Special report by Albin Birger
It was in Frankfurt-am-Main in Germany on 1 June 1998. After much upheaval and a fair dose of scepticism, a new structure was added to the EU's institutional framework that would stand the test of time - the European Central Bank (ECB). Barely a week after the date they officially started work, the ECB's main bodies, the General Council and the Governing Council, were meeting for the first time at the Eurotower headquarters, chaired by Dutch national Wim Duisenberg. President of the European Monetary Institute, Duisenberg had been appointed as the ECB chief a month earlier by EU heads of state who had just sealed the fate of eleven countries which became part of a single monetary area on 1 January 1999 when the third phase of Economic and Monetary Union (EMU) was launched.
Europe is currently preparing to celebrate the symbols of its economic success and successful integration in a few months time. On 1 January 2009, the euro will be celebrating its tenth anniversary. On 1 June 2008, the body responsible for deciding on the destiny of the single European currency celebrated10 years of existence. Two good reasons for EUROPE to discuss this young institution, the ECB, which has matured fast but is still subject to much critique. The criticisms arising from concern to keep public opinion happy in the Member States fail to keep pace with the historical and political scale of the project. Other more constructive criticism, however, puts the spotlight on genuine shortcomings in the eurozone.
The introduction of EMU was accompanied by discord, and the discussions at the time of its launch shed light on problems that are still alive and kicking today. The ECB's autonomy and its responsibility for monitoring the stability of the single currency are essential, but the existence of a political power capable of properly coordinating the economic policies of the countries in the eurozone is primordial. The attempt to strike a balance between the monetary and the economic dimensions suffers greatly from weak economic governance, which is still in its infancy. Eurogroup (the committee of Eurozone finance ministers) can be justly proud of genuine progress in the way it operates, but its president, Jean-Claude Juncker, is at pains to point out what is missing and deplores the lack of political will to make use of existing economic policy coordination instruments. Such coordination is, however, the remit of national governments which, in their criticisms of the ECB, often tend to confuse their own failings with a supposed lack of dialogue with the ECB.
EMU is a success. The euro has become a credible currency and has won over the trust of investors. Having succeeded through its policies in winning over the financial markets, the ECB can legitimately claim credit for its success. In ten years of learning on the job, the division of labour and responsibilities with Eurogroup has been clarified, but that does not mean that one cannot consider or hope for necessary changes to accompany the surge of the single currency, its growing importance on the international stage and the extension of the eurozone itself. Why not also win over the hearts and minds of citizens?
THE ECB SEEN FROM THE INSIDE
Guy Quaden is doctor of economics and professor at the Economics, Management and Social Sciences Faculty of Liège University and has been the Governor of the National Bank of Belgium (BNB) since 1 March 1999. In the latter capacity, he has been a member of the Governing Council of the European Central Bank (ECB) for nearly ten years now. He expounds below his vision of the ECB's role and operations.
Agence Europe: What lessons do you draw from the EMU's 10 years of existence and the functioning of the ECB?
Guy Quaden: The most important and obvious fact is that the new common currency, the euro, has rapidly become a solid, credible currency. This is demonstrated by the low level of interest rates (nominal and real, short and long term) for 10 years in the eurozone compared with those that prevailed beforehand in our different countries. The euro has become the world's second currency and is also credible outside the eurozone. The strength of the euro, which is not an objective in itself, which reduces the price of our imports but is also a handicap on some of our exports, reflects above all confidence in our currency.
The ECB has also rapidly become a respected central bank. This is due in good measure to the fact that the members of the Governing Council have fully played the European game, forgetting their countries of origin's own interests, to pursue solely the common European interest. For this reason, our decisions tend to be unanimous.
Finally, some politicians and even some economists have sometimes accused us of being virtually obsessed with fighting inflation. But this is the mandate conferred upon us by the European Treaty. This is a necessary condition for sustainable growth. And this can clearly be seen since - despite us - inflation has speeded up, due to the hike in price of imported raw materials, price stability is also a major concern of our populations.
A.E.: What are the main changes that characterise the presidency of Jean-Claude Trichet compared with the presidency of his predecessor, Wim Duisenberg?
