European Central Bank
The European Central Bank (ECB) is the central bank of all EU Member States whose currency is the Euro. Together with the national central banks of all Member States it constitutes the European System of Central Banks (ESCB); and together with the central banks of those Member States whose currency is the euro it constitutes the Eurosystem and conducts the monetary policy of the EU (Art 282(1) TFEU). It is an official institution within the institutional framework of the European Union (Art 13(1)(2) TEU) and as such a legal entity. Within the Member States it has legal personality and enjoys in each of the Member States the most extensive legal capacity accorded to legal persons under its law, and it may, in particular, acquire or dispose of movable and immovable property and may be a party to legal proceedings (Art 9.1 o.v./n.v. ESCB statute).
The structure, objectives and tasks of the ESCB and the ECB are laid down especially in Arts 127–133 and 282–284 TFEU/105–113 EC as well as in the Statute of the European System of Central Banks and of the European Central Bank.
1. Objectives and tasks
The primary objective of the ESCB is to maintain price stability. Price stability refers to the stability of price levels. The ECB aims to maintain inflation rates ‘below, but close to, 2%’ (ECB, Monthly Bulletin June 2008, p XVI, price stability). This creates a safety net against deflation. Additionally, the ESCB supports the general economic policy within the EU as far as is possible without affecting the objective of maintaining price stability. The primary tasks of the ESCB comprise defining and implementing the monetary policy of the European Union, conducting foreign exchange operations, holding and managing the official foreign reserves of the Member States and promoting the smooth operation of payment systems (Arts 127(2) TFEU/105 EC and 282(2) TFEU as well as Art 2 o.v./n.v. ESCB statute). Moreover, the ESCB shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system (Art 127(5) TFEU/105 EC).
In order to carry out the tasks entrusted to the ESCB, the ECB may take decisions, make recommendations, deliver opinions and in restricted cases make regulations (Art 132 TFEU/ 110 EC and Art 34.1 o.v./n.v. ESCB statute). If companies fail to comply with the obligations under these legal acts, the ECB may, within the limits adopted by the Council, impose fines or periodic penalty payments (Art 34.3 o.v./n.v. ESCB statute). The ECB shall be consulted and may give an opinion on all proposed Union acts and on all proposals for national regulations of the Member States which impact areas falling within its responsibilities (Art 282(5) TFEU and Art 4 o.v./n.v. ESCB statute). Moreover, it collects the statistical information necessary to undertake the tasks of the ESCB (Art 5 o.v./n.v. ESCB statute). Additionally it may participate in international monetary institutions (Art 6.2 o.v./n.v. ESCB statute).
2. ESCB and national central banks
The ESCB, in contrast to the ECB, is not accorded legal personality. The term ‘ESCB’ merely describes the existence of the ECB, the national central banks and their link established by the common rules, objectives and tasks (Art 282(1) TFEU and Art 1.2(1) o.v./1(1)(1) n.v. ESCB statute). Where the treaty assigns tasks to the ESCB this has to be understood merely in a functional way and not as an intent to accord legal capacity to the ESCB. Instead, it is the ECB and the national central banks which implement the tasks conferred on the ESCB (see eg Art 9.2 o.v./n.v. ESCB statute). The ESCB is governed by the decision-making bodies of the ECB (Art 129 TFEU/ 107 EC and Art 8 o.v./n.v. ESCB statute).
The national central banks are an integral part of the ESCB. Concerning the tasks of the ESCB, they have no proper competence but act in accordance with the guidelines and instructions of the ECB (Art 14.3 o.v./n.v. ESCB statute). Their task is to implement the monetary policy—to the extent deemed possible and appropriate (Art 12.1 o.v./n.v. ESCB statute). Therefore, the national central banks are functionally the administrative ‘substructure’ of the ECB. The only remaining competences they have are tasks which lie outside the ESCB (Art 14.4 o.v./n.v. ESCB statute).
The national central banks of the Member States which have not adopted the euro are also part of the ESCB. However, they enjoy a special status (see Art 43 o.v./42 n.v. ESCB statute). They retain their responsibility for their home states’ national monetary policies and, in turn, may not participate in the unitary monetary policy of the ESCB. Their presidents have no seats in the highest body of the ECB for monetary policy, the Governing Council, and they may not be held liable for implementing the unitary monetary policy. In principle, however, their monetary policy has to be in conformity with the objective of price stability. Furthermore, they have to co- operate with the ECB and the participating national central banks, eg with regard to statistics.
