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EDITIONS
Wednesday, 12 February, 2003, 19:03 GMT
The powers of the European Central Bank
Frankfurt skyline
The ECB is based in Frankfurt, Germany's financial capital
The European Central Bank (ECB) sets monetary policy for all 12 nations that are members of the euro.

It is the successor of the European Monetary Institute - set up to oversee the transitional second stage of monetary union.

The ECB works with national central banks within what is called the European System of Central Banks. Its key tasks are to:

  • Define and implement monetary policy, such as setting interest rates;
  • Maintain price stability;
  • Support economic policies of member states as long as they do not affect price stability;
  • Conduct foreign exchange operations and look after the official foreign reserves of the member states;
  • Promote smooth operation of payment systems that link banks.

During the launch of euro notes and coins, it had the exclusive rights to authorise the issue of banknotes adn coins, but shared the actual role and process of issuing notes with national central banks.

The ECB is regarded by many in the banking profession as a double of Germany's Bundesbank - and it is actually based in Frankfurt, Germany's financial capital.

Like the Bundesbank, one of its main aims is to keep inflation under control.

Governing body

The ECB is headed by Wim Duisenberg, the former head of the Dutch Central Bank.

His appointment was hotly contested, with France threatened to veto him, nominating its own candidate.

In an unwritten compromise, Mr Duisenberg was appointed on the understanding that he may step down before the end of his eight-year term, making room for the governor of the French central bank, Jean Claude Trichet, as his successor.

But, in July 2002, a French magistrate ruled that Mr Trichet must stand trial over a banking scandal, casting doubt onto his ambitions to head the European Central Bank.

The ECB's governing council includes the ECB president, the 12 heads of the national central banks participating in the euro and five other full-time members of the executive council, all of whom are political appointments:

  • Vice President Lucas Papademos, a Greek professor of economics
  • Chief economist Otmar Issing, the hard-line monetarist chief economist of the Bundesbank
  • Tomasso Padoa-Schioppa, the former chair of Italy's stock market regulator Consob
  • Eugenio Domingo Solans, from the Bank of Spain
  • Sirkka Hamalainen. Finland's Central Bank Governor and the only woman in the group

Their term of office runs for eight years and is not renewable.

The outsiders

Four countries stayed out of euro in the first wave - the UK, Sweden, Denmark and Greece.

Greece joined the eurozone in January 2001, after meeting the economic conditions for membership.

The three remaining outsiders are not subject to the powers of the ECB, but have no influence on its policy either.

And they have to take into account the activities of the euro when setting their own monetary policy.


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