The European Central Bank

A. The History of ECB

As you may already know ECB stands for the European Central Bank and is one of the world's most important central banks. The ECB is the central bank for Europe's single currency, the euro. It was established by the European Union in 1998 with its headquarters in Frankfurt, Germany. The ECB is designed to be independent of political intervention, both from EU institutions and from member states. It also has financial independence by virtue of its having its own budget, separate from the EU-budget. Its political independence was an attribute taken due to a consensus amongst economists that an independent central bank is the best way to avoid manipulation of the macroeconomy for political purposes. Furthermore, not only must the bank not seek influence, but EU institutions and national governments are bound by the treaties to respect this principle by not themselves seeking to influence the decision-making bodies of the ECB.

ECB together with all EU Member States' national banks form the European System of central banks, ESCB. ESCB's main task is to maintain the euro's purchasing power and thus price stability in the euro area. The euro area comprises the 15 European Union countries that have introduced the euro since 1999. However, in reality this task is managed by the Eurosystem. The Eurosystem consists of ECB plus all national central banks of EU countries that have adopted the euro. As you can see the Eurosystem is an internal group in the European System of Central Banks.

B. The Role and the Structure

Under the EC Treaty, the ESCB is made up of the ECB and the NCBs of the 25 EU Member States. Unlike the ECB and the NCBs, the ESCB has no capacity to act and no decision-making bodies of its own. Instead, the components of the ESCB - the ECB and the NCBs -have the capacity to make decision. Thus, the ESCB establishes a link between the ECB and the NCBs.

It ensures: i) Decision-making is centralized.

The tasks that the EC Treaty has assigned to the ESCB are performed jointly and consistently in line with the allocation of powers and the objectives of the system.

The ESCB includes the NCBs of all EU Member States, even those that did not adopt the euro because of their special status (Denmark and the United Kingdom) or because of derogation (Sweden and the ten new EU Member States). As the non-participating Member States have maintained their monetary sovereignty, their respective central banks are not involved in carrying out the System's core functions. Therefore, to help the public to understand the complex structure of the European central banking system more easily, the Governing Council of the ECB decided in November 1998 to adopt the term "Eurosystem". This term refers to the composition - the ECB and the NCBs of the Member States that have adopted the euro - in which the ESCB performs its basic tasks.

C. The Monetary Policy

According to Maastricht Treaty the main goals of ECB are ...