European Central Bank (ECB)

The European Central Bank (ECB) is the central bank of the Euro area. It was created on July 1, 1998 and its headquarters are in Frankfurt, Germany. The current governor is Mister Jean-Claude Trichet (France) who succeeded Mister Win Duisenberg (The Netherlands) on November 1, 2003.

The European Central Bank is independent of the politic power. Its first aim is to maintain the price stability (aim defined in article 1005 of Maastricht) that is to say under 2%. If this aim is not threatened, it can give a hand to the general policies of the community members (foreseen in article 2).

The European Central Bank is made up with the executive board (the president, the vice president and 4 qualified persons). These 6 people are appointed by the European council which is the highest authority in the European Union. It is thanks to the appointment by the European council of the 6 members of the executive board that the central bank is lawful and credible.

The executive board is the tactic authority of the European central bank. It has to put in place the decisions of the monetary policy decided by the governor council (National Central Banks Governors of the Euro area and the members of the executive board).

The governor council has the charge to take the decisions of the monetary policy. To take these decisions of monetary policy, it counts on 2 analysis pillars: an economic analysis pillar (thanks to economic, monetary, financial variables like the exchange rate, the growth, the debt ratio, the budget deficit…. by giving information about the evolution of the inflation) and a monetary analysis pillar with the support of the evolution of the monetary aggregate, mainly M3 (money transaction+ short term saving+ long term savings) which gives less information about future inflation. However, this strategy has been efficient in history, particularly for the Bundesbanks.

Each year, the ECB issues an annual report to the European Parliament; the European Central Bank governor has an audition before the monetary and economic Committee of the European parliaments once each trimester. However, the European Parliament has no possibility to give sanction to the ECB.

Each second Thursday of the month, the Nation Central Banks Governors of the euro area meet in Frankfurt to take decisions on the monetary policies. The day before, all the governors have an informal meeting.

When the decision is made – at about the 14th or the 15th hour – the measure is nearly immediate and the information is given to the entire international community at the same time. To reach an agreement on the European monetary policy, the rule is the simple majority: one man, one vote. The European Central Bank chooses the maximum place to give the reasons for the decision-making (30 years…).

In comparison, in the United States the reasons of the decision-taking are known a month and a half after. The Bank of England reveals its reasons two weeks after.

The European Central Bank (ECB) controls the very short term interest rate (the EONIA: European Over Night Index Average). But of course the economic agents’ reactions against theses rates show if the monetary policy is efficient or not. It is thanks to this rate that the ECB tries to set in motion certain mechanisms.

Since its creation, the ECB runs a quite expansionist policy, cooperative thanks to the low interest rates. Therefore the European Central bank monetary policy has clearly been in favor of the growth since the beginning of the XXI century.