G.Q.: Above all, there are the two men's commonalities: experienced central bankers, committed Europeans. Of course, each character has his own style that observers can appreciate. One of Jean-Claude Trichet's characteristics is his perfect mastery of communication. That said, monetary policy decisions are collegiate. The success of the euro is a team success: the trainer's talent is crucial - and Trichet has huge talent - but the group's cohesion is decisive.
A.E.: Has the ECB reached maturity?
G.Q.: As I just said, the ECB has already shown its worth by ensuring the solidity and credibility of our new currency. The system also managed to strike a good balance between responsibilities at the centre - the ECB managed by its Governing Council - and associated national central banks, whose role remains essential, notably in the application of the common monetary policy in the different national territories, and in communication with the various public opinions in the eurozone.
The Eurosystem reached maturity quickly. But it will obviously continue to evolve. In line with more or less predictable events: enlargement of the eurozone, starting - most likely - with the arrival of Slovakia at the start of 2009. In line with more or less unpredictable events, for example the recent financial turbulence. In Europe, the supervision of financial institutions whose activities have long extended beyond national borders will have to be rethought. I am not saying that this supervision should be conferred upon the Eurosystem. But it would be a pity to deprive oneself of the skills and services of this network, unique in its genre.
A.E.: Could the substance of dialogue between the ECB and Eurogroup be improved? Could a summit of heads of state contribute to this?
G.Q.: The conditions for dialogue are in place. The Presidents of ECOFIN and Eurogroup and the European Economic and Monetary Affairs Commissioner have a standing invitation from the Governing Council in an advisory capacity. The President of the ECB regularly participates in meetings of Eurogroup. As central bankers, our mandate is clear, our cohesion is strong to the service of the general European interest, we are disciplined in terms of communication. Now it is only to ministers to do the same. Personally, I am not at all opposed - quite the contrary, as a European citizen - to strengthening the political pole, even the idea of an economic government. I cannot imagine that its concern would be to reduce the independence of the central bank, which is, moreover, carved into the Treaty. It would be a matter of strengthening coherence in the non-monetary aspects of economic policy. This means in the immediate term that countries calling for a European economic government would have to make it a duty for themselves to scrupulously respect the few common rules that Europe has already set itself in terms of budget policy, in this case the provisions of the Stability and Growth Pact.
A.E.: Should the profile of the members of the ECB's Governing Council be extended by incorporating figures from milieus outside central banking circles?
G.Q.: In fact, very few members of the Governing Council have spent their entire professional career at a central bank. J.-C. Trichet worked, I believe, for thirty or so years at the Finance Ministry before he was appointed Governor of the Banque de France and then President of the ECB. I myself was a university professor for 20 years before becoming a member of the Board of Directors and then Governor of the National Bank of Belgium. This is also the case of several other colleagues. Others had a political life in the past as parliamentarians or ministers. Some have experience in the private sector. In total, this represents highly varied careers. But once we became central bankers, we all had to carry out the mandate consigned to us by monetary law, in this case the European Treaty.
A.E.: Should small Member States be better represented at the Executive Board?
G.Q.: The members of the Executive Board, as much - if not more - than the other members of the Governing Council, are in the service solely of the European common interest. They should be selected independent of their nationality. It is, however, clear that at the time of the first appointments in 1998 and the later appointments from 2002 to 2006, that the four biggest countries in the eurozone agreed that each one would appoint one of the members of the Executive Board. And the other countries bowed to this. This is a situation that I regret and which does not conform to the spirit of monetary union. But I believe it will also become untenable at the time of future appointments, particularly because the number of Member States will continue to increase.
THE EUROZONE'S MONETARY STRUCTURE
The EMU's success is based on a unique institutional structure topped by the European System of Central Banks (ESCB), comprising the central banks of all EU Member States (whether or not they have joined the euro) and the European Central Bank, which has to be independent of governments and European institutions. The ECB is managed by a six-member Executive Board, which manages monetary policy on a daily basis. The policy itself is set by the Governing Council, comprising the six members of the Executive Council and the governors of the central banks of countries in the eurozone. All countries in the eurozone, whether large or small, have one vote. The guidelines of the national central banks of the eurozone are set by the ECB, to which they transfer some of their gold and currency reserves. The domestic monetary sovereignty of Member States is therefore exercised by the ESCB and the ECB, and the ECB controls the emission and management of the euro.
