Warsaw School of EconomicsInternational Organizations

Fall 2015

The European System of Central Banks

Sarah Al KindyPiotr Pajda

Table of Content:

Introduction......................................................................................................................................3

History.............................................................................................................................................4

Bodies of the European Central Bank.............................................................................................8

Shareholders....................................................................................................................................9

European Central Bank Principles.................................................................................................11

Aims and Objectives......................................................................................................................15

European Central Bank and the financial crisis.............................................................................19

European Central Bank and Ecology.............................................................................................20

European Central Bank and the European integration process.....................................................22

Summary........................................................................................................................................24

Bibliography..................................................................................................................................25

Introduction

In this essay we will focus on the role of European Central Banks in the process of European

Union integration. You will notice that it is about the European System of Central Bank but we

will focus mainly on The European Central Bank.

As we know millions of people in many European countries share the Euro as their main

currency. The historical roots of monetary integration in Europe goes back to the XIX century,

this was also before the creation of the Economic and Monetary Union.

Since 1999 the ECB has been in charge for conducting monetary policy for the euro area – which

is the second largest economy. The creating of the euro area and the ECB was considered to be a

breakthrough in the complex process of the European integration.

The key object of any central banks is to make sure that the value of money is conserved over

time and it must explain and create awareness of the policies and services it provides to the

public.

The ESCB was established by accordance of the Maastricht Treaty and the Statute of the

European System Central Banks and of the ECB. Since not all of the member states gave adapted

the euro as their main currency, the term ‘’ Eurosystem’’ is used to describe the object composed

of the ECB and the national central banks of those member states which have adopted the euro.

In addition, most of the tasks discussed are handled by the Eurosystem.

History

The European Central Bank was officially established back in June 1st of 1998. And the current

president of the ECB is Mario Draghi, who replaced Jean Claude on 1st of November of 2011.

Mario Draghi is also the former governor of the Bank of Italy, former member of the World

Bank, and former managing director of Goldman Sachs international division.

ECB is a central bank whose range of functioning is ruled by the treaty mechanism, which is the

Maastricht Treaty. Following the adoption of the Treaty of Lisbon, which is the Treaty on

Functioning of the European Union (TFEU), it runs the European Central Bank. And this of

course makes the European Central Bank an exceptional and unique institution among all other

central banks. It is basically the financial expert in all those member states of the European

Union. And according to Article 3(4) of the Treaty on European Union states that, ‘’the Union

shall establish an economic and monetary union whose currency is the Euro’’

The European System of Central Banks (ESCB) is composed of the European Central Bank

(ECB) and the national central banks (NCBs) of all 28 European Union (EU) Member States.

The tasks of ESCB and the Eurosystem are organize in the Treaty Establishing in the European

Union and in the Statute of the ESCB and ECB, which is an extension to the Treaty.

ESCB primary objective is to maintain price stability and to support the general economic

policies.1

The European Union’s monetary policy is the monetary policy of the Member States whose

currency is the Euro. And this can be found clearly on Article 282(1) of the TFEU which states

that ‘’The European Central Banks, together with the national central banks of the Member

States currency is the euro, which organize the Euro system, shall conduct the monetary policy

of the Union.’’

The ECB was first visualized to be the essential of the formal system of the future of the

European Monetary Union. However, that vision was hard to achieve as it was not given the

position to be the core body of the European Community from the start. Also, the ECB was

controlled by another provision. 2

1 European Central Bank, https://www.ecb.europa.eu/ecb/orga/escb/html/index.en.html2 Narodna Banka Slovenska Eurosystem,www.nbs.sk/en/nbs-in-eurosystem/escb-eurosystem-ecb

Below is the list of institution of the European Union:

The European Parliament.

The European Commission

The European Council.

The Court of Auditors.

The Court of Justice.

The Council of European Union.

The European Central Bank.3 4

However the first five are recognized as the core bodies in the community because the main

difference between the institutions of the European Union and the other bodies of the European

Union is the fact that these institution have different assignments and delegations with specific

commands which are much more extensive and comprehensive of carrying out the aims of the

Community that are specified in the introductory provisions of the Treaties.

