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Warsaw School of EconomicsInternational Organizations
Fall 2015
The European System of Central Banks
Sarah Al KindyPiotr Pajda
Table of Content:
Introduction......................................................................................................................................3
History.............................................................................................................................................4
Bodies of the European Central Bank.............................................................................................8
Shareholders....................................................................................................................................9
European Central Bank Principles.................................................................................................11
Aims and Objectives......................................................................................................................15
European Central Bank and the financial crisis.............................................................................19
European Central Bank and Ecology.............................................................................................20
European Central Bank and the European integration process.....................................................22
Summary........................................................................................................................................24
Bibliography..................................................................................................................................25
Introduction
In this essay we will focus on the role of European Central Banks in the process of European
Union integration. You will notice that it is about the European System of Central Bank but we
will focus mainly on The European Central Bank.
As we know millions of people in many European countries share the Euro as their main
currency. The historical roots of monetary integration in Europe goes back to the XIX century,
this was also before the creation of the Economic and Monetary Union.
Since 1999 the ECB has been in charge for conducting monetary policy for the euro area – which
is the second largest economy. The creating of the euro area and the ECB was considered to be a
breakthrough in the complex process of the European integration.
The key object of any central banks is to make sure that the value of money is conserved over
time and it must explain and create awareness of the policies and services it provides to the
public.
The ESCB was established by accordance of the Maastricht Treaty and the Statute of the
European System Central Banks and of the ECB. Since not all of the member states gave adapted
the euro as their main currency, the term ‘’ Eurosystem’’ is used to describe the object composed
of the ECB and the national central banks of those member states which have adopted the euro.
In addition, most of the tasks discussed are handled by the Eurosystem.
History
The European Central Bank was officially established back in June 1st of 1998. And the current
president of the ECB is Mario Draghi, who replaced Jean Claude on 1st of November of 2011.
Mario Draghi is also the former governor of the Bank of Italy, former member of the World
Bank, and former managing director of Goldman Sachs international division.
ECB is a central bank whose range of functioning is ruled by the treaty mechanism, which is the
Maastricht Treaty. Following the adoption of the Treaty of Lisbon, which is the Treaty on
Functioning of the European Union (TFEU), it runs the European Central Bank. And this of
course makes the European Central Bank an exceptional and unique institution among all other
central banks. It is basically the financial expert in all those member states of the European
Union. And according to Article 3(4) of the Treaty on European Union states that, ‘’the Union
shall establish an economic and monetary union whose currency is the Euro’’
The European System of Central Banks (ESCB) is composed of the European Central Bank
(ECB) and the national central banks (NCBs) of all 28 European Union (EU) Member States.
The tasks of ESCB and the Eurosystem are organize in the Treaty Establishing in the European
Union and in the Statute of the ESCB and ECB, which is an extension to the Treaty.
ESCB primary objective is to maintain price stability and to support the general economic
policies.1
The European Union’s monetary policy is the monetary policy of the Member States whose
currency is the Euro. And this can be found clearly on Article 282(1) of the TFEU which states
that ‘’The European Central Banks, together with the national central banks of the Member
States currency is the euro, which organize the Euro system, shall conduct the monetary policy
of the Union.’’
The ECB was first visualized to be the essential of the formal system of the future of the
European Monetary Union. However, that vision was hard to achieve as it was not given the
position to be the core body of the European Community from the start. Also, the ECB was
controlled by another provision. 2
1 European Central Bank, https://www.ecb.europa.eu/ecb/orga/escb/html/index.en.html2 Narodna Banka Slovenska Eurosystem,www.nbs.sk/en/nbs-in-eurosystem/escb-eurosystem-ecb
Below is the list of institution of the European Union:
The European Parliament.
The European Commission
The European Council.
The Court of Auditors.
The Court of Justice.
The Council of European Union.
The European Central Bank.3 4
However the first five are recognized as the core bodies in the community because the main
difference between the institutions of the European Union and the other bodies of the European
Union is the fact that these institution have different assignments and delegations with specific
commands which are much more extensive and comprehensive of carrying out the aims of the
Community that are specified in the introductory provisions of the Treaties.
