The Treaty states that the ECB shall also contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system. There is a Steering Committee that supports the board’s activities, including organizing the board’s meetings. The Steering Committee members comprise the Chair and Vice-Chair of the Supervisory Board, One ECB representative, and five representatives of national supervisors. Learn how Europe has grown closer with the introduction of the common currency and the creation of joint banking supervision. We identify and give recommendations for reducing risks that could throw the financial system out of balance, such as stock market turmoil or a sharp fall in house prices. This helps people like you, as well as businesses, to plan and invest for the future with confidence.

  1. The Treaty adds that “without prejudice to the objective of price stability”, the ECB shall also support the general economic policies in the EU with a view to contributing to the achievement of the Union’s objectives as laid down in Article 3 of the Treaty on European Union.
  2. Second, by taking account of downward nominal wage rigidities, an inflation buffer reduces the risk of macroeconomic downturns being predominantly reflected in an excessive rise in unemployment.
  3. It may also be that the ECB’s independence from political influence can be a double-edged sword, as it can lead to decisions that are disconnected from the democratic will of the people.
  4. To succeed, we seek to anchor inflation expectations and influence the “temperature” of the economy, making sure the conditions are just right – not too hot, and not too cold.

Greece joined in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014, Lithuania in 2015 and Croatia in 2023. The creation of the euro area and of a new supranational institution, the ECB, was a milestone in the long and complex process of European integration. European Central Bank (ECB), central banking authority of the euro zone, which consists of the 19 European Union (EU) member states that have adopted the euro as their common currency.

ECB Mandate

As the crisis intensified, more people withdrew money from Greece’s banks, making them increasingly reliant on the ECB, whose emergency liquidity support surpassed 88 billion euros ($97 billion) in June 2015. The ECB capped ELA, forcing Greece to impose capital controls, but did not halt its support—and Tsipras eventually agreed to lenders’ terms for a rescue program. Meanwhile, in 2012, EU officials had begun to discuss a eurozone banking union. The economic crisis had led to a cascade of unpopular bank bailouts, totaling over 590 billion euros ($653 billion) in European taxpayer assistance by 2012. A banking union could make banks less likely to fail and also provide a more orderly process for dealing with any such failures.

The medium-term orientation is important to account for uncertainties in the inflation process and the transmission mechanism, so as to recognise the imperfect control of inflation by monetary policy in the short run, owing to variable transmission lags to the economy and inflation. The primary decision-making entity of the ECB is the Governing Council, composed of the six Executive Board members and the governors of the national central banks from the euro area countries. Each monetary policy decision by the Governing Council is based on an assessment of the monetary policy stance. The assessment of the monetary policy stance determines whether monetary policy is contributing to economic, financial and monetary developments in a way that maintains price stability over the medium term. The appropriate monetary policy stance is delivered by choosing and calibrating the appropriate monetary policy tools, both individually and in combination.

The eurozone’s structure means that transfers are largely horizontal (from nation to nation) rather than vertical (from a strong center to subordinate parts of a nation). Donor nations can and do set the terms at which they grant support to the recipients. The most startling difference between the eurozone on the one hand and the United States and the UK on the other is not their respective fiscal situations. In fact, public debt in the eurozone amounts to 87% of its GDP, well below the 98% in the United States. The European Central Bank is probably the most misunderstood central bank in the world. It is often portrayed as doing too little, too late and doing it the wrong way.

Read Transcripts of ECB Board Meetings

During 2012, the ECB pressed for an early end to the ELA, and this situation was resolved with the liquidation of the successor institution IBRC in February 2013. The promissory note was exchanged for much longer term marketable floating rate notes which were disposed of by the Central Bank over the following decade. Explore our cartoons on the different workstreams and read more on why they matter for monetary policy.

They assess economic, monetary and financial developments before taking monetary policy decisions. A medium-term orientation allows the Governing Council to cater in its monetary policy decisions for other considerations relevant to the pursuit of price stability (see also Section 3.3). For example, the medium-term orientation provides flexibility to take account of employment in response to economic shocks, giving rise to a temporary trade-off between short-term employment and inflation stabilisation without endangering medium-term price stability. It also allows the ECB to take account of financial stability, where appropriate, in view of the interdependence of price stability and financial stability. The use of such flexibility could also be the result of a careful proportionality assessment of the appropriate policy measures (as explained below). It is responsible for formulating and implementing the monetary policy of the Eurozone.

The general council

These assessments include an analysis of the benefits and possible side effects of monetary policy measures, their interaction and their balance over time. One of the primary functions of this body is the formulation of monetary policy for the Euro area. In this regard, they make decisions on monetary objectives, interest rates, and the supply of reserves in the Eurosystem. Every six weeks, the President and Vice-President of the ECB must chair a press conference to explain in detail their monetary policy decisions. The Governing Council also makes necessary decisions that ensure the performance of the functions of ECB and the Eurosystem.

There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. Many observers argue that the lack of major automatic and unconditional transfers within member countries counts against the eurozone. In the United States, the Sunbelt states of the Southwest (as a donor) could never be as tough on the Rustbelt states as Germany can be on Greece or Spain. Within just2trade broker review nation-states such as the United States and the UK, the recipients do vote in the relevant national elections. Put simply, Germany (as a donor) can be much tougher on Spain (as a recipient) because Spaniards do not vote in the national elections that matter for the government setting the conditions (German elections). The eurozone is neither one nation nor a bunch of separate nations who care little about each other.

The communication of the ECB’s monetary policy decisions

The long term refinancing operations (LTRO) are regular open market operations providing financing to credit institutions for periods up to four years. They aim at favoring lending conditions to the private sector and more generally stimulating bank lending to the real economy,[57] thereby fostering growth. Faced with those regulatory constraints, the ECB led by Jean-Claude Trichet in 2010 was reluctant to intervene to calm down financial markets.

Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. 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 a creditor of the four Member States, as well as its mandate under the Treaty”. The report was led by Austrian right-wing MEP Othmar Karas and French Socialist MEP Liem Hoang Ngoc.

This is important as history shows that a central bank that follows political orders can lose sight of its objective of maintaining price stability. The Governing Council comprises six members of the Executive Board and Governors of the national central banks of the Euro area member states. The Council members meet twice a month at the institution’s offices in Germany.