The ECB started in 1998 following the Treaty of Amsterdam . The European Central Bank came out after the European Monetary Institute (EMI) which had been set at the second stage of the Economic and Monetary Union (EMU), to handle transitional issues concerning the implementation of the Euro as a currency. The European Central Bank (ECB) is one of the seven institutions of the EU and the Central Bank for the Eurozone as a whole. It is one of the most critical Central Banks in the world, and it supervises over 120 central banks and commercial banks within the EU states. The ECB, works with the Central banks in each of the EU states, to formulate monetary policy .-
The primary function of the European Central Bank is to maintain price stability and safeguard the value of the Euro. The Governing Council defined price stability with rate of inflation either under or close to 2%.
Price stability is essential for spurring economic growth and job creation, which are core objectives of the EU.To ensure the robustness of the banking system, the ECB is responsible for banking supervision in all the EU member states holding the power to grant and withdraw banking licenses, conduct supervisory reviews and set higher capital requirements to counter any financial risks.
Beyond ther formalities for any Central Bank,the ECB has a key role in keeping the euro value as the currency set for the world stage, as an alternative to other currencies. This is quite a challenge because for doing so, the ECB needs to have among all members states a fiscal policy discipline , otherwise its main goal goes into the risk zone of weakening the euro.
The basic format of the Euro, give to the fiscal policy its fair share for supporting economic activity up to a deficit of no more than 3% of GDP. However, as the crisis of 2010 proved, it is hard to keep that level when social needs arise such that fiscal spending goes far beyond that limit.This creates stress among some members of the eurozone. This when the real importance of ECB take place. How to cope with the adjustment process to get fiscal spending down, while keeping at the same time the Euro as a reliable currency?.-
This is the reason because Mr Draghi, now in his last four months in charge of the ECB, is considered to be the one who saved the euro in the worst of the moment for the Eurozone following its 2010 own crisis.-
He realized that the euro was suitable to get along with more active monetary policy("whatever it is necessary" in his own words), which was not necessarily on the menu at the beggining of thenew currency. In fact, it was something the ECB was not set for. Open market operations(To buy Bonds), or reducing actively interest rates, was an unkonwn territory Mr Draghi went through sucessfully. This is so, because the euro currency play the role of a fixed exchange rate where monetary policy is supposedly constrained by free capital flows.
So , there are good expectations that after the learning process is already done, the new authority will follow the same path and this is good for the Euro zone. Another matter is the issue of a more flexible approach, the so called "two speed euro zone", which some key economies of the Euro zone, are asking to be applied.-
