European Central Bank

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The European Central Bank (also ECB), is an institution of the EU that administrates the EU’s monetary policy. This makes the European Central Bank one of the biggest central banks in the world and puts it in charge of many important decisions. The European Central Bank is directly responsible for many matters relating to the European economy and indirectly the world economy.

The European Central Bank is the spiritual successor to its precursor The European Monetary Institute. This bank was established in turn after the European Monetary Co-Operation. The European Central Bank was first created in 1998 by the Treaty of Amsterdam but was not in full operation and control until 1999. The headquarters for the European Central Bank’s operations takes place in Frankfurt in Germany and is currently run by Jean-Claude Trichet who is president of the European Central Bank.

The main goal of the European Central Bank is to keep price stability throughout Europe and to prevent inflation where possible. The target here is to keep inflation at around 2% and not too much higher. All other tasks are then considered to serve this overall aim, which is slightly different in approach to the US’ Federal Reserve Bank. These other tasks however include conducting foreign exchanges, looking after foreign reserves, and promoting an efficient financial market infrastructure. The European Central Bank cooperates with many other organisations to meet these tasks such as the EU, and is the only organisation with the right to issue Euro notes (while others can issue coins, this requires permission from the European Central Bank). An example of the European Central Bank in action and intervening in a European financial issue is when they injected billions of Euros to European banks in order to combat the credit crisis in 2007.

European Central Bank

European Central Bank

The European Central Bank has sometimes come under criticism however for being too independent and detractors such as French President Sarkozy have called for the European Central Bank to be more susceptible to political change and to focus more on other tasks such as job creation.