A compromise was then reached by establishing a regular dialogue between the ECB and the Council of Finance Ministers of the euro area, the Eurogroupe. The founding model of the ECB, as advocated by the German government, is explained in an article published in 1983 by two economists, Robert Barro and David Gordon.
The initial capital allocation key was determined in 1998 on the basis of the states' population and GDP, but the capital key has been adjusted.
The EMI itself took over from the earlier European Monetary Co-operation Fund (EMCF). The ECB formally replaced the EMI on 1 June 1998 by virtue of the Treaty on European Union (TEU, Treaty of Maastricht), however it did not exercise its full powers until the introduction of the euro on 1 January 1999, signalling the third stage of EMU.
The European Central Bank has ample discretion over the way it purses its price stability objective, as it can self-decide on the inflation target, and may also influence the way inflation is being measured. The Governing Council in October 1998 defined price stability as inflation of under 2%, “a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%” and added that price stability ”was to be maintained over the medium term”.
Its initial capital was supposed to be €5 billion and the initial capital allocation key was determined in 1998 on the basis of the member states' populations and GDP, but the key is adjustable.
The EMI itself took over from the earlier European Monetary Co-operation Fund (EMCF). The ECB formally replaced the EMI on 1 June 1998 by virtue of the Treaty on European Union (TEU, Treaty of Maastricht), however it did not exercise its full powers until the introduction of the euro on 1 January 1999, signalling the third stage of EMU.
Since then, Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in January 2014 and Lithuania in January 2015. ==History== === Early years of the ECB (1998-2007) === The European Central Bank is the de facto successor of the European Monetary Institute (EMI).
Tensions were abated by a gentleman's agreement in which Duisenberg would stand down before the end of his mandate, to be replaced by Trichet. Trichet replaced Duisenberg as President in November 2003.
TFEU), This prevented the ECB from implementing quantitative easing like the Federal Reserve and the Bank of England did as soon as 2008, which played an important role in stabilizing markets. Secondly, a decision by the ECB made in 2005 introduced a minimum credit rating (BBB-) for all Eurozone sovereign bonds to be eligible as collateral to the ECB's open market operations.
Since then, Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in January 2014 and Lithuania in January 2015. ==History== === Early years of the ECB (1998-2007) === The European Central Bank is the de facto successor of the European Monetary Institute (EMI).
Since then, Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in January 2014 and Lithuania in January 2015. ==History== === Early years of the ECB (1998-2007) === The European Central Bank is the de facto successor of the European Monetary Institute (EMI).
TFEU), This prevented the ECB from implementing quantitative easing like the Federal Reserve and the Bank of England did as soon as 2008, which played an important role in stabilizing markets. Secondly, a decision by the ECB made in 2005 introduced a minimum credit rating (BBB-) for all Eurozone sovereign bonds to be eligible as collateral to the ECB's open market operations.
In addition, the ECB insisted that no debt restructuring (or bail-in) should be applied to the nationalized banks' bondholders, a measure which could have saved Ireland 8 billion euros. In April 2011, the ECB raised interest rates for the first time since 2008 from 1% to 1.25%, with a further increase to 1.50% in July 2011.
The main construction on a 120,000 m² total site area began in October 2008, and it was expected that the building would become an architectural symbol for Europe.
Member states can issue euro coins, but the amount must be authorised by the ECB beforehand. On 1 December 2009, the Treaty of Lisbon entered into force, ECB according to the article 13 of TEU, gained official status of an EU institution. The ECB is governed by European law directly, but its set-up resembles that of a corporation in the sense that the ECB has shareholders and stock capital.
Since then, Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in January 2014 and Lithuania in January 2015. ==History== === Early years of the ECB (1998-2007) === The European Central Bank is the de facto successor of the European Monetary Institute (EMI).
According to former member of the governing council of the ECB Athanasios Orphanides, this change in the ECB's collateral framework "planted the seed" of the euro crisis. Faced with those regulatory constraints, the ECB led by Jean-Claude Trichet in 2010 was reluctant to intervene to calm down financial markets.
It has further been accused of interfering in the Greek referendum of July 2015 by constraining liquidity to Greek commercial banks. In November 2010, it became clear that Ireland would not be able to afford to bail out its failing banks, and Anglo Irish Bank in particular which needed around 30 billion euros, a sum the government obviously could not borrow from financial markets when its bond yields were soaring to comparable levels with the Greek bonds.
Since then, Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in January 2014 and Lithuania in January 2015. ==History== === Early years of the ECB (1998-2007) === The European Central Bank is the de facto successor of the European Monetary Institute (EMI).