But even though the ECB was not given the status of Community institution, it did not affect

their capabilities nor abilities in any way possible.

Unlike the other bodies, the ECB gains its power directly from the Treaties itself. For instance, it

is not transferred to them from the other Community bodies. And that is what makes the ECB so

different from the other Community Bodies, is the fact that they have what one would say a

sincere power.

Furthermore, after the Lisbon was reformed, the status of the European Central Bank has

significantly changed. The transformation brought significant and substantial changes to the

European Union structure as a whole. Some examples of the changes was the abolishing of the

Communities as well as giving the status of the legal person to the European Union. One of the

very important changes was the development of the list of institutions of the European Union.

The ECB and the European Council were welcome as the two new members of the European

Union institutions list.

Since two EU treaties exist, the (TEU) and the (TFEU), the ECB based its structure and plans on

(TFEU), which is also named the Monetary Policy, since it is much more detailed with

requirements that regulate the processes of EU policies.

3 EU institutions, http://europa.eu/about-eu/institutions-bodies/4 EU institutions and different Bodies, http://institutions.publicdata.eu/

The ECB also acts as a core element of the institutional setting called the European System of

Central Banks (ESCB). The ESCB was supposed to be the central institution of the EMU. And

we can clearly see that from the fact that in Article 127 of TFEU, the Treaties entrusted the

ESCB with the primary and secondary objectives of the tasks of the common monetary policy.

The ESCB was mainly created in hope that one day all Member States would join EMU.

However, this hope was seen to be unrealistic – at least on the short run- as soon as Maastricht

Treaty was adopted. Sweden, the United Kingdom as well as Denmark were hesitant to join.

And in 1998 the first decision were being held on the question which member states fulfilled the

union criteria. But Sweden and Greece were not among the chosen eleven states. And even if

Sweden did fulfill the criteria, it would not have joined EMU. Contrast to UK and Denmark,

Sweden does not have an option out clause since it joined the EU in 1995 after the Maastricht

Treaty came into force. However, the EU institutions accepted a special status for Sweden,

which means that Sweden may join the EMU when it makes the decision to do so. In the end of

the day, we can say that Sweden’s status is equal to Denmark’s and the United Kingdom’s, even

though Sweden is not officially formalized as such in Treaties.

Since it is clear that the EMU would be restricted to a few member states, the decision was made

that the ECB would conduct all of the power, tasks and competences that have been given to

ESCB. Unlike the ECB, ESCB has no legal personality to act and no decision body making of its

own. Instead the ECB and NCB are the legal persons and actors. They have the ability to act, but

when they perform tasks assigned to the ESCB, they act in line with its objectives.

Now even though the ECB acts as core of monetary union with all the rights in issuing Euro

banknotes, it still execute its monetary instruments with cooperation with central banks of the

member states of the EMU. Also, during decision making process, governors of those central

banks are presented with equal voting rights. Which in a way, we cannot really say that ESCB

nor ECB is a sole authority of the EMU. Formally, the central authority of EMU is both ECB and

NCBs if member states of the Euro zone. And that is how the term Eurosystem was created. In

order to distinguish between ESCB and the system of encompassing the ECB and NCBs.

Now one may question why do we actually need the ESCB and why the authority in common

policy were not transferred to a single central bank? The answer to the questions that may cause

a bit of confusion and tricky to some people is firstly, the ESCB is basically an institutional

background that work on forming sort of an organic link between the ECB and NCBs. It helps

ensure that all decision making is integrated between each other, it also it helps guarantee that

the tasks the EU Treaty has assigned is performed equally keeping in mind the goals and

objectives of the system. Secondly, there are many reason to why the system of central bank was

created to execute the monetary policy, for one, the founding of a single central bank for the

whole euro area would not be acceptable on political ground. In addition, with the large

geographical euro area with different cultures and nations, domestic institution were considered

best placed to serve as the points of access for the Eurosystem.

