European Central Bank 10th anniversary
Date
02/06/2008
It is now exactly ten years since the European Central Bank (ECB) began its operations. This anniversary is being celebrated in several ways, including the publication of a special edition of the ECB’s Monthly Bulletin, which describes achievements in various fields and considers some of the future challenges facing the ECB.
After the heads of state and heads of government of the then 15 EU member states agreed at the beginning of May 1998 that eleven of these countries would introduce a single currency, the European System of Central Banks (ESCB) was established on 1 June of the same year. The ECB is the key actor in this system and its highest instance the Governing Council has the authority to make binding decisions on monetary policy, the issuing of banknotes and other central bank tasks in the euro area. For a number of years these decisions had been prepared in the European Monetary Institute (EMI), and the ECB was able to begin its activities on 1 January 1999. The euro was then introduced as currency in the eleven EU countries, and three years later, when Greece had also adopted the currency, banknotes and coins in euro were introduced and the national currencies ceased to exist. After further enlargement of the euro area, there are now 15 EU countries included in the euro area, and Slovakia will be joining next year.
Monetary policy and its challenges
The jubilee edition of the ECB’s Monthly Bulletin focuses quite naturally on the activities in the Eurosystem, which is the collective term for the ECB and the national central banks in the euro area. The monetary policy strategy is described on the whole as a success, although the inflation rate has not on average been entirely in line with the established target of “below but close to” 2%. However, the outcome for the ten-year period is very close, but over this figure. As in the case of many other central banks, concern is being expressed that the current rise in various world market prices will lead to more permanent expectations of a higher inflation rate. One particular reason for this concern is that the general public in the euro countries perceives the prevailing inflation rate to be higher than it actually is. This means there is a greater risk of larger compensatory demands in wage formation. Such fears regarding inflationary pressures are also reinforced by the structural flexibility in the euro area in general being assessed as insufficient and requiring improvement. Future enlargements of the euro area could also increase the economic differences between the countries and create tensions that would make joint political measures more difficult.
Financial oversight under development
Other activities described in the Monthly Bulletin include the payment system infrastructure and the various initiatives taken or supported by the Eurosystem to promote efficient systems. The forms for overseeing financial stability apply to the whole of the EU and thus also involve the Riksbank and other central banks outside of the Eurosystem. The conditions for maintaining financial stability are also affected by the pace of the continued financial integration process and the capacity for efficient cooperation between the supervisory authorities with regard to cross-border financial operations.