So the operation was neutral for the overall money supply. In September 2011, ECB's Board member Jürgen Stark, resigned in protest against the "Securities Market Programme" which involved the purchase of sovereign bonds from Southern member states, a move that he considered as equivalent to monetary financing, which is prohibited by the EU Treaty.
In addition, the ECB insisted that no debt restructuring (or bail-in) should be applied to the nationalized banks' bondholders, a measure which could have saved Ireland 8 billion euros. In April 2011, the ECB raised interest rates for the first time since 2008 from 1% to 1.25%, with a further increase to 1.50% in July 2011.
The report was led by Austrian right-wing MEP Othmar Karas and French Socialist MEP Liem Hoang Ngoc. ====The ECB's response under Mario Draghi (2012-2015)==== On 1 November 2011, Mario Draghi replaced Jean-Claude Trichet as President of the ECB.
The Financial Times Deutschland referred to this episode as "the end of the ECB as we know it", referring to its hitherto perceived "hawkish" stance on inflation and its historical Deutsche Bundesbank influence. As of 18 June 2012, the ECB in total had spent €212.1bn (equal to 2.2% of the Eurozone GDP) for bond purchases covering outright debt, as part of the Securities Markets Programme.
However, in 2012–2013 the ECB sharply lowered interest rates to encourage economic growth, reaching the historically low 0.25% in November 2013.
The operation also facilitated the rollover of of maturing bank debts in the first three months of 2012. ===== "Whatever it takes" (26 July 2012) ===== Facing renewed fears about sovereigns in the eurozone continued Mario Draghi made a decisive speech London, by declaring that the ECB "...is ready to do whatever it takes to preserve the Euro.
And believe me, it will be enough." In light of slow political progress on solving the eurozone crisis, Draghi's statement has been seen as a key turning point in the eurozone crisis, as it was immediately welcomed by European leaders, and led to a steady decline in bond yields for eurozone countries, in particular Spain, Italy and France. Following up on Draghi's speech, on 6 September 2012 the ECB announced the Outright Monetary Transactions programme (OMT).
The Spanish had nominated Barcelona-born Antonio Sáinz de Vicuña – an ECB veteran who heads its legal department – as González-Páramo's replacement as early as January 2012, but alternatives from Luxembourg, Finland, and Slovenia were put forward and no decision made by May.
In 2013, the Eurogroup decided to refund those profits to Greece, however the payments were suspended over 2014 until 2017 over the conflict between Yanis Varoufakis and ministers of the Eurogroup.
However, in 2012–2013 the ECB sharply lowered interest rates to encourage economic growth, reaching the historically low 0.25% in November 2013.
Member states can issue euro coins, but the amount must be authorised by the ECB beforehand (upon the introduction of the euro, the ECB also had exclusive right to issue coins). Financial stability and prudential policy Banking supervision: since 2013, the ECB has been put in charge of supervising systemically relevant banks. ===Monetary policy tools=== The principal monetary policy tool of the European central bank is collateralised borrowing or repo agreements.
Since then, Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in January 2014 and Lithuania in January 2015. ==History== === Early years of the ECB (1998-2007) === The European Central Bank is the de facto successor of the European Monetary Institute (EMI).
In 2013, the Eurogroup decided to refund those profits to Greece, however the payments were suspended over 2014 until 2017 over the conflict between Yanis Varoufakis and ministers of the Eurogroup.
Soon after the rates were cut to 0.15%, then on 4 September 2014 the central bank reduced the rates by two thirds from 0.15% to 0.05%.
Recently, the interest rates were further reduced reaching 0.00%, the lowest rates on record. In a report adopted on 13 March 2014, the European Parliament criticized the "potential conflict of interest between the current role of the ECB in the Troika as ‘technical advisor’ and its position as creditor of the four Member States, as well as its mandate under the Treaty".
Responding to this threat, the ECB announced on 4 September 2014 the launch of two bond buying purchases programmes: the Covered Bond Purchasing Programme (CBPP3) and Asset-Backed Securities Programme (ABSPP). On 22 January 2015, the ECB announced an extension of those programmes within a full-fledge "quantitative easing" programme which also included sovereign bonds, to the tune of 60 billion euros per month up until at least September 2016.
Since 2014, the ECB has published "accounts" of its monetary policy meetings, but those remain rather vague and do not include individual votes. Access to documents : The obligation for EU bodies to make documents freely accessible after a 30-year embargo applies to the ECB.
The bank moved to a new purpose-built headquarters in 2014, designed by a Vienna-based architectural office, Coop Himmelbau.