And that is why the Eurosystem was established by the TFEU after the Lisbon reforms. And we

can find that in article 282 of the TFEU which states that the monetary policy shall be conducted

by the Eurosystem, which consist of the ECB and NCBs of those countries whose currency is the

Euro.

NCB enjoys legal character under national legal norms. On the other hand, ECB enjoys a very

extensive legal capacity under national law and under article 282 (3) of the TFEU which states ‘’

The ECB shall have legal personality’’. It also enjoys its freedom and protection which are

essential for the performance of its tasks. The legal status of ECB is also run by the statute of the

ESCB and of ECB which is attached to the Treaties as protocol. However the legal status of ECB

is not only based on national law, but also in respect to the international law. It is the legal

person for both national law and international law. The power of EU institution of concluding

international treaties has been unclear in the beginning of the European Communities. However,

the Court of Justice concluded that the EU institution have certain powers which allows them to

conclude international treaties and conduct them in a way of international legal activities. The

ECB is as well welcome to participate in the functioning of certain international organization, for

instance the International Monetary Fund (IMF).

In 1992, when the Maastricht Treaty was signed, it was decided that the headquarters of

European Central Bank would be located in Frankfurt am Main. Due to the fact that the

European Union did not have a proper building, the ECB started renting the Eurotower building

in 1998. At the same time, the EU officials started looking for a good location to build new

building for ECB headquarters. Finally they chose the area of Grossmarkthalle and decided to

include the building of the Market Hall in their projects. 5

5 ECB 2004 by Hanspeter K. Scheller, https://www.ecb.europa.eu/pub/pdf/other/ecbhistoryrolefunctions2004en.pdf

Bodies of the European Central Bank

The official structure of the ECB is run by both TFEU and the statute of the ESCB and ECB.

Since ESCB does not have decision making bodies of its own, it is governed by the decision

making bodies of the ECB.

The decision making bodies are:

-The governing council.

-The executive board.

-The general council.

They are all related to each other and depend on one other in order to achieve their tasks and

goals. Therefore, they all stand on the same ground and are equally important.

The governing council the main decision making body of the ECB. It consist of the six members

of the Executive Board of the European Central Bank, and as of 2015 it includes also the

Governors of the National Central Bank of the 19 euro area countries.

The governing council is responsible for assessing the economic and monetary developments,

define the Eurozone monetary policy, fix the interest rates, which allows commercial banks to

borrow from ECB and establish guidelines and decision ensuring the performance of tasks of the

Eurosystem. The Governing Council target is to keep the inflation rate below but close to 2% on

average.

The Executive Board of the European Central Bank has the responsibility of implementing

monetary policy for the Eurozone taking into account the rules and decision from the Governing

Council of the European Central Bank. The Executive is consisted of one President, one Vice

President and four other members. Members are nominated by agreement between the Heads of

Government of the Eurozone countries for a non-renewable eight-year term. Also, the

candidate’s members are people who have significant professional experience in monetary and

banking matters. The Executive Board main tasks is to implements monetary policy, manage

day to day operations, and prepare Governing Council meetings and exercises powers delegated

to it by the Governing Council. And this of course prove my previous statement of how all

bodies are equally important and depend on each other.

The General Council works as a transitional body between the Eurosystem and other part of

ESCB. It performs the tasks which the ECB took over from EMI. Their main task is to

contribute to advisory and coordinates works and helps to prepare for new countries joining the

euro. Unlike the other two bodies, the General Council is not mentioned in the Treaties,

therefore it does not have ground in funding documents instead it is introduced into the system

by the statute. Since the General Council serves as a link between EMU countries and non-EMU

countries, it is composed of governors of all NCBs of the EU, including the President and Vice

President. Other members of the Executive Board can simply participate in the meeting however

they are not given the right to vote. 6

Shareholders

Although the ECB is governed by European law directly and thus not by corporate law applying

to private law companies, its set-up resembles that of a corporation in the sense that the ECB has

shareholders and stock capital.