But even though the ECB was not given the status of Community institution, it did not affect
their capabilities nor abilities in any way possible.
Unlike the other bodies, the ECB gains its power directly from the Treaties itself. For instance, it
is not transferred to them from the other Community bodies. And that is what makes the ECB so
different from the other Community Bodies, is the fact that they have what one would say a
sincere power.
Furthermore, after the Lisbon was reformed, the status of the European Central Bank has
significantly changed. The transformation brought significant and substantial changes to the
European Union structure as a whole. Some examples of the changes was the abolishing of the
Communities as well as giving the status of the legal person to the European Union. One of the
very important changes was the development of the list of institutions of the European Union.
The ECB and the European Council were welcome as the two new members of the European
Union institutions list.
Since two EU treaties exist, the (TEU) and the (TFEU), the ECB based its structure and plans on
(TFEU), which is also named the Monetary Policy, since it is much more detailed with
requirements that regulate the processes of EU policies.
3 EU institutions, http://europa.eu/about-eu/institutions-bodies/4 EU institutions and different Bodies, http://institutions.publicdata.eu/
The ECB also acts as a core element of the institutional setting called the European System of
Central Banks (ESCB). The ESCB was supposed to be the central institution of the EMU. And
we can clearly see that from the fact that in Article 127 of TFEU, the Treaties entrusted the
ESCB with the primary and secondary objectives of the tasks of the common monetary policy.
The ESCB was mainly created in hope that one day all Member States would join EMU.
However, this hope was seen to be unrealistic – at least on the short run- as soon as Maastricht
Treaty was adopted. Sweden, the United Kingdom as well as Denmark were hesitant to join.
And in 1998 the first decision were being held on the question which member states fulfilled the
union criteria. But Sweden and Greece were not among the chosen eleven states. And even if
Sweden did fulfill the criteria, it would not have joined EMU. Contrast to UK and Denmark,
Sweden does not have an option out clause since it joined the EU in 1995 after the Maastricht
Treaty came into force. However, the EU institutions accepted a special status for Sweden,
which means that Sweden may join the EMU when it makes the decision to do so. In the end of
the day, we can say that Sweden’s status is equal to Denmark’s and the United Kingdom’s, even
though Sweden is not officially formalized as such in Treaties.
Since it is clear that the EMU would be restricted to a few member states, the decision was made
that the ECB would conduct all of the power, tasks and competences that have been given to
ESCB. Unlike the ECB, ESCB has no legal personality to act and no decision body making of its
own. Instead the ECB and NCB are the legal persons and actors. They have the ability to act, but
when they perform tasks assigned to the ESCB, they act in line with its objectives.
Now even though the ECB acts as core of monetary union with all the rights in issuing Euro
banknotes, it still execute its monetary instruments with cooperation with central banks of the
member states of the EMU. Also, during decision making process, governors of those central
banks are presented with equal voting rights. Which in a way, we cannot really say that ESCB
nor ECB is a sole authority of the EMU. Formally, the central authority of EMU is both ECB and
NCBs if member states of the Euro zone. And that is how the term Eurosystem was created. In
order to distinguish between ESCB and the system of encompassing the ECB and NCBs.
Now one may question why do we actually need the ESCB and why the authority in common
policy were not transferred to a single central bank? The answer to the questions that may cause
a bit of confusion and tricky to some people is firstly, the ESCB is basically an institutional
background that work on forming sort of an organic link between the ECB and NCBs. It helps
ensure that all decision making is integrated between each other, it also it helps guarantee that
the tasks the EU Treaty has assigned is performed equally keeping in mind the goals and
objectives of the system. Secondly, there are many reason to why the system of central bank was
created to execute the monetary policy, for one, the founding of a single central bank for the
whole euro area would not be acceptable on political ground. In addition, with the large
geographical euro area with different cultures and nations, domestic institution were considered
best placed to serve as the points of access for the Eurosystem.
