European Central Bank

The European Central Bank (ECB) was founded on June 1, 1998, and is the pivotal institution in the European System of Central Banks. The primary task of the ECB is to guide the targeting of monetary policy instruments to ensure price stability within the eurozone (the term used to describe those countries that have adopted the euro). The ECB also plays a role in the stabilization of exchange rates, the management of foreign exchange reserves, the supervision of financial markets, and the issuance of euro notes and coins. Much of this activity is undertaken by the national central banks (NCBs) within the European System of Central Banks, but the ECB maintains the capacity to act directly in the markets and is responsible for ensuring that the NCBs faithfully implement the monetary policy for the eurozone.

The ECB is governed by a board comprising a president and vice president in addition to four regular members, all of whom are drawn from countries that have adopted the euro. In support of this board, the ECB employs a small administrative staff (small compared to most national central banks) covering a range of representational, operational, legal, and public relations concerns. It also maintains a statistics office for collating and reproducing data received from the member-states and for conducting economic research and analysis.

The ECB's research capacity is important to its ability to guide the targeting of money policy instruments. The authority for setting monetary policy resides not with the ECB but with the governing council of the European System of Central Banks. The governing council consists of the governors of those NCBs that participate in the eurozone in addition to the six ECB board members. NCB representatives outnumber ECB board members by a margin close to 2:1; thus, it is important for the board members to have the authority (and the research competence) to speak on behalf of the eurozone as a whole. The governing council meets twice per month but decided early on that it would make monetary policy decisions only during the first of those twice-monthly meetings. Both the content of monetary policy decisions and the rationale behind them are communicated by the ECB president in a press conference immediately following the meeting. This practice differs from other major central banks such as the Bank of England and the United States Federal Reserve in Washington, D.C., which publish the minutes of their policy committee meetings, albeit with some delay.

The decision to hold press conferences rather than publish the minutes of governing council meetings has attracted criticism, particularly from the European Parliament. The economic and monetary affairs committee of the European Parliament has responsibility for overseeing the work of [Page 529]the ECB and argues that only the publication of minutes can ensure the necessary transparency. For its part, the ECB insists that it cannot publish minutes because that would constrain its political independence. According to the EU treaties, European politicians are prohibited from trying to influence the monetary policies of the ECB, and the governing council is enjoined from accepting political influence. Successive ECB presidents have argued that published minutes would make it more difficult for NCB representatives to maintain their political independence and could distort the decision making of the governing council as a whole.

...