"The NCBs’ shares in this capital are calculated using a key which reflects the respective

country’s share in the total population and gross domestic product of the EU. These two

determinants have equal weighting. The ECB adjusts the shares every five years and whenever a

new country joins the EU. The adjustment is made on the basis of data provided by the European

Commission."7

Please find below the fully paid-up subscriptions of euro area national central banks (NCBs) to

the capital of the ECB8.

6 Deutsche Budesbank, Eurosystem, https://www.bundesbank.de/Navigation/EN/Service/Glossary/Functions/glossary.html?lv2=129524&lv3=1456367 Capital Subscription, European Central Bank, https://www.ecb.europa.eu/ecb/orga/capital/html/index.en.html (accessed 10.11.2015)8 ibidem

"The EU’s nine non-euro area NCBs are required to contribute to the operational costs incurred

by the ECB in relation to their participation in the European System of Central Banks by paying

up a small percentage of their share in the ECB’s subscribed capital. Since 29 December 2010

their contributions have represented 3.75% of their total share in the subscribed capital. The

capital paid to the ECB by the non-euro area NCBs amounts to €120,192,083.17 and breaks

down as follows:"9

European Central Bank Principles

Independence of ECB:

Independence of the ECB was the result of pressure created by the German Federal Central Bank

and by the German government as well as the French government. The ECB was built on solid

ground which permits it much independent as needed in order to conduct its primary goal which

is the price stability, example, low inflation rate. As well as the secondary goals of EUs

economic goals, example, low unemployment. Independent central bank is also seen by the

public to be more credible than a central bank which depends on a government. Independence is

important not only for the ESCB but for the Eurozone as a whole. It could have not achieve its

goal of maintaining price stability without the members of Governing Council and the Executive

9 ibidem

Board having some sort of protection in case of political influence from the EU institutions or

national governments.

There is clear evidence that independent central bank brings lower inflation, which of course

results in more stable environment for the economy and employment growth.

Also, independence of central bank can be found in various forms such as financial

independence, which basically means that the ECB has its own budget. Another example would

be the political independence, which means EU institutions and national governments are bound

by treaties to respect the ECB’s independence. The ECB is required to publish reports on its

activities.

The central bank independence, like any other law, needs to be continuously protected and

implemented over time10. This is the responsibility of the political institutions. Moreover, it is

stated in the Treaty on the Functioning of the European Union, Article 130 "When exercising the

powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute

of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor

any member of their decision-making bodies shall seek or take instructions from Union

institutions, bodies, offices or agencies, from any government of a Member State or from any

other body. The Union institutions, bodies, offices or agencies and the governments of the

Member States undertake to respect this principle and not to seek to influence the members of

the decision-making bodies of the European Central Bank or of the national central banks in the

performance of their tasks".

Furthermore, the other important provisions concern the independence of the main ECB

decision-makers.

"Governors of NCBs and members of the Executive Board have security of tenure:

NCB governors have a minimum term of office of five years;

members of the Executive Board of the ECB have a non-renewable term of office of

eight years;

both can be removed from office only in the event of incapacity or serious misconduct;

10 Mario Draghi fights a battle for independence at the ECB, Financial Times, 14.01.2015

The Court of Justice of the European Union is competent to settle any disputes."11

To sum up, there are couple of different ways in which the European Central Bank is

independent. We can distinguish the functional independence, institutional independence,

personal independence and financial one12. They all were granted to make the European System

of Central Banks more credible and well-functioning. We should not forget that such wide

independence in different activities does not remain uncontrolled. There are couple of ways how

the ESCB can be controlled in a democratic way.

The external control plays a crucial way in all European institutions and that is also the case of

the European Central Bank. Every three months, the European Central Bank is required to

publish reports and publications that would present the recent activities of the ECB13. Moreover,

there are also some reports that are issued every week. Moreover, every year, the ECB presents a

formal document that includes the policies of the ESBC for the last and current year. This

document is widely discussed in the European Parliament, European Commission, Council of the

European Union and the European Council. The aforementioned ways of reporting do not limit

the independence of the European Central Bank, because they are just prepared for informative

purposes and they do need to be accepted by external bodies. The court of justice controls also

the activities of the European Central Bank.

