Role of the European Central Bank essay

In your opinion, does the European Central Bank have an obligation to those countries that have not adopted the Euro? The European Central Bank (CB) based in Germany, was established in 1998; it is the central bank for Rupee’s single currency that is the Euro (CB. Europe. E 2015).

It consists of 19 European ember states out of 28 European union countries, where they all adopt the Euro currency, which is also known as the Rezone (Worth & Loaded 2003). Only two European Union States are not in the Rezone, Denmark and united Kingdom. The role of the European central bank is to implement and framing the Ex.’s monetary policy and economic policy (Also & Vines 1999). The European Central Bank (CB) is one of the most important factors in the financial crisis and the sovereign debt crisis in the Euro- Zone. The CB has an important role to play to resolve these issues during this crisis.

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During the financial crisis, some members of the European Union viewed this crisis as an American phenomenon (Jackson 2009). But this view that people had, has changed as the EX. has declined at a very fast pace. Matters went worse when the global trade started to decline sharply when it started eroding prospects for European exports giving safety valve for local industries that are reducing output (Continence 2012). Moreover the rise in unemployment and having a lot of concerns over the growing financial turmoil, are making the political takes to increase for the E government and for the leaders (NATO 2009).

The more the economic crisis persist the more will pressure mount on the governments The CB clearly did not see this crisis coming in 2007 and they did not know the dimension and depth of this crisis until it was summer 2008. In fact, what they did, is that they increased the target rate to 4. 1 to 4. 25% in July 2008 by following the principle of inflation targeting (Annual report 2008). It was only when the Lehman Brose collapsed that the CB understood that there was an exceptional crisis. The CB started to change its policies, and let’s not forget that the CB role is to make monetary policies.

They also started to decrease the interest rate until it reached a historic 1% in May 2009 (Occur 2015). But these are not enough the CB had to start inserting liquidity into the system. Therefore they started a program called the “En handed credit program”. This helped to encompass purchases of bonds, relaxed criteria for collateral. They started to act as a lender as they started giving liquidity to all banks. In 2010, as the sovereign debt crisis in Greece name to a head, the CB initiated another program called “Securities Market Program” (Allies 2012).

They started to buy the Greek government bonds. But, as the debt crisis engulfed other Rezone states, the CB started to extend the program to Portugal, Ireland, Spain, and Italy. The banks bonds purchase helped to bring down rising borrowing cost. To increase liquidity and bank lending they initiated the Long Term Refinancing Operation program where they made available $640 billion in inexpensive, three-year loans to 523 EX. banks. According to me, the CB started to deviate from its ideology where they had strict monetary policies.

This global financial crisis has unleashed a lot of pressure. It is a very complex issue of monetary prices and central banking roles. Moreover, the European Central Bank does not have any obligations on the countries that have not adopted the Euro as the other countries have a strong currency and looking at the crisis that the other countries are going through its better for them not to enter into the Rezone.