The European Central Bank (ECB) in Frankfurt am Main, Germany is the central bank of the eurozone, in charge of monetary policy for the 12 countries that use the new euro currency.
The first head of this institution was Wim Duisenberg, the former president of De Nederlandsche Bank, the Dutch national bank, and former finance minister of The Netherlands. He was succeeded by Jean-Claude Trichet in November 2003.
Goals and instruments
The main goal of the ECB is to focus on price stability. Therefore, it is designated by mandate to keep a low inflation profile for the eurozone. Currently this must not exceed more than 2% in the eurozone. In order to keep prices stable, the ECB may cut or raise interest rates.
European Central Bank: Organization
The ECB is governed by a board of directors, headed by a President, and a board of governors, consisting of the members of the board of directors and representatives of the other central banks in the ESCB.
The organization of the ECB is modelled on that of the German Bundesbank and Landesbanken .
European System of Central Banks (ESCB)
The European System of Central Banks (ESCB) is comprised of the European Central Bank (ECB), and the national central banks of the 25 member-states of the European Union. Only governors from national banks inside the eurozone take part and are responsible for the decision process.
There are two main lines of criticism against the ECB.
Critics focus on the independence of the institution. The ECB was established as a central bank designed to operate independently of political intervention. Its objectives and powers were politically established, but the decisions as to how those powers should best be used to achieve the objectives was left in the hands of the ECB itself.
However, as many national banks in the EU are outside the eurozone and independent (the Danmarks nationalmark or the Bank of England for instance), this argument could also apply to them.
Some see this independence as undemocratic and therefore criticise the decision making process and objectives of the ECB, asserting that the economic goals of the ECB are hard-wired to be secretive and independent from most citizens of the European Union, and to be isolated from feedback mechanisms regarding the influence of the money economy on human rights violations or the natural environment.
The ECB does not publish or invite comments on its proposed decisions. After publication of its actions and decisions, ECB web pages do not solicit direct comments by citizens. It is thought that details of internal meetings are not made public in order not to reveal internal splits in the board of governors.
European citizens may influence the policy decisions of the ECB very indirectly via the formal, national democratic electoral process. However, even if changes in economic assumptions are expressed via formal democratic means, elected politicians have very little power to transmit these changes to the ECB.
Still, the ECB is accountable to the European Parliament and the council of ministers. It appoints the ECB president and vice-president and other members of the ECB's executive board. The nominees must be approved by Parliament first, and then by the council of ministers before they can assume their roles in the institution.
Also, it is required by law for the ECB president to present an annual report to the plenary sitting of Parliament. Furthermore, the ECB president and other members of the executive board are present in the Parliament's monetary affairs committee who meet regularly. These meetings take place four times a year, but can be more frequent if any side would want to.
Critics assert that the objectives given to and pursued by the ECB are inappropriate. The ECB sets interest rates with a view of controlling inflation, but does not take into account objectives such as employment and exchange rate stability. Some, therefore, view this as too narrow a set of objectives, leading to interest rate decisions that are inappropriate given the wider needs of the economy.
Many British ecomomists have stated several times that the ECB should adopt a symmetrical inflation target rate, much like the one that the Bank of England follows.