The national central banks (NCBs) retain their own legal personality but are now, along with the ECB, members of the ESCB, which does not have any legal personality. In this system, the NCBs are involved in decision-making, which is done centrally at the ECB, and can apply the decisions in a decentralised manner in the Member States concerned. The NCBs are the only banks allowed to subscribe to and hold the ECB's capital. In parallel, the contribution each NCB makes to the ECB's exchange reserves is proportionate to the amount of capital it has subscribed to in the ECB.
The ECB's main task is to maintain the value of the euro and combat inflation, a great concern of the Germans when the euro was being created. The ECB decided upon the target of ensuring that prices do not rise more than 2% a year. It also has to monitor exchange rates because of how they impact on prices. It is free to choose how to achieve this price stability target - setting interest rates, controlling liquidity and controlling credit. The management of the euro outside the eurozone through the exchange rate policy is shared with the Council of the EU, which is involved in setting the general guidelines that have to be compatible with the objective of controlling inflation and respecting the ECB's independence. The ECB is responsible for the day-to-day running of currency trading. Article 108 of the EC Treaty and Article 7 of its Statutes lay down the principle of independence of the ESCB and the ECB. The ECB's institutional independence is shored up by its financial independence because the ECB has its own budget.
DECISION-MAKING AT THE EUROPEAN CENTRAL BANK
The Governing Council. As the ECB's highest decision-making body, the Governing Council is charged with deciding on guidelines and taking the decisions required to achieve the ESCB's mandate. It decides on the eurozone's monetary policy and issues guidelines to ensure its application. It meets at least ten times a year. Normally, only members of the Governing Council (the Executive Board and governors of national central banks), the President of the Council of the EU and a member of the European Commission can attend Governing Council meetings. In theory, it is one member, one vote on the Governing Council, but Article 10 of the Statutes lays down that when the eurozone has more than fifteen countries (which will happen on 1 January 2009), then members of the Executive Board will permanently have the right to vote but no more than fifteen governors of national central banks will have the right to vote at any one time. A rotating system would then decide which governors can actually vote.
The Executive Board. The Executive Board is responsible for implementing monetary policy in line with the guidelines and decisions taken by the Governing Council. In this connection, it gives instructions, where necessary, to the national central banks. The day-to-day management of the ECB is the remit of the Executive Board, as are all banking services (see box below). Each member of the Executive Board attending meetings has the right to a single vote. Unless decided otherwise, decisions are taken on a simple majority voting basis.
Box
The six members of the Executive Board have the following powers over ECB services:
Alongside his statutory functions as the President of the Executive Board, President of the Governing Council and President of the General Council, Jean-Claude Trichet (who has held the post since 1 November 2003) is responsible for the Communications, Internal Audit, Secretariat and Language Services departments.
Alongside his work as Vice-President, Lucas Papademos (who took over from Christian Noyer on 1 June 2002) is responsible for the Stability and Surveillance of the Financial Industry and Research departments.
Gertrude Tumpel-Gugerell (who took up her job on 1 June 2003, replacing Sirkka Hämäläinen) is responsible for the Human Resources, Budget and Organisation, Payment Systems and Market Infrastructures departments.
José Manuel González-Páramo (who has been on the Executive Board since 1 June 2004, when he took over from Eugenio Domingo Solans) is responsible for the Banknotes, Market Operations and Statistics departments.
Lorenzo Bini-Smaghi (who arrived on 1 June 2005 after the departure of Tommaso Padoa-Schioppa) is responsible for Administration, International and European Relations and Legal Services.
Jürgen Stark (who replaced Otmar Issing on 1 June 2006) is responsible for the Economic Issues and Information Systems departments.
