5

How is the policy of the European Central Bank determined if every country has a different economic situation? Is there a sort of weighing system that makes the economic situation of certain European economies more important than others? Is there some kind of guideline on this, or is the bank given the permission to do whatever it pleases?

  • 1
    Not only every country has a different economic situation, also every region within a country has a different economic situation. I guess there is no official algorithm how they arrive at their decisions, but they surely look into the details within the Eurozone. The ECB is quite independent in its decisions. – Trilarion Aug 4 at 9:56
  • 1
    The cynics say that they look at what Germany and France need... – Orangesandlemons Aug 5 at 6:46
8

From Wikipedia:

The primary objective of the ECB, mandated in Article 2 of the Statute of the ECB, is to maintain price stability within the Eurozone.

Contrast this with the United States Federal Reserve, which is supposed to maintain both price and employment stability.

The main point being that European Central Bank is not required to take into account the differing economic situations of the countries within it except as those situations might impact price stability (inflation). In practice, the ECB targets an inflation rate of below 2%. If inflation goes above 2%, it failed. If inflation goes below 0% it failed. If inflation is around 1.75%, it is successful. An inflation rate of 1% would be kind of meh, neither failure nor success.

Inflation is calculated on a Eurozone-wide basis. While it is possible for inflation to be higher or lower in a particular area, that is not of major concern to the ECB. Their primary objective is the inflation rate of the Euro overall.

  • "Their primary objective is the inflation rate of the Euro overall." Which would imply some kind of weighing of all the different countries. The overall inflation rate is a weighted average of the single inflation rates, isn't it? – Trilarion Aug 4 at 9:58
  • The US Fed dual mandate is more symbolic in the minds of many who matter. economics.stackexchange.com/a/27573/6210 – Fizz Aug 4 at 10:35

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.