And that is why the Eurosystem was established by the TFEU after the Lisbon reforms. And we
can find that in article 282 of the TFEU which states that the monetary policy shall be conducted
by the Eurosystem, which consist of the ECB and NCBs of those countries whose currency is the
Euro.
NCB enjoys legal character under national legal norms. On the other hand, ECB enjoys a very
extensive legal capacity under national law and under article 282 (3) of the TFEU which states ‘’
The ECB shall have legal personality’’. It also enjoys its freedom and protection which are
essential for the performance of its tasks. The legal status of ECB is also run by the statute of the
ESCB and of ECB which is attached to the Treaties as protocol. However the legal status of ECB
is not only based on national law, but also in respect to the international law. It is the legal
person for both national law and international law. The power of EU institution of concluding
international treaties has been unclear in the beginning of the European Communities. However,
the Court of Justice concluded that the EU institution have certain powers which allows them to
conclude international treaties and conduct them in a way of international legal activities. The
ECB is as well welcome to participate in the functioning of certain international organization, for
instance the International Monetary Fund (IMF).
In 1992, when the Maastricht Treaty was signed, it was decided that the headquarters of
European Central Bank would be located in Frankfurt am Main. Due to the fact that the
European Union did not have a proper building, the ECB started renting the Eurotower building
in 1998. At the same time, the EU officials started looking for a good location to build new
building for ECB headquarters. Finally they chose the area of Grossmarkthalle and decided to
include the building of the Market Hall in their projects. 5
5 ECB 2004 by Hanspeter K. Scheller, https://www.ecb.europa.eu/pub/pdf/other/ecbhistoryrolefunctions2004en.pdf
Bodies of the European Central Bank
The official structure of the ECB is run by both TFEU and the statute of the ESCB and ECB.
Since ESCB does not have decision making bodies of its own, it is governed by the decision
making bodies of the ECB.
The decision making bodies are:
-The governing council.
-The executive board.
-The general council.
They are all related to each other and depend on one other in order to achieve their tasks and
goals. Therefore, they all stand on the same ground and are equally important.
The governing council the main decision making body of the ECB. It consist of the six members
of the Executive Board of the European Central Bank, and as of 2015 it includes also the
Governors of the National Central Bank of the 19 euro area countries.
The governing council is responsible for assessing the economic and monetary developments,
define the Eurozone monetary policy, fix the interest rates, which allows commercial banks to
borrow from ECB and establish guidelines and decision ensuring the performance of tasks of the
Eurosystem. The Governing Council target is to keep the inflation rate below but close to 2% on
average.
The Executive Board of the European Central Bank has the responsibility of implementing
monetary policy for the Eurozone taking into account the rules and decision from the Governing
Council of the European Central Bank. The Executive is consisted of one President, one Vice
President and four other members. Members are nominated by agreement between the Heads of
Government of the Eurozone countries for a non-renewable eight-year term. Also, the
candidate’s members are people who have significant professional experience in monetary and
banking matters. The Executive Board main tasks is to implements monetary policy, manage
day to day operations, and prepare Governing Council meetings and exercises powers delegated
to it by the Governing Council. And this of course prove my previous statement of how all
bodies are equally important and depend on each other.
The General Council works as a transitional body between the Eurosystem and other part of
ESCB. It performs the tasks which the ECB took over from EMI. Their main task is to
contribute to advisory and coordinates works and helps to prepare for new countries joining the
euro. Unlike the other two bodies, the General Council is not mentioned in the Treaties,
therefore it does not have ground in funding documents instead it is introduced into the system
by the statute. Since the General Council serves as a link between EMU countries and non-EMU
countries, it is composed of governors of all NCBs of the EU, including the President and Vice
President. Other members of the Executive Board can simply participate in the meeting however
they are not given the right to vote. 6
Shareholders
Although the ECB is governed by European law directly and thus not by corporate law applying
to private law companies, its set-up resembles that of a corporation in the sense that the ECB has
shareholders and stock capital.