The General Council. The General Council implements the ECB's temporary missions, with responsibility for the work of the erstwhile EMI (European Monetary Institute) of leading the Member States that have not joined the euro into the third stage of EMU. It helps in the irreversible setting of euro interest rates for the currencies of Member States benefitting from derogations from the single currency as part of the process of their joining the euro. It comprises the President and Vice-President of the ECB, governors of the national central banks of the eurozone and governors of the national central banks of the rest of the EU.
Committees. The Rules of Procedure enable committees to be set up to assist the ECB's decision-making bodies in their work. Committees comprise no more than two representatives from each national central bank in the Eurosystem (i.e. Member States that have joined the euro) and the ECB. The national central bank of any Member State that has not joined the euro can also appoint up to two representatives in some cases. At present, there are 14 committees dealing with issues like banknotes, prudential control of lending establishments, international relations, and communications.
EUROPEAN CENTRAL BANK POWERS
The ESCB's objectives. The primary objective of the European System of Central Banks is 'to maintain price stability' and 'without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2' of the EC Treaty, namely 'a high level of employment and sustainable and non-inflationary growth'. The ECB works in accordance with the principles of an open market economy where there is free competition, favouring an efficient allocation of resources and respecting the principles set in Article 4 of the EC Treaty (stable prices, healthy public finance and monetary conditions and stable balance of payments).
The objective of combating inflation is therefore more important than other objectives in the event of conflict, and pursuit of the price stability objective therefore justifies the ECB's autonomy from the political system.
The tasks of the ESCB and the ECB. Article 105(2) of the Treaty and Article 3 of the Statutes lay down the ESCB's basic tasks, namely to define and implement the Community's monetary policy, to carry out exchange operations in line with Article 111 of the EC Treaty, to manage the Member States' official reserves and to promote the proper functioning of payment systems.
Other related tasks include emitting euro banknotes, the only banknotes that have the status of legal tender within the eurozone (under Article 106(1) of the Treaty and Article 16 of the Statutes); collecting the statistics required for the Eurosystem's work (Article 5 of the Statutes); ensuring the proper implementation of policies carried out by the competent authorities with regard to prudential control of lending establishments and the stability of the financial system; and international cooperation with other EU institutions and international organisations.
Box
With fifteen EU Member States in the eurozone, there are now 317 million EU citizens who share the same single currency, the euro. This will grow in the future because all EU Member States, apart from the two which have opted out (the United Kingdom and for the moment Denmark), must join the eurozone at some point. This therefore includes Sweden, which has refused for the moment to make the necessary changes in its legislation to be able to join the euro (since a 2003 referendum in Sweden rejecting the idea of joining the euro), and all the new Member States which joined the EU in 2004 and 2007, which in theory have no choice about whether to join (Slovenia, Cyprus and Malta have already joined the euro and Slovakia will be joining on 1 January 2009).
Among its regular activities, the ECB joins the European Commission in examining the performance of Member States which may join the single currency. The definition of circumstances in which Member States can join the euro is set down by the Treaties. Applicant countries have to meet economic convergence criteria known as the Maastricht criteria, namely inflation that is no more than one and a half percent above the inflation level of the three countries in the eurozone with the lowest level of inflation; long-term interest rates of no more than two percent above the average of the three countries with the lowest long-term interest rates; a budget deficit of less than 3% of GDP; public debt levels of below 60% of GDP; and a stable exchange rate within the European Exchange Rate Mechanism (ERM II) over a period of at least two years. These criteria have to be interpreted in trend terms and Member States' performance has to be sustainable.
The experience of Lithuania, which failed in its bid to join the euro in 2006 due to its inability to provide full guarantees of long-term price stability, illustrates the problems with respecting the price stability criterion. Given the current inflationary pressures and the economic catching-up still underway, inflation is making it unlikely that any more of the new Member States from the last two rounds of enlargement will join the EU for several years to come. In April 2008, Slovakia got the go-ahead from the European Commission and the ECB to join the euro on 1 January 2009. But despite a twelve-monthly inflation rate of 2.2% (well below the reference level of 3.2%), the ECB still noted that 'there are upside risks to inflation in Slovakia.' In its convergence report it even commented that, 'in sum, there are considerable concerns regarding the sustainability of inflation convergence in Slovakia'. The ECB therefore recommended the introduction of an environment conducive to sustainable convergence through the introduction of a sustainable, credible, budget correction process and the pursuit of structural policies (improving the functioning of the labour market and competition on markets for products, particularly in the energy industry).
