European Central Bank – Monetary Executive
The European Central Bank (ECB) is one of the seven institutions of the European Union (EU) listed in the Treaty on European Union (TEU). It is the central bank for the euro and administers the monetary policy of the 17 EU member states which constitute the Eurozone, one of the largest currency areas in the world. It is thus one of the world’s most important central banks.
The capital stock of the bank is owned by the central banks of all 27 EU member states. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt, Germany. The current President of the ECB is Mario Draghi, former governor of the Bank of Italy.
The primary objective of the European Central Bank is to maintain price stability within the Eurozone, which is the same as keeping inflation low and preventing deflation. The Governing Council aims to keep inflation (as measured by the Harmonised Index of Consumer Prices) below, but close to, 2% over the medium term. Unlike other central banks, for instance, the Federal Reserve System, the ECB has a single primary objective, with other objectives subordinated to it.
- forms together with the national central banks the European System of Central Banks and thereby determining the monetary policy of the EU
- ensures price stability in the eurozone by controlling the money supply
- based in Frankfurt
The eurozone, officially called the euro area, is a monetary union of 19 European Union (EU) member states that have adopted the euro (€) as their common currency and sole legal tender.
The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia,Slovenia, and Spain. Other EU states (except for Denmark and the United Kingdom) are obliged to join once they meet the criteria to do so. No state has left, and there are no provisions to do so or to be expelled. Andorra, Monaco, San Marino, and Vatican City have formal agreements with the EU to use the euro as their official currency and issue their own coins. Kosovo and Montenegro have adopted the euro unilaterally, but these countries do not officially form part of the eurozone and do not have representation in the ECB or the Eurogroup.
Monetary policy of the zone is the responsibility of the European Central Bank (ECB) which is governed by a president and a board of the heads of national central banks. The principal task of the ECB is to keep inflation under control. Though there is no common representation, governance or fiscal policy for the currency union, some co-operation does take place through the Eurogroup, which makes political decisions regarding the eurozone and the euro. The Eurogroup is composed of the finance ministers of eurozone states, but in emergencies, national leaders also form the Eurogroup.
Since the financial crisis of 2007–08, the eurozone has established and used provisions for granting emergency loans to member states in return for the enactment of economic reforms. The eurozone has also enacted some limited fiscal integration, for example in peer review of each other’s national budgets. The issue is political and in a state of flux in terms of what further provisions will be agreed for eurozone reform.
The Greek withdrawal from the eurozone is the potential Greek exit from the eurozone monetary union. This is also known as the “Grexit” or “grexit“, a portmanteau combining the words “Greek exit”. The term was introduced by Citigroup’s Chief Analysts Willem H. Buiter and Ebrahim Rahbari on 6 February 2012.
Two days after an early election of the Greek parliament, Alexis Tsipras, leader of a newly-emerged party called SYRIZA, formed a new government. He appointed Yanis Varoufakis as Minister of Finance—an important post in view of the Greek government-debt crisis. Since then, the chance of a Grexit or even a ‘Graccident’ (accidental Grexit) in the near future has been widely discussed.
Some European scholars have insisted on the shaky legal grounds upon which the “troika” composed of the EU Commission, the European Central Bank and the IMF has pursued the harsh macroeconomic adjustment plans imposed on Greece, claiming they infringe upon Greece’s sovereignty and interfere in the internal affairs of an independent EU nation-state: “the overt infringements on Greek sovereignty we’re witnessing today, with EU policy makers now double-checking all national data and carefully ‘monitoring’ the work of the Greek government sets a dangerous precedent.”
These scholars have argued that a withdrawal from the Eurozone would give the Greek government more room to maneuver to conduct economic and public policies propitious for growth and social equity.
On Monday 11th May 2015, Greece paid the IMF a total of €750 million, using €650 million of the IMF’s Special Drawing Rights (SDR) reserves. A further €1.6 billion is due the IMF on Friday 15th May, it remains to be seen how that works out!!