THE ECB,THE ESCB AND THE EUROSYSTEM

2.1 THE ECB,THE ESCB AND THE EUROSYSTEM

Under the EC Treaty, the ESCB is entrusted with carrying out central banking functions for the euro. However, as the ESCB has no legal personality of its own, and because of differentiated levels of integration in EMU, the real actors are the ECB and the NCBs of the euro area countries. They exercise the core functions of the ESCB under the name “Eurosystem”.

Chart 1 The ESCB and the Eurosystem

2.1.1 ESCB and Eurosystem as the organic link between the ECB and the NCBs

The ESCB is made up of the ECB and the NCBs of the 25 EU Member States. Its “organic law” is the Protocol on the Statute of the European System of Central Banks and of the European Central Bank (Statute of the ESCB), which is annexed to the EC Treaty.

Unlike the ECB and the NCBs, the ESCB has no legal personality, no capacity to act and no decision-making bodies of its own. Instead, the components of the ESCB – the ECB and the NCBs – are the legal persons and actors. They do have the capacity to act but when they perform tasks assigned to the ESCB they act in line with its objectives, the rules of the Treaty and the Statute and the decisions taken by the decision-making bodies of the ECB. Thus, the term ESCB denotes an institutional framework that establishes an “organic link” between the ECB and the NCBs. It ensures that i) decision-making is centralised, and ii) the tasks that the EC Treaty has assigned to the ESCB are performed jointly and consistently in line with the allocation of powers and the objectives of the system.

The ESCB includes the NCBs of all EU Member States, even those which have not adopted the euro (see Section 1.2.2) because of their special status (Denmark and the United Kingdom) or because of a derogation (Sweden and the ten new EU Member States). As the non-participating Member States have maintained their monetary sovereignty, their respective central banks are not involved in carrying out the System’s core functions. Therefore, to help the public to understand the complex structure of the European central banking system more easily, the Governing Council of the ECB decided in November 1998 to adopt the term “Eurosystem”. This term refers to the composition – the ECB and the NCBs of the Member States that have adopted the euro – in which the ESCB performs its basic tasks.

There are three main political and economic reasons why a system was established to carry out central bank functions for the euro, and not a single central bank:

1. The establishment of a single central bank for the whole euro area (possibly concentrating central bank business in one single place) would not have been acceptable on political grounds.

2. The Eurosystem approach builds on the experience of the NCBs, preserves their institutional set-up, infrastructure and operational capabilities and expertise; moreover, NCBs continue to perform some non-Eurosystem-related tasks.

3. Given the large geographic area of the euro area, it was deemed appropriate to give credit institutions an access point to central banking in each participating Member State. Given the large number of nations and cultures in the euro area, domestic institutions (rather than a supranational one) were considered best placed to serve as points of access to the Eurosystem.

The construction of the Eurosystem builds on established central bank structures and respects the cultural and national diversity of the euro area. At the same time, The construction of the Eurosystem builds on established central bank structures and respects the cultural and national diversity of the euro area. At the same time,

2 . 1 . 2 T h e E C B a s a s p e c i a l i s e d o r g a n i s a t i o n o f C o m m u n i t y l aw

The EC Treaty has established the ECB as a specialised, independent organisation for conducting monetary policy and performing related functions. To this end, the ECB has been given a legal personality of its own, with its own decision-making bodies and powers. Its organisation as a central bank responds to the specific nature of monetary policy, i.e. a public policy function that is implemented mainly by financial market operations.

Legal personality

The ECB has legal personality under Article 107(2) of the EC Treaty and enjoys the most extensive legal capacity accorded to legal persons under the respective national law of each Member State under Article 9.1 of the Statute of the ESCB. It may therefore acquire or dispose of movable and immovable property and be party to legal proceedings. In addition, the ECB enjoys those privileges and immunities that are necessary for the performance of its tasks, under the conditions laid down in the Protocol on the privileges and immunities of the

European Communities of 8 April 1965 1 .

As a legal person under public international law, the ECB is in a position to, among other things, conclude international agreements in matters relating to its field of competence and participate in the work of international organisations such as the International Monetary Fund (IMF), the Bank for International Settlements (BIS) and the Organisation for Economic Co-operation and Development (OECD).

