The European Central Bank (ECB) is the de facto successor to the
European Monetary Institute (EMI). EMI was established at the beginning of the
second phase of the European Union Economic and Monetary Union (EMU) to deal
with the transitional issues of countries adopting the euro and the readiness
to establish the European Central Bank and the European Central Bank System
(ESCB). The EMI itself acquired the former European Monetary Cooperation Fund
(EMCF).
The ECB officially replaced EMI on June 1, 1998 under the Treaty of the
European Union (TEU, Maastricht Treaty), yet it did not exercise its full
powers until the introduction of the euro on January 1, 1999, indicating the
third phase of the EMU. The central Bank was the last institution needed for
the European Monetary Union, as outlined in the EMU reports issued by Pierre
Werner and President Jacques Delores.
When the ECB was created, the eurozone included only eleven members. Thereafter,
Greece joined in January 2001, Slovenia in January 2007, Cyprus and Malta in
January 2008, Slovakia in January 2009, Estonia in January 2011, Latvia in
January 2014 and Lithuania in January 2015, expanding the bank's scope and
board membership.
The first President of the ECB was Wim Duisenberg, former president of
the central bank of the Netherlands and the European Monetary Institute, and
the current president is Mario Draghi, who is former President of the
central bank of Italy.
Decision making board of the ECB
The Governing Council is the main decision-making body in the European
system. The council includes executive board members (six in total) and
governors of the national central banks of eurozone countries (19, as of 2015).
Since January 2015, the ECB has published on its website a summary of
the board's deliberations ("Accounts"). The publications were partly
in response to repeated criticisms of the ECB's opacity. Unlike other central
banks, the ECB still does not disclose individual voting records of board
governors.
How is the ECB President elected?
The new President of the ECB is nominated by the European Council,
with the consultation of the central bank's Board of Directors and Parliament.
Before voting, he/she will be invited to a Listening session by the
Committee on Economic and Monetary Affairs, as the President of the ECB is considered
a major figure in the European system.
The upcoming ECB President
Christine Lagarde is due to be confirmed in the next month as the
new head of the European Central Bank (ECB), after finance ministers of
the eurozone have formally signed the agreement reached by
governments a week ago. This means that the nomination of
Lagarde will now go to the Board of Directors of the European Central Bank
and the European Parliament for consultation. Finally, the EU will formally
appoint her as the new President in time to replace the current
president on the first day of November.
Impact of ECB decisions on the euro
In general, each currency is influenced by the central bank's monetary
policies. For the euro, the ECB decisions regarding interest rates and other
monetary tools can have significant impact on the European common currency. The
ECB press conferences is the most important event to follow because the market
is usually predicting interest rate changes.
On a quarterly basis, the ECB publishes its economic expectations for
the euro area, most notably the growth and inflation forecasts for the current
year and next few years. If the ECB President's statements seemed to be” hawkish”,
this means there may be concerns about inflation, which could prompt the
central bank to increase interest rates. Accordingly, the euro should take
advantage of interest rate hikes, like any other currently. On the other hand, dovish
comments about the economy or the euro may indicate future rate cut, which
should drive the euro lower.
What to expect from the ECB on Thursday?
ECB President Mario Draghi will once again return to the spotlight on
Thursday, as investors cheer for a shift towards easier monetary policy. Some
analysts predict the ECB would restart its quantitative easing program to
bolster both growth and inflation in the 19-nation region, amidst the recent
worries from the trade war, global slowdown and Brexit.
Meanwhile, there are stagnation fears in the region’s biggest economies,
more specifically Germany and Italy after a key drag from the manufacturing
sector on the back of the ongoing trade dispute.
It is worth mentioning that the announcement of bond purchases or cut in
economic forecasts may negatively impact the shared currency.
As of 08:55 GMT, the euro traded lower versus the U.S. dollar at 1.1025,
noting that it rebounded from a low of 1.0925 last week, which was the lowest
since May 2017.