The decision-making bodies of the ECB are the Governing Council and the Executive Board (Art 107 TEC/129 TFEU (2007) and Art 9.3. o.v./ n.v. ESCB statute). A third body is the General Council which is constituted as a mere temporary body (Art 141(1) TFEU/123 EC, Art 45 o.v./44 n.v. ESCB statute).
The Executive Board is responsible for the current business of the ECB (Art 11.6 o.v./n.v. ESCB statute) and prepares the meetings of the Governing Council (Art 12.2. o.v./n.v. ESCB statute). It implements the monetary policy in accordance with the guidelines and decisions laid down by the Governing Council and provides the necessary instructions to the national central banks (Art 12.1(2) o.v./n.v. ESCB statute). The Executive Board comprises the President, the Vice-President and four other members. They are appointed by a common accord of the governments of the Member States at the level of the Heads of State or Government, on a recommendation from the Council (Council and the European Council) after it has consulted the European Parliament and the Governing Council. The members of the Executive Board must be citizens of the Member States and ‘of recognized standing and professional experience in monetary or banking matters’. Their term is eight years and is not renewable. (Art 283(2) TFEU/112 EC and Art 11.2. (2) o.v./n.v. ESCB statute). Although the President is an integral part of the Executive Board, he has several special functions: he (and in his absence the Vice-President) presides over the meetings of all bodies of the ECB (Executive Board, Governing Council, Art 13.1 o.v./n.v. ESCB statute, and General Council, Art 46.1 o.v./45.1 n.v. ESCB statute) and represents the ECB to the outside (Art 13.2 o.v./n.v. and 30 o.v./38 n.v. ESCB statute). In the event of a tie in the meetings of the Executive Board or the Governing Council, the President casts the deciding vote (Art 10.2(4) o.v./n.v. ESCB statute).
The Governing Council has to adopt the guidelines and take the decisions necessary to ensure the performance of the tasks entrusted to the ESCB. It formulates the monetary policy of the Union, eg decisions relating to intermediate monetary objectives and key interest rates. Additionally, it has to establish the necessary guidelines for their implementation (Art 12.1 o.v./n.v. ESCB statute). The Governing Council also adopts Rules of Procedure of the ECB (Art 12.3 o.v./n.v. ESCB statute), decides on international cooperations of the ESCB (Art 12.5 o.v./n.v. ESCB statute) and exercises the advisory functions with regard to the Union institutions and the Member States (Art 12.4 o.v./n.v. ESCB statute). The Governing Council (and therefore the ECB) has the exclusive right to authorize the issue of banknotes within the Union (Art 16 o.v./n.v. ESCB statute, concerning the ECB see Art 106(1) TEC/ 128(1) TFEU (2007)) and is responsible for the decisions to bring an action before the Court of Justice (Art 35.5 o.v./n.v. ESCB statute). The Governing Council comprises the members of the Executive Board and the governors of the national central banks of the Member States whose currency is the euro (Art 112 TEC/283(1) TFEU (2007)). It is the highest decision-making body of the ECB and takes most decisions by a simple majority (Art 10.2(4) o.v./n.v. ESCB statute).
The participation of the presidents of the national central banks in the decision-making process gives the Eurosystem a quasi-federative character. However, the presidents of the national central banks do not act as representatives of national interests. Instead, as the voting rules indicate (one vote per member, personal exercise of the right to vote, Art 10.2(2) o.v./n.v. ESCB statute), they are members of the Governing Council in a personal capacity.
The General Council contributes to the advisory functions of the ECB, the collection of statistical information, the reporting activities and to the setting of the conditions of employment (Art 47 o.v./46 n.v. ESCB statute). According to the Rules of Procedure of the ECB (Arts 12 f), ‘involvement’ means that the General Council is given the opportunity to submit observations before the Governing Council adopts measures in the mentioned areas. Additionally, the General Council has an advisory function concerning the acceptance of additional states to the Eurosystem (Art 47 o.v./46.1. n.v. with Art 44 o.v./43 n.v. ESCB statute and Art 140 TFEU). The General Council comprises the President and Vice-President of the ECB and the governors of the national central banks of all Member States regardless of whether they participate in the Eurosystem or not (Art 45.2 o.v./44.2 n.v. ESCB statute). In the General Council the presidents of the national central banks outside the Eurosystem are officially informed about decisions of the Governing Council (Art 47.4. o.v./46.4 n.v. ESCB statute). The President of the Council and a Member of the Commission may participate—without having the right to vote—in meetings of the General Council (Art 46.2 o.v./45.2 n.v. ESCB statute).
