One of the world's most powerful financial institutions, the European Central Bank opened its doors on June 1, 1998. Ten years on, the ECB is busy resisting pressure from EU leaders wanting to make it a scapegoat for slow growth and rising prices.
"I congratulate you on your impossible job!"
That backhanded compliment, from Nobel Economics Laureate Milton Friedman to the European Central Bank’s first chief economist, Ottmar Issing, in 1998, speaks volumes about the early skepticism surrounding the ECB.
On Monday, as the champagne corks pop in Frankfurt’s steel-and-glass Eurotower, the ECB is marking one decade as the eurozone’s ultimate arbiter of monetary policy. Today, that zone encompasses 15 nations and 320 million citizens.
It’s a destiny that critics thought would never come to pass.
While the ECB may today l seem an inevitable fixture on Europe’s institutional landscape, it took some 30 years of heated polemics to bring the concept to fruition.
Many deemed it sheer folly to have a single bank setting monetary policy for a region as diverse as Europe.
The German Bundesbank had traditionally been the de facto monetary policy kingmaker – a role that few predicted anyone could usurp anytime soon.
Yet today, the ECB, and its crowning achievement, the euro single currency, have withstood the slings and arrows of detractors to establish themselves as more than worthy rivals to, respectively, the US Federal Reserve and the dollar.
There's even talk that the euro could supplant the almighty greenback as the global currency of choice in the next decade or so.
Meanwhile, the ECB's chief since 2003, the frenchman Jean-Claude Trichet, has asserted himself as a nimble sparring partner – and a nemesis - to the Fed's Ben Bernanke.
The ECB’s recent policy of standing firm on interest rates – part of an inflation-fighting mission enshrined in its founding charter – has set it in stark contrast to Bernanke’s rate-slashing Fed.
The dichotomy has raised the profile of both banks, and fired a fierce debate over the banks’ divergent notions of the best monetary medicine.
As for the euro, its success is uncontestable.
Twenty-five percent of the world's foreign currency reserves are now said to be in euros - versus 18% in 1999. Meanwhile, 10 countries are in line to join the 15 already admitted to the eurozone.
As for exchange rates, the euro is hovering near $1.60 – way above the parity level whose breaching was once seen as a high water mark.
But that’s not to say big challenges don’t remain.
Tough economic times across much of Europe have prompted a search for scapegoats – and the ECB and the euro are easy targets. France’s president, his popularity ratings in decline, has been among the most assertive in calling for the EU to tailor its policies more to job creation and growth.
Critics tend to regard such calls as a potentially dangerous infringement on the ECB’s independence, and a threat to its mandate to remain above the political fray.
Others blame the euro for pushing prices up across Europe at a time when inflation is at record levels.
In fact, according to one estimate, prices in the region have risen less in the past ten years than they did in the 10 years prior to the euro. That suggests that at least some of the euro-bashing is based more on raw emotion than rational number-crunching.
One thing is for sure: the ECB cannot rest on its laurels. The Bank is likely to face mounting pressure from national politicians looking for short-term economic fixes.
But thanks to its steadfastness over the past 10 years, the ECB’s job may now be a little less impossible than its early critics had it.
Date created : 2008-06-02