You are going to read a web article about the European Central Bank.  Before you read, check some key vocabulary with this matching exercise.

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The European Central Bank

The European Central Bank (ECB) was founded in June 1998, under the Treaty on European Union, to oversee the introduction of the euro and to manage the currency.  The euro came into circulation on January 1st 2002, and the European Union member states that have adopted the euro make up the ‘euro area’.  

The ECB is the successor to the European Monetary Institute, and its organisation is modelled on that of Germany’s Bundesbank.  The ECB is based in Frankfurt, Germany’s financial capital.  The first president of the bank was Wim Duisenberg, former head of the Dutch central bank.  He stepped down in November 2003, making way for Jean-Claude Trichet, governor of France’s central bank.

What does the European Central Bank do?

The ECB’s main task is to maintain price stability in the euro area.  To achieve this it aims to keep the inflation rate at under 2%, by controlling the money supply and monitoring price trends in the euro area.  The ECB controls the money supply by, amongst other things, cutting or raising interest rates.

The ECB also conducts foreign exchange operations, and ensures the smooth operation of payment systems between banks.

How is the European Central Bank organised?

The bank has three decision-making bodies:

The Executive Board

The Executive Board comprises of the president of the ECB, the vice-president, and four further members.  All members are appointed by the presidents or prime ministers of the euro area countries for non-renewable terms of eight years.

The Executive Board is responsible for the day-to-day management of the ECB.  It implements monetary policy, formulated by the Governing Council (see below), and issues instructions to the national central banks within the euro area.

The Governing Council

The Governing Council comprises of the six members of the Executive Board and the governors of the national central banks of the euro area, and is chaired by the president of the ECB.  It is the bank’s highest decision-making body.

The Governing Council’s main role is to define the monetary policy of the euro zone, and in particular to set interest rates.

The General Council

The General Council is comprised of the president and vice-president of the ECB, together with the governors of the national central banks of all the European Union member states.

The General Council is largely an advisory and coordinating body, advising on issues such as the future expansion of the euro area.

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