"The NCBs’ shares in this capital are calculated using a key which reflects the respective
country’s share in the total population and gross domestic product of the EU. These two
determinants have equal weighting. The ECB adjusts the shares every five years and whenever a
new country joins the EU. The adjustment is made on the basis of data provided by the European
Commission."7
Please find below the fully paid-up subscriptions of euro area national central banks (NCBs) to
the capital of the ECB8.
6 Deutsche Budesbank, Eurosystem, https://www.bundesbank.de/Navigation/EN/Service/Glossary/Functions/glossary.html?lv2=129524&lv3=1456367 Capital Subscription, European Central Bank, https://www.ecb.europa.eu/ecb/orga/capital/html/index.en.html (accessed 10.11.2015)8 ibidem
"The EU’s nine non-euro area NCBs are required to contribute to the operational costs incurred
by the ECB in relation to their participation in the European System of Central Banks by paying
up a small percentage of their share in the ECB’s subscribed capital. Since 29 December 2010
their contributions have represented 3.75% of their total share in the subscribed capital. The
capital paid to the ECB by the non-euro area NCBs amounts to €120,192,083.17 and breaks
down as follows:"9
European Central Bank Principles
Independence of ECB:
Independence of the ECB was the result of pressure created by the German Federal Central Bank
and by the German government as well as the French government. The ECB was built on solid
ground which permits it much independent as needed in order to conduct its primary goal which
is the price stability, example, low inflation rate. As well as the secondary goals of EUs
economic goals, example, low unemployment. Independent central bank is also seen by the
public to be more credible than a central bank which depends on a government. Independence is
important not only for the ESCB but for the Eurozone as a whole. It could have not achieve its
goal of maintaining price stability without the members of Governing Council and the Executive
9 ibidem
Board having some sort of protection in case of political influence from the EU institutions or
national governments.
There is clear evidence that independent central bank brings lower inflation, which of course
results in more stable environment for the economy and employment growth.
Also, independence of central bank can be found in various forms such as financial
independence, which basically means that the ECB has its own budget. Another example would
be the political independence, which means EU institutions and national governments are bound
by treaties to respect the ECB’s independence. The ECB is required to publish reports on its
activities.
The central bank independence, like any other law, needs to be continuously protected and
implemented over time10. This is the responsibility of the political institutions. Moreover, it is
stated in the Treaty on the Functioning of the European Union, Article 130 "When exercising the
powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute
of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor
any member of their decision-making bodies shall seek or take instructions from Union
institutions, bodies, offices or agencies, from any government of a Member State or from any
other body. The Union institutions, bodies, offices or agencies and the governments of the
Member States undertake to respect this principle and not to seek to influence the members of
the decision-making bodies of the European Central Bank or of the national central banks in the
performance of their tasks".
Furthermore, the other important provisions concern the independence of the main ECB
decision-makers.
"Governors of NCBs and members of the Executive Board have security of tenure:
NCB governors have a minimum term of office of five years;
members of the Executive Board of the ECB have a non-renewable term of office of
eight years;
both can be removed from office only in the event of incapacity or serious misconduct;
10 Mario Draghi fights a battle for independence at the ECB, Financial Times, 14.01.2015
The Court of Justice of the European Union is competent to settle any disputes."11
To sum up, there are couple of different ways in which the European Central Bank is
independent. We can distinguish the functional independence, institutional independence,
personal independence and financial one12. They all were granted to make the European System
of Central Banks more credible and well-functioning. We should not forget that such wide
independence in different activities does not remain uncontrolled. There are couple of ways how
the ESCB can be controlled in a democratic way.
The external control plays a crucial way in all European institutions and that is also the case of
the European Central Bank. Every three months, the European Central Bank is required to
publish reports and publications that would present the recent activities of the ECB13. Moreover,
there are also some reports that are issued every week. Moreover, every year, the ECB presents a
formal document that includes the policies of the ESBC for the last and current year. This
document is widely discussed in the European Parliament, European Commission, Council of the
European Union and the European Council. The aforementioned ways of reporting do not limit
the independence of the European Central Bank, because they are just prepared for informative
purposes and they do need to be accepted by external bodies. The court of justice controls also
the activities of the European Central Bank.