THE EUROPEAN CENTRAL BANK'S MONETARY POLICY
Monetary policy's ability to ensure price stability is based on a reliable banking system for the single currency emitted by the central bank in order to meet fiduciary demand, compensate for interbank balances and meet the compulsory reserve requirements at the central bank.
Changes in money market rates by the central bank set in motion a number of reaction mechanisms on the part of economic players, which in turn impact on changes in economic variables like production and prices. This process, the 'monetary policy transmission mechanism,' is highly complex. The scale and strength of the impact of interest rate decisions is difficult to measure with any accuracy and there can be a considerable time lag between the time when a decision is made to change interest rates and this decision feeding through.
By impacting on the conditions for financing the economy and also through market forecasts of changes in interest rates, monetary policy can influence other financial variables like the currency markets and the price of shares and other investments. This in turn has a domino effect on the savings, spending and investment decisions of households and companies alike.
The ECB uses three different interest rates to implement monetary policy:
The deposit facility is the rate at which commercial banks and other bodies can make overnight deposits at the European Central Bank.
The interest rate on the main refinancing operations (MRO) is the most important interest rate (see box below). This is the variable daily rate that decides the 'cost of money' in other words the rate earned by bank and financial institution surpluses and liquidities deposited at the European Central Bank or at which banks and financial institutions can borrow from the European Central Bank. Banks borrow from the ECB and then lend this money to one another at a slightly higher interest rate on the interbank market.
The rate on the marginal lending facility, also called the discount rate, offers overnight credit to banks and credit institutions.
Box
In October 2000, the MRO interest rate in the eurozone reached its highest level thus far, 4.75%, where it stayed for several months (from October 2000 to May 2001). At its lowest, the MRO stood at 2% for two and a half years, from June 2003 to December 2005.
At the end of 2005, with fears about price stability, the ECB increased interest rates by 25 points (0.25%), and this was followed by eight further 0.25% rises at irregular intervals of two or three months, until the main refinancing rate reached 4% in June 2007. Throughout this period, the ECB issued stronger statements identifying a number of upside risks to price stability and aiming to avoid second round effects, in other words an inflationary spiral with price rises in some sectors spreading to the rest of the economy through raw materials and pay levels.
Against all expectations, current interest rates are still at the same level
After talking in August 2007 about being 'highly vigilant', a term always used in the past as a code to mean interest rates would be raised in the next month, the ECB said the same thing in September 2007 and as a result of the bank's use of this well-oiled communications mechanism, the markets were expecting interest rates to increase.
However, between the two meetings of the Governing Council, the arrival on the financial markets of the sub-prime turbulence in mid-August turned expectations upside-down, leading the ECB to put on hold its plans to tighten the monetary belt. Deciding to 'wait and see', the ECB has since then continued to stress the uncertainty of the economic situation and kept interest rates unchanged.
Avoiding use of terms like 'vigilance' and 'accommodative monetary policy' (used to describe interest rates that are high enough to sustain economic activity, as opposed to a restrictive monetary policy), the ECB's communications have gradually kept all options open for interest rate moves. Faced with the announced slowdowns in growth and the continued turbulence on the financial markets, some market players have started to bet on a fall in interest rates in 2008. But the strong surges in inflation seem to be putting any such fall on the back burner.
Torn between the risk of lower growth and the danger of higher prices facing the strong euro and turbulence on the financial markets, the ECB has kept its interest rates unchanged for a year now. Recently, in order to fine-tune statements that are always studied with a fine toothcomb, the ECB President, Jean-Claude Trichet, again stressed the priority of fighting inflation. Maybe this suggests a rise in interest rates?
To measure the risks of inflation in the eurozone, the ECB has defined two approaches (economic and monetary) underlying its analysis.
