The European Central Bank (ECB) is one of the banks under the European System of Central Banks (ESCB), along with the national central banks of the European Union (EU) member states which have not yet adopted the euro. It was established in 1998 replacing the European Monetary Institute…
From the moment of its inception, the European Central Bank has been a favorite target of criticisms from economists and political leaders alike. Surprisingly, among its staunch critics are European countries themselves which suffer economically because of the oftentimes rigid and unreasonable policies ECB follows.
This paper will thus examine how the political and economic world perceives the performance of the central bank in this regard. Commentaries from analysts, studies done by independent economic research bodies, and the media will be the three main sources for this research.
"The list of challenges is long and a lot of work lies in front of us." This was the concluding statement of Gertrude Tumpel-Gugerell, member of the ECB Executive Board during a speech on a conference in Vienna, Austria in 2004. However, she was optimistic that the system would be able to handle challenges that would be present along the way. (ECB, 2004)
Among the many challenges present is how to balance decision-making with regards to rate increase to benefit all the economies of the EU member states. Because the ECB does not only cater to a single economy, it has this inherent challenge. An increase in rate would mean a negative effect on a country with a growing economy while it is a positive move for a country with a high inflation rate. The GoCurrency website cited that "several larger economies in the euro area (Germany, for example) that were recently coming out of an economic slump were unhappy as the higher rates would stunt their growth."(GoCurrency, 2006)
One classic example often mentioned by analysts is the effect of low interest rates in countries with property bubbles such as Ireland. Because "the ECB was keeping rates low to help the stodgy economies of France and Germany, where growth was weak and needed nurturing, the need of the Irish to raise rates to help their already ailing economy is not addressed". (Louth, 2007)
With the recent slump in mortgages in the American market, ECB is once more in the dilemma of raising rates in September or not. It should be noted that this is the first time since September 2001 that there is a proposed increase in rates. (MECB Update, 2002, p 3)
Jean-Claude Trichet, President of ECB, indicated in August that the ECB "will raise its key refinancing rate to 4.25 from 4.0." (TodayOnline, 2007) However, there has been pressure from the world community to halt this intended rate increase.
The article that appeared on the Business World website entitled "NCB: Another ECB hike could be risky", quoted NCB analyst Dermot O'Brien as saying that the credibility of the ECB may be in question if it does not proceed with the intended rise in rates and sticking to its original plan would be seen as immature stubbornness. This is the current dilemma. (Business World, 2007)
With the "surprisingly weak growth figures for the ...
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(The European Central Bank Essay Example | Topics and Well Written Essays - 1250 Words)
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A rise in the European Central Bank’s targeted inflation rates according to the German government this year. Due to increased holiday accommodation and travel and tourism costs, a 2.3% increase was witnessed in the Consumer Price Index which has led the government to undertake sharp steps such as decreasing the cutting down on interest rates.
Ireland’s implementation of the corrective program continues to be strong and has yielded fruitful results. Thus in sum, it can be said that the Irish Government has been successful in repairing its economy and returning it to the economically viable state it was in before the financial crisis hit it in 2008.
The reaction of the markets to this step of ECB was hardly typical as the shares prices rose and euro declined against the dollar within several days after announcement about the rising of the interest rates had been made (However, the reaction of American markets was more typical one as the Dow Jones Stock Index of 600 major European companies fell by 2 points within the several days after the announcement had been made).
The bank is located in Frankfurt, Germany and was established in 1998. It was set up by the European Union and it effectively replaced the European Monetary Institute. But the design and importance of the central bank can be seen as accruing directly from the Germany Bundesbank.
European Monetary Union thought to be a dream came into existence in 1999. The Euro was introduced as an accounting unit and electronic currency in January 1999, and has been circulating in Germany, Austria, Spain, Belgium, France, Greece, Finland, Italy, Ireland, Portugal, the Netherlands and Luxembourg.
The main industries-tourism and shipping were particularly vulnerable in the business cycle. The state made efforts to keep the economy going by spending a lot which consequently increased the country’s debt level in the eurozone. Further efforts were made to
The Irish economy is member of the European Union and controlled by the European Central Bank (ECB) and thus does not have perfect autonomy when it comes to making its economic policy. The ECB has a vested interest in
The key interest rates that are brought about for the euro are set by the governing council (King, 1979). The interest rates are the main refinancing operations which provides bulk of liquidity in normal way and this is to
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