Since then, Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in January 2014 and Lithuania in January 2015. ==History== === Early years of the ECB (1998-2007) === The European Central Bank is the de facto successor of the European Monetary Institute (EMI).
It has further been accused of interfering in the Greek referendum of July 2015 by constraining liquidity to Greek commercial banks. In November 2010, it became clear that Ireland would not be able to afford to bail out its failing banks, and Anglo Irish Bank in particular which needed around 30 billion euros, a sum the government obviously could not borrow from financial markets when its bond yields were soaring to comparable levels with the Greek bonds.
Responding to this threat, the ECB announced on 4 September 2014 the launch of two bond buying purchases programmes: the Covered Bond Purchasing Programme (CBPP3) and Asset-Backed Securities Programme (ABSPP). On 22 January 2015, the ECB announced an extension of those programmes within a full-fledge "quantitative easing" programme which also included sovereign bonds, to the tune of 60 billion euros per month up until at least September 2016.
The programme was started on 9 March 2015. On 8 June 2016, the ECB added corporate bonds to its asset purchases portfolio with the launch of the corporate sector purchase programme (CSPP).
It comprises the members of the Executive Board (six in total) and the governors of the National Central Banks of the euro area countries (19 as of 2015). Since January 2015, the ECB has published on its website a summary of the Governing Council deliberations ("accounts").
In other words, in the event of a new financial crisis, the ECB would be the perfect scapegoat. - Capturing exchange rate policy : The event that will most mark the definitive politicization of the ECB is, of course, the operation launched in January 2015: the quantitative easing (QE) operation.
Responding to this threat, the ECB announced on 4 September 2014 the launch of two bond buying purchases programmes: the Covered Bond Purchasing Programme (CBPP3) and Asset-Backed Securities Programme (ABSPP). On 22 January 2015, the ECB announced an extension of those programmes within a full-fledge "quantitative easing" programme which also included sovereign bonds, to the tune of 60 billion euros per month up until at least September 2016.
The programme was started on 9 March 2015. On 8 June 2016, the ECB added corporate bonds to its asset purchases portfolio with the launch of the corporate sector purchase programme (CSPP).
In 2013, the Eurogroup decided to refund those profits to Greece, however the payments were suspended over 2014 until 2017 over the conflict between Yanis Varoufakis and ministers of the Eurogroup.
For Moïse Sidiropoulos, a professor in economy: “The crisis in the euro zone came as no surprise, because the euro remains an unfinished currency, a stateless currency with a fragile political legitimacy”. French economist Thomas Piketty wrote on his blog in 2017 that it was essential to equip the euro zone with democratic institutions.
In 2018, profits refunds were reinstalled by the Eurogroup.
Under this programme, it conducted net purchase of corporate bonds until January 2019 to reach about €177 billion.
While the programme was halted for 11 months in January 2019, the ECB restarted net purchases in November 2019. As of 2021, the size of the ECB's quantitative easing programme had reached 2947 billion euros. === Christine Lagarde's era (2019- ) === In July 2019, EU leaders nominated Christine Lagarde to replace Mario Draghi as ECB President.
Lagarde resigned from her position as Managing Director of the International Monetary Fund in July 2019 and formally took over the ECB's Presidency on 1 November 2019. Lagarde immediately signaled a change of style in the ECB's leadership.
The PEPP was extended to cover an additional €500 billion in December 2020.
The ECB also re-launched more TLTROs loans to banks at historically low levels and record-high take-up (EUR 1.3 trillion in June 2020).
After a long political battle and delays due to the European Parliament's protest over the lack of gender balance at the ECB, Luxembourg's Yves Mersch was appointed as González-Páramo's replacement. In December 2020, Frank Elderson succeeded to Yves Mersch at the ECB's board. ====Governing Council==== The Governing Council is the main decision-making body of the Eurosystem.
The adjustment is made on the basis of data provided by the European Commission. All national central banks (NCBs) that own a share of the ECB capital stock as of 1 February 2020 are listed below.
While the programme was halted for 11 months in January 2019, the ECB restarted net purchases in November 2019. As of 2021, the size of the ECB's quantitative easing programme had reached 2947 billion euros. === Christine Lagarde's era (2019- ) === In July 2019, EU leaders nominated Christine Lagarde to replace Mario Draghi as ECB President.
The ECB also reactivated currency swap lines and enhanced existing swap lines with central banks across the globe ===== Strategy Review ===== As a consequence of the Covid19 crisis, the ECB extended the duration of the strategy review until September 2021. ==Mandate and inflation target== Unlike many other central banks, the ECB does not have a dual mandate where it has to pursue two equally important objectives such as price stability and full employment (like the US Federal Reserve System).
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