European Central Bank ECB

ECB Basics

Acronyms

The European Central Bank, abbreviated as ECB by ABBREVIATIONFINDER.ORG, is responsible for the euro, the common currency of many EU countries. It controls the amount of money put into circulation, sets interest rates and ensures that economic development in the euro zone is as smooth as possible.

Who will ensure that I will still get as much for my money the day after tomorrow as I do today and how does one currency actually work for many countries? The euro is the common currency of many EU countries, such as Germany, France, Italy and Cyprus. The European Central Bank (ECB) is the guardian of the euro. It is the top bank in Europe and has various options for regulating the circulation of money between consumers, companies and commercial banks and thus keeping the currency stable. Economic experts assume that a stable currency is an important condition for good economic development.

How important the currency is for the European Union can be seen in the way politicians reacted to the “euro crisis”. In 2009-2010, the term »euro crisis« ​​was used to describe the plight of some European countries such as Greece and Portugal, which incurred such high debts that other EU countries had to help them with a lot of money. In 2010, at the height of the »euro crisis«, the Chancellor said: »If the euro fails, Europe will fail«. The ECB also played an important role in this crisis, as it was also involved in rescuing the heavily indebted countries.

The foundation

The so-called Treaty of Rome from 1957 formed the basis for the establishment of the European Central Bank. In this, Belgium, the Federal Republic of Germany, France, Italy, Luxembourg and the Netherlands decided to create a common economic zone, the European Economic Community (EEC).

In addition to the coal and steel union, which was founded in 1951, this was intended to abolish customs duties between the member states and generally enable free movement of people, goods and money within the member states. The background was the idea of organizing a basis for lasting peace between the European states after the devastating Second World War. It was agreed that this could best be achieved through close economic cooperation and the establishment of strong supranational institutions such as the European Council and the European Commission.

Another necessity for the close cooperation of the Western European countries was the division of Europe after 1945. The GDR and almost all Eastern European countries were under the political influence of the Soviet Union and were perceived as a homogeneous, sometimes threatening bloc in various areas.

The desired (Western) European integration should ensure economic growth and social progress in all member states equally. On this basis, politicians and experts from these countries began to discuss in the early 1960s the prospect of making the EEC into a community with a single, common currency. This should be the link for the realization of a united economic area.

An intermediate stage on the way was the European exchange rate union, which initially introduced and monitored fixed exchange rates between the European currencies. The exchange rate means the exchange ratio between two currencies. From 1994 the new European Monetary Institute coordinated the monetary policy of the central banks of the individual countries.

The successor to this institution was the European Central Bank based in Frankfurt am Main in 1998. She coordinated the introduction of the euro on January 1st, 2002 as a means of payment in the EU countries Belgium, Germany, Finland, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Spain. In Germany, the euro replaced the Deutsche Mark, which had been valid since 1948, as a means of payment.

Structure and role of the ECB in the European Union

The European Central Bank is an independent institution under the Maastricht Treaty (1992). Like the national central banks subordinate to it, it must not receive any orders or instructions from politicians. In particular, the ECB is prohibited from granting loans to the public budgets of the euro countries.

This is crucial for the role of the ECB as the “guardian” of the common currency, the euro. The ECB’s task is to pursue its goal of price stability in an unreserved, credible and neutral manner. Price stability enables a steady economic development in the euro zone. But if governments, politicians or other EU institutions could influence the bank and use central bank money to implement their own, perhaps even very popular, political projects, this goal would be jeopardized.

The director or the Governing Council may not act entirely without supervision and supervision. The annual reports of the bank are presented once a year to European institutions such as the Commission, Parliament and the Council of Europe. In addition, a quarterly statement on the activities in the Eurosystem is part of the so-called reporting and accountability obligations. All reports are publicly available on the website of the national central banks (in Germany this is the Bundesbank).

European Central Bank ECB