A review of the institutional structures established for monetary union perhaps tests the permissible boundary lines of the present work on the law of money. Yet, as noted previously, the working definition1 of a monetary union is heavily dependent upon the need for a single central bank which issues the sole currency constituting legal tender within the territory of the union. Furthermore, the crisis that has gripped the eurozone in recent times has focused attention on the institutional structures put in place to support the single currency. It thus remains appropriate to review the institutional arrangements for the performance of the central banking functions, the issue of the currency within the eurozone, and various other matters.2
With these considerations in mind, it is proposed briefly to consider the institutional history. Thereafter, it will be necessary to consider the establishment, structure, and functions of the European Central Bank (ECB) and the European System of Central Banks (ESCB). Finally, the text will turn to a political grouping and to some of the structures adopted in the light of the ongoing financial crisis.
It has been shown that monetary union itself was by no means a bolt from the blue; rather, it represented the culmination of a number of developments within the Community over a period of years.3 Essentially the same remark may be made in relation to the monetary institutions of the eurozone.4
Indeed, the development of monetary institutions may legitimately be traced back to the Treaty of Rome in its original form. Article 104 of that Treaty required Member States to ‘pursue the economic policy needed to ensure the equilibrium of its overall balance of payments and to maintain confidence in its currency, while taking care to ensure … a stable level of prices’. In order to promote the coordination of policies in the monetary field, Article 105 established a Monetary Committee. That Committee was required to keep under review the monetary and financial situation of the Member States and to deliver reports and opinions on that subject. The Monetary Committee had advisory status only, and had a right to be consulted in various areas.5 It is thus possible to trace back the need for monetary institutions to the very origins of the Community itself. The Monetary Committee ceased to exist once the third stage of European Monetary Union (EMU) began, but it was replaced by an Economic and Financial Committee which enjoys similar (although not identical) consultative powers. Its functions include the review of the financial situation of Member States and of the Union as a whole, and the examination of measures affecting the free movement of capital and payments.6
If, however, one seeks the precise forerunner of the present monetary institutions, then one must look to the Committee of Governors of the Central Banks, which was formed in 1964 to promote the coordination of monetary policy.7 In 1972, the Committee of Governors was tasked with the management of the European Monetary Cooperation Fund.8 In 1979, the Committee assumed responsibility for the operation of the Exchange Rate Mechanism9 and it was later required to promote monetary policies aimed at the achievement of price stability, so as to support the operation of the European Monetary System.10
The Committee of Governors was dissolved at the start of the second stage of EMU, when the European Monetary Institute (EMI) was established.11 Naturally enough, the functions of the EMI reflected its status as a transitional institution which was intended to accelerate the movement towards the third stage of monetary union. Apart from various consultative and reporting roles, the EMI took over responsibility for the operation of the European Monetary System and the coordination of national monetary policies with the objective of price stability; it was required to establish the procedures for the conduct of monetary policy following the creation of the single currency, and to promote the efficiency of cross-border payment systems. The EMI was also involved in the preparation of reports designed to assess whether Member States had met the ‘Maastricht criteria’ in order to qualify for membership of the eurozone.12 It will be observed that the EMI (in common with its predecessors) was responsible for the coordination of monetary policies. This was necessarily the case, for the individual Member States retained their separate national currencies and the actual selection and conduct of monetary policy thus remained a national responsibility. This position was to change on 1 January 1999, with the creation of the single currency.13
The ECB and the ESCB provide the core of the institutional structure upon which the euro depends.14 This structure came into existence on 1 June 1998 upon the appointment of the Executive Board of the ECB, although it could clearly assume responsibility for monetary policy only when the single currency was established on 1 January 1999.15 Both the ECB and the ESCB are required to act within the scope of the powers conferred upon them by the Treaty and the Statute of the ESCB.16 Given the limited objectives of the present survey, it is perhaps sufficient to note a series of key points which will provide an overview of the two organizations. It will also be necessary to comment briefly on the role of the national central banks within the ESCB.
The ECB is an international organization created by treaty, and it has separate legal personality.17 The ECB can thus acquire rights and become subject to liabilities; it may sue and be sued in its own name; it is to have the most extensive legal capacity accorded to corporations under the national laws of each Member State.18 The resources available to the ECB originally consisted of (a) subscriptions to its share capital by the national central banks of the eurozone Member States,19 and (b) substantial foreign reserve assets transferred to the ECB by the same central banks.20 The profits and losses accruing to the ECB are allocated amongst the participating central banks.21 In principle, therefore, the assets and liabilities of the ECB are entirely separate from those of the Union itself; it thus enjoys independence in the conduct of its financial and monetary operations.22 Nevertheless, it must not be overlooked that the ECB was originally created by the EC Treaty to serve an EU objective—ie, the creation of a monetary union. Consequently, the ECB exists within the EU framework and is bound by EU law, to the extent applicable to it. In particular, the independence of the central bank cannot be invoked so as to exempt the ECB from the requirements of the TFEU itself.23 This point has been clarified in the post-Lisbon era because the ECB is now categorized as a ‘Union institution’.24
The ECB enjoys the exclusive right to authorize the issue of euro banknotes and coins; these constitute the sole form of legal tender within the eurozone.25 This general subject will be considered in more detail at a later stage.26
The decision-making bodies of the ECB are the Governing Council and the Executive Board.27 The Governing Council comprises (a) the members of the Executive Board, and (b) the governors of national central banks within the eurozone.28 The Governing Council has a range of powers and functions, but it is primarily charged with the formulation of monetary policy for the eurozone (including decisions relating to intermediate monetary objectives, interest rates, and the level of reserves within the ESCB).29 The Governing Council may adopt guidelines and decisions for these purposes, and may take any step necessary to ensure compliance by national central banks within the ESCB.30
The Executive Board comprises the president,31 the vice president, and four other members.32 The principal task of the Executive Board is the implementation of the monetary policy determined by the Governing Council although, to the extent possible, this should be achieved through the activities of the national central banks within the ESCB.33
The ESCB comprises the ECB itself and the central banks of the Member States of the Union34—it should thus be appreciated that the ESCB as such does not have an independent or composite legal personality. Even the central banks of non-euro-zone Member States with a derogation35 are members of the ESCB, although in practice they are excluded from most of the material rights and obligations which arise within the framework of the system,36 and references to the ESCB should accordingly be read in that light. As noted earlier, the ESCB is governed by the decision-making bodies of the ECB itself;37 the Governing Council may require national central banks to comply with the guidelines and decisions of the ECB.
What, then, are the objectives and functions of the ESCB? The primary objective is the maintenance of price stability.38 The ESCB must thus both formulate and implement monetary policy39 with a view to creating a low-inflation environment. At present, price stability is defined as an annual rate that is below, but close to, 2 per cent per annum in terms of the Harmonised Index of Consumer Prices (HICP) for the euro.40 In theory, it would be open to the European Court of Justice to determine whether the ECB’s policies are consistent with its legal mandate of price stability. In practice, however, the Court is bound to extend a significant margin of discretion to the ECB in determining an appropriate policy, not least because the Court is ill-equipped to substitute its own judgment in this type of area.41