Transparency:
The transparency principle has crucial role, especially regarding the monetary policy that is
conducted by the European Central Bank and National Central Banks14. The ECB believes that
communication with public is a matter of paramount importance. The transparency principle
says that all important information regarding the topics of strategy and decisions regarding the
pursed polices are presented to everyone in an open and easy to understand way. The right
11 Independence, European Central Bank, https://www.ecb.europa.eu/ecb/orga/independence/html/index.en.html, (accessed 10.11.2015)12 Europejski Bank Centralny, Katarzyna Cwalina, Uniwersytet Warmińsko-Mazurski w Olsztynie, Olszyn 201513 Research and Publications, European Central Bank, https://www.ecb.europa.eu/pub/html/index.en.html, (accessed 10.11.2015)14 Europejski Bank Centralny, Katarzyna Cwalina, Uniwersytet Warmińsko-Mazurski w Olsztynie, Olszyn 2015
understanding by citizens of the ECB policies makes the monetary actions more credible and
effective15. Moreover, some political scientists distinguish different kinds of transparency:
Political transparency - declaring the monetary policy aims in a formal way and in
compliance with the current regulations.
Economic transparency - easy accessible information about the monetary policy, money
supply, inflation, and unemployment rates, GDP.
Procedural transparency - showing the way how the ECB bodies work and how they take
decisions.
Operational transparency - regular estimations of current macroeconomic policies.16
Predictability:
The other important principle that the EBC includes in their activity is the predictability. The
term of predictability in monetary policy was explained in one of the European Central Banks
publications:
"The literature on monetary policy predictability evolved in tandem with the progressive increase
in openness and transparency of central banking, a process that was substantially accelerated
with the advent of inflation targeting at the beginning of the 1990s. Most of this literature has
been empirical in nature, focusing on estimating the “surprise element” of monetary policy
decisions at the time of policy announcements. Predictability of monetary policy in these papers
is therefore often understood to be the ability of financial markets to correctly anticipate the next
monetary policy decision of a central bank (Krueger and Kuttner 1996; Poole and Rasche 2000;
Kuttner 2001)."17
If the actions taken by Central Bank are predictable then the market players can quickly take into
consideration all the variables. The predictability increases also the efficiency of monetary policy
15 Central Bank Transparency, Petra M. Geraats, University of Cambridge, 2002 16 Europejski Bank Centrailny, Polska w UE, https://polskawue.gov.pl/Europejski,Bank,Centralny,1884.html, (accessed 10.11.2015)17 The Predictability of Monetary Policy, Tobias Blattner, European Central Bank 2008
by shortening some processes that influence the financial and investment decisions and also
accelerating the economic reforms18.
Aims and Objectives
Just like in every other organization, business, company, firms… they all have goals and
objectives, which they want to accomplish. The European Central Bank is no different to them.
The tasks of the European System of Central Banks (ESCB) and the Eurosystem are laid down in
the Treaty on the Functioning of the European Union. They are specified in the Statute of the
European System of Central Banks and of the European Central Bank. The Statute is a protocol
attached to the Treaty.
The Treaty on the Functioning of the European Union generally refers to the ESCB rather than to
the Eurosystem, since it was drawn up on the premise that all EU Member States would
eventually adopt the euro. The Eurosystem is made up of the ECB and the national central banks
(NCBs) of the EU Member States whose currency is the euro, whereas the ESCB comprises the
ECB and the NCBs of all EU Member States (Article 282(1) of the Treaty). As long as there are
EU Member States whose currency is not the euro, it will be necessary to make a distinction
between the Eurosystem and the ESCB.