The first approach analyses the short and medium-term determinants of price changes, stressing real activity and the conditions for financing the economy. In this connection, the ECB examines changes in productivity, demand and the situation on the labour market, a wide range of price and cost indicators, budget policy and balance of payments.
The second approach is based on the fact that monetary growth is closely connected with inflation and cross checks with trends in economic analysis over the medium to long term. The ECB looks at changes in a number of variables, like components of the monetary aggregates (in other words fiduciary money or term deposits, which form the broad monetary aggregate M3).
RELATIONS WITH OTHER INTERNATIONAL INSTITUTIONS AND ORGANISATIONS
The President of the Council of the EU and a member of the European Commission (a European Commissioner, in other words) can attend ECB Governing Council meetings (but cannot vote), and the President of the ECB can attend Eurogroup and Council meetings where issues connected with the ESCB's objectives and mandate are being discussed.
The ECB draws up an annual report on the ESCB's activity and previous and current year's monetary policy for the European Parliament, the Council of the EU, the European Commission and the European Council. The ECB President (usually the Vice-President in fact) presents the report to the EP. The ECB President and the other members of the Executive Board can, on their own initiative or on request from the EP, address the relevant EP committees.
Jean-Claude Trichet regularly briefs the EP's Economic and Monetary Affairs Committee as part of what is known as 'monetary dialogue'. This is a public meeting but is more like a monologue or the deaf talking to the deaf with often critical MEPs eagerly awaiting information from a laconic President of the ECB who always sticks to his mandate.
The ECB has observer status at all meetings of the International Monetary Fund's Executive Board dealing with issues of direct interest to the ECB (the role of the euro in the global monetary system, multilateral surveillance etc). The ECB President is invited to attend meetings of the International Monetary and Financial Committee (IMFC) that is held twice a year at the same time as the IMF's spring summit and AGMs.
The ECB President and the President of Eurogroup attend G7 summits every two years on macroeconomic surveillance and exchange rates and other summits of big global players. The ECB President also attends meetings of governors of the central banks of G10 countries, which are usually held at the Bank for International Settlements' headquarters in Basel, Switzerland, every two months.
EUROPEAN CENTRAL BANK - STAFF AND HEADQUARTERS
Staff. At the end of 2007, the full-time equivalent number of people with permanent or temporary contracts stood at 1,375 (149 of whom in management positions) according to the ECB's annual report for 2007. The ECB does not operate staff nationality quotas.
The pay and allowances system, including the management pay system, is basically the same as that of the European Communities. Salary, sickness insurance and various related costs totalled €141.7 million in 2007 (compared with €133.4 million in 2006).
Members of the Executive Board receive basic salary, a residence allowance and a representation costs allowance (the ECB President also has use of ECB housing). They are entitled to school fee allowances, household allowances and allowances for dependent children, depending on their individual situation. EU income tax is levied on basic pay and deductions for pension, health insurance and accident insurance schemes. The basic annual pay for members of the Executive Board was as follows in 2007: the President was paid €345,252, the Vice-President €295,920 and the four others each received €246,588.
Headquarters. On the agreement of EU heads of state on 29 October 1993, the ECB headquarters is in Frankfurt-am-Main in Germany. The ECB currently rents three buildings in the centre of Frankfurt but has decided to build its own premises. In March 2002, it bought land in the east of the city at the location of the current wholesale market (Grossmarkthalle), a classified building which has to be incorporated into the design of the ECB's new premises. Work started on the site in April 2008 and planning permission has just been issued by the city of Frankfurt so the main body of the work can begin once the construction company has been selected through a European call for tender (probably before the end of 2008). The buildings should be completed by the end of 2011 at a total cost of €850 million. The investment will be written off in 25 years.
BALANCE SHEET AND FUTURE PROSPECTS
The ECB's monetary strategy has been a success overall, but commentators suggest practical improvements could be made.
