The ECB, the Eurosystem and the European System of Central Banks – what are they?
Danmarks Nationalbank is part of the European System of Central Banks, ESCB. The ESCB comprises the European Central Bank, ECB, and the central banks of all 28 EU member states. The central banks of the EU member states that have not introduced the euro participate in certain areas of cooperation only.
The part of the ESCB that is involved with the euro and the single monetary policy is called the Eurosystem. The Eurosystem comprises the ECB and the national central banks of the euro area member states.
The ECB's governing bodies
The ECB has three governing bodies: the Executive Board, the Governing Council and the General Council.
The Executive Board is responsible for day-to-day management and for implementing the monetary-policy decisions made by the Governing Council. The ECB's Executive Board comprises six members, appointed for 8-year terms of office. Only citizens of euro area member states can be appointed to the Executive Board.
The Governing Council is the ECB's supreme decision-making body. It comprises the ECB's Executive Board and the central-bank governors of the euro area member states. The Governing Council lays down the single monetary policy of the euro area. Normally, meetings are held every two weeks. At the first meeting of each month, the Governing Council assesses the need to adjust interest rates, among other things. The second meeting of the month is used to discuss other issues in relation to Eurosystem tasks. Each member has one vote.
The General Council comprises the President and the Vice-President of the ECB, as well as the central-bank governors of all EU member states. Governor Lars Rohde represents Danmarks Nationalbank. Each member has one vote. The General Council meets every three months. One of its tasks is to help to prepare the entry of new member states into the euro area. Economic and financial developments and the functioning of the EU's Exchange Rate Mechanism, ERM 2, are also discussed. Finally, the General Council contributes to the ECB's advisory and statistical tasks.
The General Council will exist only while there are EU member states that have not introduced the euro.
The ECB and the Eurosystem
The ECB and the national central banks of the euro area member states – which jointly make up the Eurosystem – work closely together and are responsible for the single monetary policy of the euro area. The Governing Council decides on the single monetary policy, but the national central banks of the Eurosystem implement this policy in practice.
The objective of the single monetary policy is to maintain price stability in the euro area. This has been defined as inflation close to, but below 2 per cent year-on-year in the medium term. Monetary policy can support the general economic policies of the euro area member states – e.g. with a view to ensuring high growth and employment – but only if this can be done without jeopardising the objective of low inflation. In addition to monetary policy, the Eurosystem performs various other tasks that are typical of central banks, such as compilation of financial statistics, management of foreign-exchange reserves and development and maintenance of payment systems.
Danmarks Nationalbank's participation in the EU's economic and financial cooperation
Besides central-bank cooperation in the EU, Danmarks Nationalbank and the other EU central banks participate in parts of the EU's economic and financial cooperation. This mainly takes place under the auspices of the Economic and Financial Committee, EFC. The EFC is composed of representatives of both central banks and the respective economic ministries. Governor Per Callesen represents Danmarks Nationalbank.
The EFC was set up in accordance with the EU Treaty, which stipulates that the committee's main tasks include the following:
- to deliver opinions to the Ecofin or to the Commission on economic and financial issues of significance to the EU. The EFC may deliver such opinions on its own initiative or at the request of the Council or of the Commission.
- to keep under review the economic and financial situation of the member states and of the Union and to report on it regularly to the Council and to the Commission. This means that the EFC plays a large role in terms of e.g. monitoring whether member states observe the EU requirements of sound public finances. The EFC also regularly monitors financial stability in the EU, and coordinates the EU's work related to financial connections with non-EU member states and with international institutions such as the International Monetary Fund, IMF.
- to examine and report on the situation regarding the movement of capital and the freedom of payments.
Depending on the specific topics discussed, the EFC may meet with or without representatives of the central banks. Themes relevant to the euro area member states only may be discussed by the Euro Working Group, a body resembling the EFC.