In this essay we will focus mainly on tasks of the European Central Bank, which are clearly
defined in the EU Treaties. According to Article 127(2) of the Treaty on the Functioning of the
European Union, the basic tasks to be carried out through the Eurosystem are:
the definition and implementation of monetary policy for the euro area;
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.19
18 Monetary Policy Predictability in the Euro Area, Bjorn-Roger Wilhelmsen, European Central Bank, 200519 Tasks, European Central Bank, https://www.ecb.europa.eu/ecb/tasks/html/index.en.html (accessed 10.11.2015)
In article 127 states that “The primary objective of the European System of Central Banks shall
be to maintain price stability.” This clearly indicates the importance of their goal.
Price stability refers to general level of prices in the economy. It applies avoiding both prolonged
inflation and deflation. The Governing Council has defined price stability as a year to year
increase in the Harmonized Index of Consumer Prices (HICP) for the euro of below 2%. Also, it
aims to maintain the inflation rate below but close to 2% over medium term.
The benefit of price stability, as well as the costs associated with inflation or deflation, are
closely associated with money and its functions. Price stability is the only possible object for the
single monetary policy over the medium term.
Please find below the fluctuations of inflation in the euro area20:
20 Eurostat
There are many advantages for prices stability. For instance, it makes it easier for people to
recognize changes in relative prices. And this allow firms and consumers to make better decision
regarding investment and consumptions, which allows the market to allocate resources more
efficiently.
Investor’s wants assurance that price will remain stable in the future. By reassuring them that
price will remain stable in the future they will not demand for ‘Inflation Risk Premium’. And
therefore, the monetary policy can contribute to allocative efficiency of the capital market.
Also, Tax and welfare systems can create strong incentives that distort economic behavior. In
most cases, these distortions are worsen by inflation or deflation. Price stability eliminates the
real economic costs entailed when inflation exacerbates the distortionary impact of tax and social
security systems.
An environment of stable also helps to maintain social cohesion and stability. Several cases in
the twentieth century have shown that high rates of inflation or deflation tend to create social and
political instability21.
In the EU publication we can read:
"Price stability supports higher living standards by helping to: reduce uncertainty about general
price developments and thereby improve the transparency of relative prices, reduce inflation risk
premia in interest rates, avoid unnecessary hedging activities, reduce distortionary effects of tax
systems and social security systems, increase the benefits of holding cash, prevent the arbitrary
distribution of wealth and income, contribute to financial stability.
By maintaining price stability, central banks contribute to broader economic goals. All of these
arguments suggest that a central bank that maintains price stability contributes substantially to
the achievement of broader economic goals, such as higher standards of living, high and more
stable levels of economic activity and employment. This conclusion is supported by economic
evidence which, for a wide variety of countries, methodologies and periods, demonstrates that in
the long run, economies with lower inflation appear on average to grow more rapidly in real
terms."22
21 The European Central Bank: History, Role and Functions, Hanspeter K. Scheller, Frankfurt am Main, European Central Bank, 2006
However, price stability is not only the primary objective of the ECBs monetary policy, but also
an objective of the European Union as a whole.
Thus, the Treaty on the Functioning of the European Union and the Treaty on European Union
establish a clear hierarchy of objectives for the Euro system, making it clear that price stability is
the most important contribution that monetary policy can make to achieve a favorable economic
environment and a high level of employment.
Economic reform in the goods, capital and labor market which remove barriers to competition
and increasing market flexibility are essential for the functioning of Economic and Monetary
Union (EMU). This will raise productivity and employment in the euro area. At the same time
lowering price may enhance competition and encourage innovation.
If the euro market is more flexible, this will help countries to adapt faster to economic shocks.
In simpler words, the ECB is fully aware and understands that focusing on its main objective,
which is the price stability, will result in support general economic policies as well as opening
door to an open market economy23.
Apart from maintaining price stability, the European Central Bank has other tasks to pursue. The
main ones stated on the official ECB website are:
Banknotes: the ECB has the exclusive right to authorise the issuance of banknotes within
the euro area.
Statistics: in cooperation with the NCBs, the ECB collects statistical information
necessary in order to fulfil the tasks of the ESCB, either from national authorities or
directly from economic agents.