Transparency:

The transparency principle has crucial role, especially regarding the monetary policy that is

conducted by the European Central Bank and National Central Banks14. The ECB believes that

communication with public is a matter of paramount importance. The transparency principle

says that all important information regarding the topics of strategy and decisions regarding the

pursed polices are presented to everyone in an open and easy to understand way. The right

11 Independence, European Central Bank, https://www.ecb.europa.eu/ecb/orga/independence/html/index.en.html, (accessed 10.11.2015)12 Europejski Bank Centralny, Katarzyna Cwalina, Uniwersytet Warmińsko-Mazurski w Olsztynie, Olszyn 201513 Research and Publications, European Central Bank, https://www.ecb.europa.eu/pub/html/index.en.html, (accessed 10.11.2015)14 Europejski Bank Centralny, Katarzyna Cwalina, Uniwersytet Warmińsko-Mazurski w Olsztynie, Olszyn 2015

understanding by citizens of the ECB policies makes the monetary actions more credible and

effective15. Moreover, some political scientists distinguish different kinds of transparency:

Political transparency - declaring the monetary policy aims in a formal way and in

compliance with the current regulations.

Economic transparency - easy accessible information about the monetary policy, money

supply, inflation, and unemployment rates, GDP.

Procedural transparency - showing the way how the ECB bodies work and how they take

decisions.

Operational transparency - regular estimations of current macroeconomic policies.16

Predictability:

The other important principle that the EBC includes in their activity is the predictability. The

term of predictability in monetary policy was explained in one of the European Central Banks

publications:

"The literature on monetary policy predictability evolved in tandem with the progressive increase

in openness and transparency of central banking, a process that was substantially accelerated

with the advent of inflation targeting at the beginning of the 1990s. Most of this literature has

been empirical in nature, focusing on estimating the “surprise element” of monetary policy

decisions at the time of policy announcements. Predictability of monetary policy in these papers

is therefore often understood to be the ability of financial markets to correctly anticipate the next

monetary policy decision of a central bank (Krueger and Kuttner 1996; Poole and Rasche 2000;

Kuttner 2001)."17

If the actions taken by Central Bank are predictable then the market players can quickly take into

consideration all the variables. The predictability increases also the efficiency of monetary policy

15 Central Bank Transparency, Petra M. Geraats, University of Cambridge, 2002 16 Europejski Bank Centrailny, Polska w UE, https://polskawue.gov.pl/Europejski,Bank,Centralny,1884.html, (accessed 10.11.2015)17 The Predictability of Monetary Policy, Tobias Blattner, European Central Bank 2008

by shortening some processes that influence the financial and investment decisions and also

accelerating the economic reforms18.

Aims and Objectives

Just like in every other organization, business, company, firms… they all have goals and

objectives, which they want to accomplish. The European Central Bank is no different to them.

The tasks of the European System of Central Banks (ESCB) and the Eurosystem are laid down in

the Treaty on the Functioning of the European Union. They are specified in the Statute of the

European System of Central Banks and of the European Central Bank. The Statute is a protocol

attached to the Treaty.

The Treaty on the Functioning of the European Union generally refers to the ESCB rather than to

the Eurosystem, since it was drawn up on the premise that all EU Member States would

eventually adopt the euro. The Eurosystem is made up of the ECB and the national central banks

(NCBs) of the EU Member States whose currency is the euro, whereas the ESCB comprises the

ECB and the NCBs of all EU Member States (Article 282(1) of the Treaty). As long as there are

EU Member States whose currency is not the euro, it will be necessary to make a distinction

between the Eurosystem and the ESCB.

