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THE EUROPEAN CENTRAL BANK IS LAUNCHED
The ECB under President Wim Duisenberg will be in charge of setting a common
interest rate for the eleven countries that have entered the Euro Zone. Duisenberg has
described the ECB as the most open central bank in the world.Whilst this is open to
debate, it is clear that the Bank will have a very strong degree of independence when
making interest rate decisions each month. This is despite the growing political pressure
from centre-left parties in Italy, France and Germany who have now assumed power and are
unambiguously in favour of policies that promote job creation.
TARGETS AND OBJECTIVES
The ECB is basically modelled along the lines of the Bundesbank.
In October 1998 the ECB Council set out its monetary strategy for the Euro Area.
 | It’s main policy objective will be to achieve price stability within the
Euro Zone – defined as “a year-on-year increase in the Harmonised Index of
Consumer Prices for the Euro Area of below 2%”. |
| This target contrasts with the UK approach, where the Bank of England aims to
keep RPIX inflation within 1% either side of 2.5%. The MPC has a symmetrical inflation
target – that is not the case with the ECB. |
| In continuity with the Bundesbank’s approach, the ECB will target the growth
of the broad money supply when assessing where interest rates should go. Broad money is
basically determined by the growth of bank deposits – many of which are created
through bank loans and over-drafts. |
| The Bank will also take into account a range of other monetary and financial
indicators when setting interest rates (including data on wage inflation and the trend in
raw material prices). |
The ECB will not publish inflation forecasts and minutes of meetings will remain
a secret. Duisenberg claims this will allow Council members to make fully independent
decisions. Critics question this lack of policy transparency at a vital time in the
ECB’s history
EUROPEAN CENTRAL BANK FACT FILE
Location:Frankfurt
Goal: Price stability
Chairman: Wim Duisenberg
Money Target: Euro Area Broad Money growth
Inflation Target: Maintain Euro-Zone consumer price
inflation below 2%
Policy Tool: European Area (Repo) Interest Rate
Meetings: Monthly
Voting: Council votes split between countries
Decisions: Simply majority vote of Council Members
Minutes: No minutes published
National Banks: National central banks are agencies of ECB
Page last updated: Sunday 9 May 1999
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