Broadly speaking, nominal short-term interest rates in the eurozone have never been as low as at present. Interest rates are much lower than the average interest rates in Member States before the euro. In terms of inflation, the outcome has been more favourable than in virtually all eurozone countries before the euro was introduced. Leaving aside the current hike in prices, inflation hovered very close to the 2% target from 1999 to 2006, after having reached 3% in the 1990s and between 8% and 10% in the 1970s and 1980s. A return to low inflation and more affordable credit is expected once external pressure has dissipated, according to the European Commission in its recent communication on the 10th anniversary of EMU.
Current euro exchange rates are certainly one of the most controversial issues and the focus of criticism of the ECB. The euro was very unstable from 1999 and the end of 2004 and has shot up in value against the US dollar since 2006, but this is not down to the ECB's monetary policy alone. It also results from global economic imbalance, like the high US trade deficit, and other factors out of the ECB's control, like the Chinese Central Bank's pegging of its currency to the US dollar. Some commentators point out that the exchange rate policy can also be decided upon by the Council, which has chosen to ignore its responsibilities.
In terms of stability of the financial sector, most observers agree that the ECB has sailed through the test of managing financial turbulence. The subprime (high risk) mortgage crisis that emerged in the United States in the summer of 2007 has made commercial banks very suspicious and loathe to lend money. The ECB has therefore injected nearly €95 billion into the European banking system since 9 August 2007, more than the amount it injected into the markets following the September 11 2001 attacks (nearly €70 bn at the time). It has since repeated the operation to ease tension on the interbank market (the credit crunch). Some commentators, however, accuse the ECB of sticking to its traditional attitude of not lowering interest rates, slamming the increasing gap between eurozone and United States interest rates (the latter have been falling for several months).
Despite repeated criticism from some European leaders and economists, who say the ECB focuses too much on inflation at the expense of growth and employment, ECB representatives firmly reject any call for a change to be made in the ESCB's statutes. It is therefore unlikely that the ECB will be given a double mandate, along the lines of the Federal Reserve in the United States.
Suggested changes to some of the functioning of the ECB and transparency.
Although, at the outset, publication of the minutes of Governing Council meetings might not have been a priority, the ECB's refusal to publish the minutes does not make sense today, particularly as far as Members of the European Parliament are concerned. Governors of Eurosystem national central banks sometimes make contradictory statements, but publication of the minutes would increase clarity in the debate on monetary policy decisions.
Box
From the start, the appointment of members of the ECB Executive Board was subject to bitter national rivalry between Helmut Kohl, Jacques Chirac and Tony Blair, who called for there to be a British national on the Executive Board. At a special European Council in Brussels on 3 May 1998, EU heads and state managed to thrash out a compromise deal for the ECB President's eight-year term of office to be shared by Dutch national Wim Duisenberg and French national Jean-Claude Trichet (who took over on 1 November 2003).
Since then, big EU Member States have continued to try and get one of their nationals onto the Executive Board, although this does not fit with the Statutes of the ESCB members and management bodies which stipulate that they may not request or accept instructions from EU institutions, governments or any other bodies. When it came to finding a replacement for a Spanish Executive Board member in 2004 (Eugenio Domingo Solans), a fellow Spaniard was selected (José Manuel González-Páramo), to the disgust of small countries, which had been backing a different candidate. Virtually the same thing happened in 2006 when Jürgen Stark was appointed to replace a fellow German, Otmar Issing.
Likewise, the way appointments are made is not satisfactory (see box below), states the European Parliament, which is only consulted over ECB appointments. The EP wants the skills base of members of the ECB Executive Board to be enlarged and for recruitment to no longer be exclusively made from central bank circles.
Another question arises about the ECB's strategy for the international role of the euro. The ECB pledges to remain neutral and not promote use of the euro as a reserve currency, but it should consider this issue and decide how it should react to the US dollar. It is necessary to decide how the two currencies should cohabitate as reserve currencies or, at this stage at least, to assume the responsibilities arising from the euro's international role and how it impacts on the eurozone (including representation at the International Monetary Fund and World Bank). Since 1999, the euro has risen from making up less than 18% of the reserves of central banks to around 26% today. During the same period, the US dollar has fallen from 71% to 65%. The euro and the greenback will not be on a par in the immediate term, of course, but some economists forecast that by 2010, some 30% to 40% of global assets may be held in euros.