In this essay we will focus mainly on tasks of the European Central Bank, which are clearly

defined in the EU Treaties. According to Article 127(2) of the Treaty on the Functioning of the

European Union, the basic tasks to be carried out through the Eurosystem are:

the definition and implementation of monetary policy for the euro area;

the conduct of foreign exchange operations;

the holding and management of the official foreign reserves of the euro area countries

(portfolio management);

the promotion of the smooth operation of payment systems.19

18 Monetary Policy Predictability in the Euro Area, Bjorn-Roger Wilhelmsen, European Central Bank, 200519 Tasks, European Central Bank, https://www.ecb.europa.eu/ecb/tasks/html/index.en.html (accessed 10.11.2015)

In article 127 states that “The primary objective of the European System of Central Banks shall

be to maintain price stability.” This clearly indicates the importance of their goal.

Price stability refers to general level of prices in the economy. It applies avoiding both prolonged

inflation and deflation. The Governing Council has defined price stability as a year to year

increase in the Harmonized Index of Consumer Prices (HICP) for the euro of below 2%. Also, it

aims to maintain the inflation rate below but close to 2% over medium term.

The benefit of price stability, as well as the costs associated with inflation or deflation, are

closely associated with money and its functions. Price stability is the only possible object for the

single monetary policy over the medium term.

Please find below the fluctuations of inflation in the euro area20:

20 Eurostat

There are many advantages for prices stability. For instance, it makes it easier for people to

recognize changes in relative prices. And this allow firms and consumers to make better decision

regarding investment and consumptions, which allows the market to allocate resources more

efficiently.

Investor’s wants assurance that price will remain stable in the future. By reassuring them that

price will remain stable in the future they will not demand for ‘Inflation Risk Premium’. And

therefore, the monetary policy can contribute to allocative efficiency of the capital market.

Also, Tax and welfare systems can create strong incentives that distort economic behavior. In

most cases, these distortions are worsen by inflation or deflation. Price stability eliminates the

real economic costs entailed when inflation exacerbates the distortionary impact of tax and social

security systems.

An environment of stable also helps to maintain social cohesion and stability. Several cases in

the twentieth century have shown that high rates of inflation or deflation tend to create social and

political instability21.

In the EU publication we can read:

"Price stability supports higher living standards by helping to: reduce uncertainty about general

price developments and thereby improve the transparency of relative prices, reduce inflation risk

premia in interest rates, avoid unnecessary hedging activities, reduce distortionary effects of tax

systems and social security systems, increase the benefits of holding cash, prevent the arbitrary

distribution of wealth and income, contribute to financial stability.

By maintaining price stability, central banks contribute to broader economic goals. All of these

arguments suggest that a central bank that maintains price stability contributes substantially to

the achievement of broader economic goals, such as higher standards of living, high and more

stable levels of economic activity and employment. This conclusion is supported by economic

evidence which, for a wide variety of countries, methodologies and periods, demonstrates that in

the long run, economies with lower inflation appear on average to grow more rapidly in real

terms."22

21 The European Central Bank: History, Role and Functions, Hanspeter K. Scheller, Frankfurt am Main, European Central Bank, 2006

However, price stability is not only the primary objective of the ECBs monetary policy, but also

an objective of the European Union as a whole.

Thus, the Treaty on the Functioning of the European Union and the Treaty on European Union

establish a clear hierarchy of objectives for the Euro system, making it clear that price stability is

the most important contribution that monetary policy can make to achieve a favorable economic

environment and a high level of employment.

Economic reform in the goods, capital and labor market which remove barriers to competition

and increasing market flexibility are essential for the functioning of Economic and Monetary

Union (EMU). This will raise productivity and employment in the euro area. At the same time

lowering price may enhance competition and encourage innovation.

If the euro market is more flexible, this will help countries to adapt faster to economic shocks.

In simpler words, the ECB is fully aware and understands that focusing on its main objective,

which is the price stability, will result in support general economic policies as well as opening

door to an open market economy23.

Apart from maintaining price stability, the European Central Bank has other tasks to pursue. The

main ones stated on the official ECB website are:

Banknotes: the ECB has the exclusive right to authorise the issuance of banknotes within

the euro area.

Statistics: in cooperation with the NCBs, the ECB collects statistical information

necessary in order to fulfil the tasks of the ESCB, either from national authorities or

directly from economic agents.