Institutional status

Although performing a policy function under the EC Treaty the ECB is not a Community institution in the proper meaning of the term. It is not referred to in Article 7 of the EC Treaty which establishes the five institutions of the Community: the European Parliament, the Council, the European Commission, the Court of Justice and the Court of Auditors. These institutions are entrusted with the broad mandate of carrying out the tasks of the Community within the limits of the powers conferred upon them by the Treaty.

Instead, the legal basis of the ESCB and the ECB is provided for in a separate article (Article 8 of the Treaty). This underpins the specific status of the ECB within the overall context of the European Community, sets it apart from the other institutions and their auxiliary bodies and limits its activities to a clearly defined special task.

1 Article 23 of the Protocol states that the Protocol applies to the European Central Bank, to the members of its organs and to its staff, without prejudice to the provisions of the Statute of the

ESCB.

As an organisation created by the EC Treaty, the ECB enjoys genuine powers. These powers have not been delegated by the Community institutions; they are genuine powers given to the ECB by the EC Treaty. This feature distinguishes the ECB from the various decentralised agencies of the Community, which possess their own legal personality but have competences delegated to them by the Community institutions. 2

2.1.3 The euro area NCBs as an integral part of the Eurosystem

Each NCB of the Eurosystem has legal personality within the national law of its respective country. However, all euro area NCBs are integral parts of the Eurosystem by virtue of Article 105 of the EC Treaty and Article 14.3 of the Statute of the ESCB. Under Article 12.1 of the Statute, they carry out those Eurosystem tasks which have been delegated to them by the ECB in line with the principle of decentralisation (see Section 2.4) and act in accordance with the guidelines and instructions of the ECB (Article 14.3 of the Statute). At the same time, the Governors of the Eurosystem NCBs are, alongside the members of the Executive Board, ex officio members of the Governing Council of the ECB (Article 10 of the Statute of the ESCB). As “shareholders” of the ECB, the Eurosystem NCBs endow the ECB with capital and foreign reserve assets and participate in its financial results (Articles 28, 30 and 33 of the Statute).

To integrate the NCBs into the Eurosystem, the relevant national legislation has been brought into line with Community law: national laws and statutes have to ensure, in particular, that the NCBs and their decision-making bodies are independent of the authorities of the respective EU Member States (see Section 4.1). Independence is a requirement because of the NCBs’ and their Governors’ involvement in the functioning of the Eurosystem.

The functional integration of the NCBs into the Eurosystem does not infringe upon their existing institutional, financial and administrative autonomy. Under the Statute of the ESCB, the NCBs may perform non-Eurosystem functions on their own responsibility, provided that these functions do not interfere with the objectives and tasks of the Eurosystem. Non-Eurosystem functions vary according to countries and mainly consist of various types of financial and administrative services to the governments of the respective countries. Most NCBs are also involved in supervising financial institutions in their respective countries (see Section 3.7).

2.1.4 The NCBs of the non-participating EU Member States

The NCBs of the non-participating EU Member States are also members of the ESCB but have a special status. They are responsible for their respective national monetary policies and are thus excluded from taking part in the core activities of the Eurosystem, in particular the conduct of the single monetary policy. Their

2 For example, the European Environment Agency (EEA), the Office for Harmonisation in the Internal Market (OHIM) and the European Agency for the Evaluation of Medicinal Products

(EMEA).

Governors are not members of the ECB’s Governing Council and do not take part in the decision-making process for the Eurosystem’s core activities. Likewise, these NCBs are not involved in implementing the single monetary policy and related functions.

The non-participating NCBs are nevertheless committed to the principles of price stability-oriented monetary policy. Furthermore, being members of the ESCB implies that they need to work closely with the Eurosystem in several fields: for instance, they provide support for the collection of statistics (see Section 3.5). In addition, the European Exchange Rate Mechanism II (ERM II) provides a framework for monetary and exchange rate policy cooperation with the Eurosystem (see Section 3.2.1). The institutional forum for such cooperation is the General Council of the ECB (see Section 2.5.1).