The ECB is independent. The Member States have committed themselves to respect this principle and to not influence the ECB (Art 130 and 282(3) TFEU, Art 7 ESCB Statute). The independence of the ECB has different characteristics: Neither the ECB nor a member of its decision-making bodies may seek or take instructions (institutional independence, Art 130 TFEU/108 EC). The ECB is free to choose the measures for ensuring price stability (operative or functional independence, Art 282(3) TFEU). Moreover, it is free to decide over the use of its own budget (financial independence, Art 282(3) TFEU). Therefore, the Court of Auditors only examines the operational efficiency of the management of the ECB (Art 287 TFEU/248 EC with 27.2 ESCB o.v./n.v. statute). Furthermore, the independence of the ECB-staff is ensured. The members of the Executive Board have a term of office of eight years that is not renewable (Art 283(2)(3) TFEU/112 EC). The term of office of a Governor of a national central bank can be no less than five years and they can only be removed from office under special circumstances (Art 14.2 and 14.3 o.v./n.v. ESCB statute). As members of the Governing Council they may only be retired by the Court of Justice on the application of the Governing Council or the Executive Board if they no longer fulfil the conditions required for the performance of their duties or if they have been found guilty of serious misconduct (Art 11.4 o.v./n.v. ESCB statute). Finally, their independence is further ensured by the prohibition on assuming additional employment without the express permission to do so (Art 11.1 o.v./n.v. ESCB statute).
5. Capital and instruments of the ECB
The signed capital of the ECB amounts to €5 bn. The exclusive subscribers to the capital are the national central banks, which do so (Art 28 o.v./n.v. ESCB statute) according to a specified key (see Art 29 o.v./n.v. ESCB statute). The profits of the ECB are handed out to the national central banks with the exception of the funds transferred to the general reserve fund (Art 33 ESCB statute).
In order to achieve their objectives, the ECB and the national central banks may operate in the financial markets and may conduct credit operations (Art 18 ESCB o.v./n.v. statute). Additionally, the ECB may require credit institutions established in the Member States to hold minimum reserves on accounts with the ECB and national central banks (Art 19 o.v./n.v. ESCB statute). Moreover, the ECB may utilize other monetary policy instruments as decided by the Governing Council with two-thirds of the votes (Art 20 o.v./n.v. ESCB statute).
6. Reporting obligations and supervision of the ECB
The ECB must publish a quarterly report on the activities of the ESCB and a weekly consolidated financial statement (Art 15.1 and 15.2 o.v./n.v. ESCB statute). Furthermore, the ECB must publish an annual report on the activities of the ESCB and on the monetary policy of both the previous and the current year. It is addressed to the European Parliament, the Council, the European Commission and the European Council (Art 284(3) TFEU/113(3) EC and Art 15.3 o.v./n.v. ESCB statute).
The annual reports of the ECB must be published (Art 26.2 o.v./n.v. ESCB statute) and must also be audited by independent external auditors (Art 27.1 o.v./n.v. ESCB statute). The Court of Auditors examines (only) the operational efficiency of the management of the ECB (Art 287 TFEU/248 EC with 27.2 o.v./n.v. ESCB statute). Moreover, the ECB has an internal revision unit which reports directly to the Executive Board and a data protection officer who is appointed by the European Parliament. Additionally, since 2004 the European Anti-Fraud Office (OLAF) conducts investigations of the ECB. The European Court of Justice dismissed claims of the ECB aimed at preventing such investigations (ECJ, Case C-11/00 – Commission v ECB  ECR I-7147).