Financial stability and supervision: the Eurosystem contributes to the smooth conduct of
policies by the competent authorities as regards the prudential supervision of credit
institutions and the stability of the financial system.
22 Price Stability: Why is it important for you?, Dieter Gerdesmeier, European Central Bank, Frankfurt Am Main, 201123 ibidem
International and European cooperation: the ECB maintains working relations with
relevant institutions, bodies and fora, both within the EU and at the global level, in
respect of the tasks entrusted to the Eurosystem.24
European Central Bank and the financial crisis
During the crisis, the role of the European Central Bank significantly increased25. It is an
institution that has the biggest impact on stabilizing the financial markets, banking sector and
decreasing the chance of bankruptcy of one of the member states or disintegration of the
Eurozone. Both its formal and informal power has been increasing the last few years. The bank
has entered also the area of fiscal policies. Some of the unconventional ECB activities can be
described, as implementation of federal policies through back doors26. Those reforms can lead to
changes on the supranational level and effect in a different European Union.
According to Article 123.1 (TFEU), the European Central Bank is not allowed to purchase
sovereign bonds or public debt instruments on the primary market of EMU countries. At the
same time the ECB shall, according to Article 127.2 (TFEU), contribute to the stability of the
financial system. "Confronted with the international financial crisis, the ECB was criticised by
some experts who deemed it to have neglected, in order to maintain price stability, its principles
of independence and non-partisanship, by cofinancing the public debts of certain Member States
in the euro area. Other experts maintain that the ECB might have exacerbated the crisis by
reacting 'too little, too late'. A third opinion suggests that the ECB demonstrated an innovative
use of its mandate and instruments, for example, through the use of non-standard policy
measures, successfully contain the economic and financial crisis in the euro area."27
Please find below the graph showing the changes in the main interest rates during years 2007-
2015.28
24 Tasks, European Central Bank, https://www.ecb.europa.eu/ecb/tasks/html/index.en.html (accessed 10.11.2015)25 The Monetary Policy of the European Central Bank, Stefano Micossi, Brussels, 201526 The ECB is hampered by a lack of democratic legitimacy, Kathleen R. McNamara , http://blogs.lse.ac.uk/europpblog/2012/08/03/ecb-democratic-reform/, (accessed.11.2015)27 The ECB and the financial crisis: Rigid theory vs a pragmatic approach, Cemal Karakas, European Parliamentary Research Service28 ibidem
European Central Bank and Ecology
European Central Bank as a supranational institution that is conscious about the sustainable
development and takes actions that are beneficial not in a short term but in a long term
perspective. The ECB believes that sustainable development is crucial for functioning in every
area.
The protection of natural environment, precisely tackling the climate change, has become one of
the major EU policies. The global warming and the necessity to decrease the amount of pollution
are serious global problems that need to be faced. Therefore, there are more and more
international organizations, public institutions and companies that implement ecological
strategies. The European Central Bank also promotes sustainable ideas and follows the policies
that EU establishes.
Already in 2007 the ECB decided to systematically fight for the ecology29. Therefore, a special
program was started. Its aim is to establish environmental protection in the operations of ECB.
All activities in ECB are in compliance with the EU eco-management system and IS 14001
norms30.
The European Central bank wants to be an ecological institution. That's why, it is important, that
all employees are aware of current global environmental challenges and act in an eco friendly
way. As part of its environmental management, the ECB’s environmental performance and
impact are assessed on an annual basis and measures to improve them are continuously being
developed and introduced. Therefore, there are environmental statement issues on regular basis.
They provide information to the general public and other interested parties about the
environmental performance and activities of the European Central Bank.
Please find below a chart31 that presents the CO2 emissions emitted by the activity of the
European Central Bank.
