has been involved to different degrees over the period 1999–2005. The Eurosystem has exclusive competence for the monetary policy of the eurozone, it has shared competences with the political authorities in the conduct of exchange-rate policy, and it has minimal competences in prudential supervision, which remains mainly the responsibility of national supervisory authorities, either central banks or agencies separated from the central banks.

  The monetary policy of the ESCB

  Although the monetary policy framework of the ESCB had to be set up anew when the ECB was established in 1998, it drew heavily on the policy template used by the Bundesbank, which adopted a monetarist approach (Howarth and Loedel 2003). In October 1998 the ECB’s Governing Council agreed on a monetary policy framework consisting of three elements (see Issing et al. 2001; Padoa Schioppa 2004: 68–75). First, the ECB provided a quantitative definition of price stability as ‘a year-on-year increase in the harmonized indices of consumer prices (HICP) for the eurozone of below 2 per cent … over the medium term’. This initial definition was criticized for being ‘asymmetric’ (Svensson 2001, 2002), and hence potentially deflationary, ‘ambiguous’, because the length of the medium term was not defined (Galí et al

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  The European Monetary Union

  A Commentary on the Legal Foundations

  • Helmut Siekmann(Author)
  • 2021(Publication Date)
  • Hart Publishing

    (Publisher)

  5 C. Specific Annotations

  I. Responsibilities of the Governing Council

  1. Basic Provision on Responsibilities

  3 The Governing Council is the supreme decision-making body of the ECB and the ESCB because of its comprehensive tasks.6 Pursuant to the basic provision on competences of Article 12.1 sentence 1,7 the body is responsible for the adoption of guidelines and decisions8 which are necessary to ensure the fulfilment of all tasks that are conferred on the ESCB. The responsibilities of the Governing Council do not only cover monetary policy decisions in the strict sense. They also extend to the other tasks of the Eurosystem, in particular the basic tasks pursuant to Article 127 paragraph 2 TFEU , which are to be understood as forming part of the monetary and currency policy in the broader sense,9 i.e. the conduct of foreign exchange operations, holding and managing of the official foreign reserves of the Member States and the promotion of the smooth operation of the payment systems.10 Furthermore, the Governing Council is also the supreme decision-making body for decisions taken within the scope of the ECB’s tasks under the Single Supervisory Mechanism (SSM) Regulation.

  4 The Statute vests the Governing Council with the explicit power to take decisions on a number of issues. Corresponding to its position as the supreme decision-making body of the ECB and the ESCB, these mostly concern significant matters. When delineating the Governing Council’s competences from those of the Executive Board and the General Council, the competences of the Governing Council may thus not be interpreted in a restrictive manner. Also, the status as the supreme decision-making body of the ESCB entails that proposals submitted to the Governing Council by the ECB Executive Board are only adopted if there is at least a simple majority of votes unless the voting modalities require a higher number of votes or even unanimity. Furthermore, the Governing Council may change the submitted proposal and adopt it. It should be noted that the Council, when assigning the ECB tasks on the basis of Article 127(6) TFEU (i.e. not an ESCB/Eurosystem task), chose a different procedure.11

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