Archive for September, 2012

European Central Bank

By admin | Filed in finance

ECBThe ECB (European Central Bank) is the central bank of the European Union, established in 1998 Relay to replace the EMI (European Monetary Institute from the Maastricht Treaty).

With a capital of 4 billion euros, this independent statutory body has inherited the entire Eurozone mission previously devolved to the national central banks: issuing currency and defining a monetary policy that the national central banks are then responsible to implement in the various national financial markets.

These interventions of central banks take two forms: the refinancing of banks in the open market, and the provision of bank standing facilities. Refinancing operations, which are loans from the ECB via the central banks to banks, are by tender (for example, the ECB announced that it has 500 million at a minimum rate of  predefined submission ) at a weekly frequency.

Hence the liquidity of banks, and thus the money in circulation in the euro zone, is controlled by the European Central Bank. Its primary statutory mission – maintaining price stability in containing inflation in the Euro zone countries below 2% – is achieved by setting interest rates, the most important of them being precisely the rate of refinancing interest-bearing loans to banks on the open market (2% as of July 15, 2012).

Subject to recurrent political criticism the economic bet assigned to the independent  ECB is that the fight against inflation will also maximize economic growth of the member countries of the European Union and minimize unemployment rates. The European Central Bank also has an advisory function to the EU and national authorities in the areas of its competence, and is responsible for the collection of statistical information needed for its operation via the national central banks.

The European Central Bank is governed by a board of directors which includes its Governor (currently the Italian Mario Draghi), whose six members are appointed by common accord of the Heads of State or Government of the Euro zone countries. The Board of Governors (the national central banks of the euro zone) and the General Council (including the governors of the central banks of countries that have not yet adopted the euro) are the two other decision-making bodies of the ECB.

As inflation has remained weak in Europe in recent years, the ECB did not have to worry on this front, but the persistent recession and the debt problems of countries such as Greece, Spain and Italy have been the focus of its actions, adding liquidity to the financial system to limit the effect of the criss.