Financial stability and supervision: the Eurosystem contributes to the smooth conduct of

policies by the competent authorities as regards the prudential supervision of credit

institutions and the stability of the financial system.

22 Price Stability: Why is it important for you?, Dieter Gerdesmeier, European Central Bank, Frankfurt Am Main, 201123 ibidem

International and European cooperation: the ECB maintains working relations with

relevant institutions, bodies and fora, both within the EU and at the global level, in

respect of the tasks entrusted to the Eurosystem.24

European Central Bank and the financial crisis

During the crisis, the role of the European Central Bank significantly increased25. It is an

institution that has the biggest impact on stabilizing the financial markets, banking sector and

decreasing the chance of bankruptcy of one of the member states or disintegration of the

Eurozone. Both its formal and informal power has been increasing the last few years. The bank

has entered also the area of fiscal policies. Some of the unconventional ECB activities can be

described, as implementation of federal policies through back doors26. Those reforms can lead to

changes on the supranational level and effect in a different European Union.

According to Article 123.1 (TFEU), the European Central Bank is not allowed to purchase

sovereign bonds or public debt instruments on the primary market of EMU countries. At the

same time the ECB shall, according to Article 127.2 (TFEU), contribute to the stability of the

financial system. "Confronted with the international financial crisis, the ECB was criticised by

some experts who deemed it to have neglected, in order to maintain price stability, its principles

of independence and non-partisanship, by cofinancing the public debts of certain Member States

in the euro area. Other experts maintain that the ECB might have exacerbated the crisis by

reacting 'too little, too late'. A third opinion suggests that the ECB demonstrated an innovative

use of its mandate and instruments, for example, through the use of non-standard policy

measures, successfully contain the economic and financial crisis in the euro area."27

Please find below the graph showing the changes in the main interest rates during years 2007-

2015.28

24 Tasks, European Central Bank, https://www.ecb.europa.eu/ecb/tasks/html/index.en.html (accessed 10.11.2015)25 The Monetary Policy of the European Central Bank, Stefano Micossi, Brussels, 201526 The ECB is hampered by a lack of democratic legitimacy, Kathleen R. McNamara , http://blogs.lse.ac.uk/europpblog/2012/08/03/ecb-democratic-reform/, (accessed.11.2015)27 The ECB and the financial crisis: Rigid theory vs a pragmatic approach, Cemal Karakas, European Parliamentary Research Service28 ibidem

European Central Bank and Ecology

European Central Bank as a supranational institution that is conscious about the sustainable

development and takes actions that are beneficial not in a short term but in a long term

perspective. The ECB believes that sustainable development is crucial for functioning in every

area.

The protection of natural environment, precisely tackling the climate change, has become one of

the major EU policies. The global warming and the necessity to decrease the amount of pollution

are serious global problems that need to be faced. Therefore, there are more and more

international organizations, public institutions and companies that implement ecological

strategies. The European Central Bank also promotes sustainable ideas and follows the policies

that EU establishes.

Already in 2007 the ECB decided to systematically fight for the ecology29. Therefore, a special

program was started. Its aim is to establish environmental protection in the operations of ECB.

All activities in ECB are in compliance with the EU eco-management system and IS 14001

norms30.

The European Central bank wants to be an ecological institution. That's why, it is important, that

all employees are aware of current global environmental challenges and act in an eco friendly

way. As part of its environmental management, the ECB’s environmental performance and

impact are assessed on an annual basis and measures to improve them are continuously being

developed and introduced. Therefore, there are environmental statement issues on regular basis.

They provide information to the general public and other interested parties about the

environmental performance and activities of the European Central Bank.

Please find below a chart31 that presents the CO2 emissions emitted by the activity of the

European Central Bank.