The European Court of Justice (ECJ) reviews the legality of acts of the ECB and has jurisdiction over proceedings against the ECB (Art 263 TFEU/230 EC and Art 35.1 o.v./n.v. ESCB statute). If the ECB refrains from making a decision and thereby infringes its duties under the treaties, infringement proceedings may be brought before the European Court of Justice (Art 265 TFEU/232 EC). In turn, the ECB may also commence actions before the court to protect its prerogatives (Art 263 TFEU/230 EC). Disputes between the ECB and its creditors, debtors or any other person shall be decided by the competent national courts in cases where the Court of Justice has no jurisdiction (Art 35.2 o.v./n.v. ESCB statute).
7. The European Central Bank and the Financial Crisis
Following the onset of the 2008 financial crisis the ECB attempted to influence the developments on the financial markets. However, the ECB was constrained in its actions by its primary objective to focus on price stability. In order to address the effects of the financial crisis, the ECB deployed its monetary policy instruments, especially open market operations (Art 18.1 n.v. ESCB Statute). The ECB reduced interest rates, allowed for longer term refinancing operations with a period of up to 12 months and purchased debt securities. Additionally, the ECB issued Regulation (EC) No 1053/2008 ‘on temporary changes to the rules relating to eligibility of collateral’ (23 October 2008, OJ 2008 L 232, 17) which temporarily expanded the list of collaterals eligible for refinancing with the ECB. After the expiration of this regulation its rules were maintained (largely unchanged) in an ECB Guideline of 21 November 2008 ‘on temporary changes to the rules relating to eligibility of collateral’ (OJ 2008 L 314, 14 and OJ 2009 L 330, 95).
When rating agencies started to downgrade the credit rating of some Member States, especially Greece, the ECB decided to maintain the eligibility of debt instruments issued by the Greek government for refinance to increase their attractiveness (6 May 2010, OJ 2010 L 117, 102). In 2011, the ECB adopted a similar measure with regard to debt instruments issued by the Irish government (8 April 2011, OJ 2011 L 94/33). With more EU Member States getting into financial difficulties this measure is unlikely to be the last of its kind. After some initial hesitation, the ECB also started to buy debt instruments issued by Greece, Ireland and Portugal on the market in order to assist these Member States with their capital procurement (14 May 2010, OJ 2010 L 124, 8). This programme had to conform to Art 123 (1) TFEU which prohibits the ECB from directly purchasing (among others) Member States’ debt instruments. This measure was meant to be of an exceptional and temporary nature only. However, its continuation and expansion to debt instruments of other financially troubled EU Member States is conceivable.
The financial crisis revealed the shortcomings of the prudential oversight conducted within the EU. A serious issue has been, in particular, the separation of Economic and Monetary Policy (Title VIII Chapter 1 TFEU and Title VIII Chapter 2 TFEU, respectively) which leaves the ECB with insufficient authority to monitor the Member States’ deficits. The ECB has been more critical of (excessive) deficits than the Council, which in turn has been more lenient when applying Art 126 TFEU criteria in the past.
8. The European Central Bank and the European Systemic Risk Board
In response to the financial crisis the EU introduced the European System of Financial Supervisors (ESFS), bringing together the major protagonists of financial supervision at the national level and at the level of the European Union to act as a network. At the level of the Union, the network includes the European Systemic Risk Board (ESRB) and the three supervisory authorities: the European Banking Authority, the Insurance and Occupational Pensions Authority and the European Securities and Markets Authority. The ESRB (established by Reg. No 1092/2010 of 24 November 2010, OJ 2010 L 331, 1 (ESRB Reg)) is responsible for macro-prudential oversight of the financial system within the European Union, ie it is charged with monitoring and assessing systemic risks for the financial system on a macroeconomic level. The aim is to mitigate the exposure of the system to the risk of failure of systemic components and to enhance the financial system’s resilience to shocks (recital 10 ESRB Reg).
The ECB plays a major role within the ESRB: the president and the vice-president of the ECB are members of the General Board of the ESRB (Art 6(1) ESRB Reg), and the president of the ECB chairs the ESRB for a first term of five years (Art 5(1) ESRB Reg). Moreover, the vice-president of the ECB and four other members of the General Board who are also members of the General Council of the ECB are members of the Steering Committee (Art 11(1) ESRB Reg). In addition, the ECB should provide analytical, statistical, administrative and logistical support to the ESRB, also drawing on technical advice from national central banks and supervisors (recital 6 ESRB Reg).
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