29 Environmental protection at the ECB, European Central Bank, https://www.ecb.europa.eu/ecb/orga/escb/green/html/index.en.html (accessed 10.11.2015)30 2015 update of the ECB’s environmental statement, European Central Bank, 201531 ibidem
European Central Bank and the European integration process
As a second largest world economy bank, but also a member of Euro system, and issuer of the
second commonest currency the ECB has a prominent meaning in the international area32. ECB
belongs to one of the EU-institutions, but because of its independence status and characteristic of
carried tasks it takes up a significant position. ECB takes part in the international economic
cooperation in the aspect of Euro system tasks33. Paragraph 139 of the Treaty on the Functioning
of the European Union and paragraph 6 passage 1, but also paragraph 12 passage 5 of European
System of Central Banks Charter form the basis of participation the ECB in the international
cooperation. In accordance with paragraph 284 of the Treaty, chairman of the ECB is allowed to
take part in those sessions of the Council of the European Union, during which issues connected
with the targets and tasks of the European System of Central Banks are being talked over. ECB
chairman is also regularly invited to the meetings of Euro Group (monthly meetings of the
Eurozone's finance ministers)34. Since the financial crisis the ECB relations with other European
institutions are getting more close. ECB chairman participates currently in European Council's
32 About, European Central Bank, https://www.ecb.europa.eu/ecb/orga/escb/html/index.en.html, (accessed 10.11.2015)33 Financial Integration in Europe, European Central Bank, Frankfurt Am Main, 201534 Europejski Bank Centralny, Katarzyna Cwalina, Uniwersytet Warmińsko-Mazurski w Olsztynie, Olszyn 2015
sessions, but also in the head of the governments meetings that concern issues important for the
European Central Bank. European Commission, a body which stands guard over EU treaties and
initiates European legal acts, is an important partner of the ECB35. Cooperation of those
institutions is important because of the European Commission's participation in coordination of
economic policy, monitoring public money, macroeconomic disturbances and estimation of
convergence in member states. European Commission enforces proper application of the
common rules set by the EU through the agency of the Court of Justice of the European Union.
European Commissioner for Economic and Monetary Affairs and the Euro, who at the same time
is the First Vice of the European Commission, can participate (without allocution) in the sessions
of the Governing Council. European Commission participates also in the sessions of EU-
institutions and Eurozone. Both institutions are in touch on the expert level (e.g. in the statistic
branch and the branch of payment systems. ECB as an independence public institution has the
obligation to settle up with the European Parliament, which is elected by the European citizens.
The European Parliament takes part in the procedure of appointing members of the Governing
Council by evaluating candidates recommended by the European Council (paragraph 283
passage 2 of the Treaty European Central Bank within the framework of so called
macroeconomic dialogue, began in June 1999 by the European Council stays in touch with social
partners36. On this forum ECB can explain its monetary policy, and thereby contribute to set the
inflationary expectations. ECB can also gain profits from social partners. ECB has the status of
permanent observer at the International Monetary Fund. Both institutions share information,
opinions and evaluations concerning monetary policy of the Eurozone. EBC is the only party
allowed to talks in this field. The International Monetary Fund, as an independent organization
supervises the Eurozone. European Central Bank has broad bilateral contacts with central banks
from all over the world. There is an experience and good practice exchange within the scope of
cooperation. ECB conducts also training courses for the employees of other central banks. It
contributes to the growth of professionalism, effectiveness, independence and transparency of
bank's operations. At the same time it ensures monetary and financial stability.
35 ibidem36 The ECB and the financial crisis: Rigid theory vs a pragmatic approach, Cemal Karakas, European Parliamentary Research Service
Summary
The European Central Bank is one of the most important financial institutions in the world. The
functioning and organization of the ECB is based on the Maastricht Treaty signed in 1992.
According to that Treaty the European Central Bank and the European System of Central Banks
were established in 1998. The Euro currency was introduced first in the electronic version and in
2002 normally. The common currency was an important step for the whole European Union and
made the integration process even tighter. Currently Euro is used in 19 countries and other
member states are planning to introduce it in the near future. The last financial crisis was a big
shock not only for the Eurozone but also for the all EU members. In the last years the ECB
played an important role in stabilizing the Eurozone and is going to continue the process of
helping out countries that did not cope well with the crisis.
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