29 Environmental protection at the ECB, European Central Bank, https://www.ecb.europa.eu/ecb/orga/escb/green/html/index.en.html (accessed 10.11.2015)30 2015 update of the ECB’s environmental statement, European Central Bank, 201531 ibidem

European Central Bank and the European integration process

As a second largest world economy bank, but also a member of Euro system, and issuer of the

second commonest currency the ECB has a prominent meaning in the international area32. ECB

belongs to one of the EU-institutions, but because of its independence status and characteristic of

carried tasks it takes up a significant position. ECB takes part in the international economic

cooperation in the aspect of Euro system tasks33. Paragraph 139 of the Treaty on the Functioning

of the European Union and paragraph 6 passage 1, but also paragraph 12 passage 5 of European

System of Central Banks Charter form the basis of participation the ECB in the international

cooperation. In accordance with paragraph 284 of the Treaty, chairman of the ECB is allowed to

take part in those sessions of the Council of the European Union, during which issues connected

with the targets and tasks of the European System of Central Banks are being talked over. ECB

chairman is also regularly invited to the meetings of Euro Group (monthly meetings of the

Eurozone's finance ministers)34. Since the financial crisis the ECB relations with other European

institutions are getting more close. ECB chairman participates currently in European Council's

32 About, European Central Bank, https://www.ecb.europa.eu/ecb/orga/escb/html/index.en.html, (accessed 10.11.2015)33 Financial Integration in Europe, European Central Bank, Frankfurt Am Main, 201534 Europejski Bank Centralny, Katarzyna Cwalina, Uniwersytet Warmińsko-Mazurski w Olsztynie, Olszyn 2015

sessions, but also in the head of the governments meetings that concern issues important for the

European Central Bank. European Commission, a body which stands guard over EU treaties and

initiates European legal acts, is an important partner of the ECB35. Cooperation of those

institutions is important because of the European Commission's participation in coordination of

economic policy, monitoring public money, macroeconomic disturbances and estimation of

convergence in member states. European Commission enforces proper application of the

common rules set by the EU through the agency of the Court of Justice of the European Union.

European Commissioner for Economic and Monetary Affairs and the Euro, who at the same time

is the First Vice of the European Commission, can participate (without allocution) in the sessions

of the Governing Council. European Commission participates also in the sessions of EU-

institutions and Eurozone. Both institutions are in touch on the expert level (e.g. in the statistic

branch and the branch of payment systems. ECB as an independence public institution has the

obligation to settle up with the European Parliament, which is elected by the European citizens.

The European Parliament takes part in the procedure of appointing members of the Governing

Council by evaluating candidates recommended by the European Council (paragraph 283

passage 2 of the Treaty European Central Bank within the framework of so called

macroeconomic dialogue, began in June 1999 by the European Council stays in touch with social

partners36. On this forum ECB can explain its monetary policy, and thereby contribute to set the

inflationary expectations. ECB can also gain profits from social partners. ECB has the status of

permanent observer at the International Monetary Fund. Both institutions share information,

opinions and evaluations concerning monetary policy of the Eurozone. EBC is the only party

allowed to talks in this field. The International Monetary Fund, as an independent organization

supervises the Eurozone. European Central Bank has broad bilateral contacts with central banks

from all over the world. There is an experience and good practice exchange within the scope of

cooperation. ECB conducts also training courses for the employees of other central banks. It

contributes to the growth of professionalism, effectiveness, independence and transparency of

bank's operations. At the same time it ensures monetary and financial stability.

35 ibidem36 The ECB and the financial crisis: Rigid theory vs a pragmatic approach, Cemal Karakas, European Parliamentary Research Service

Summary

The European Central Bank is one of the most important financial institutions in the world. The

functioning and organization of the ECB is based on the Maastricht Treaty signed in 1992.

According to that Treaty the European Central Bank and the European System of Central Banks

were established in 1998. The Euro currency was introduced first in the electronic version and in

2002 normally. The common currency was an important step for the whole European Union and

made the integration process even tighter. Currently Euro is used in 19 countries and other

member states are planning to introduce it in the near future. The last financial crisis was a big

shock not only for the Eurozone but also for the all EU members. In the last years the ECB

played an important role in stabilizing the Eurozone and is going to continue the process of

helping out countries that did not cope well with the crisis.

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