2023-05-24 18:11:19
Feast day in Frankfurt. On the occasion of its birthday party this Wednesday, May 24, the European Central Bank (ECB) brought together nearly 200 guests in its huge steel tower located on the banks of the Main. Twenty-five candles will be placed on the birthday cake cut by Christine Lagarde, president of the institution since November 2019. At her side to sing in chorus, two of her predecessors, Jean-Claude Trichet and Mario Draghi, but also the German Chancellor Olaf Scholz and several finance ministers from eurozone countries. A gala atmosphere.
The ECB was created on June 1, 1998 to take over from the European Monetary Institute created in 1994, under the impetus of 11 European countries. Largely modeled on the Bundesbank, the German central bank, whose headquarters were a few kilometers away, its main mission was to “ maintain price stability “. From 1999, electronic payments could be made in euros. The circulation of coins and banknotes took place two years later, on January 1, 2002.
First crisis
For ten years, the institution has met its obligations without difficulty. Its first two presidents, the Dutchman Wim Duisenberg and the Frenchman Jean-Claude Trichet, were close to German economic ideas. Their only obsession, in connection with the need to ensure the credibility of the new institution: to keep inflation below the 2% mark.
But everything changed in September 2008, when the American bank Lehmann Brothers went bankrupt. The incident weakened global finance and banking establishments refused to lend each other money. To avoid the collapse of its financial system, the ECB took the unprecedented decision to lend several hundreds of billions of euros to European banks. This is its first intervention on the financial markets.
Following this crisis, the ECB gained legitimacy on the economic and political scene. But above all, it has become aware of its need to act to maintain financial stability in the euro zone. A role that she now fulfills in her own right, although it does not appear on her mission statement.
Risk of implosion
The truce was short-lived. In 2010, Greece entered into crisis and more or less dragged down several other countries (Ireland, Spain, Portugal, Italy). The cost of borrowing soared and some feared the implosion of the euro zone. To guard against this, the ECB bought 220 billion euros of sovereign securities, breaking with one of its main dogmas.
A break with German rigor confirmed by the arrival of Mario Draghi at the head of the institution on July 26, 2012. Assuring that he was determined to save the euro “ no matter what », he put an end to any attempt at speculation against the European currency by announcing an instrument intended to buy back State debts: the OMT. This has never been used.
Deflation period
The euro was saved but the succession of crises left its mark. Growth slowed and in 2015 the euro zone entered deflation. To reverse the trend, the ECB lowered its key rates, down to -0.5%, in order to encourage credit and relaunch investment. In March 2015, Mario Draghi launched a quantitative easing program (quantitative easing). The latter enabled the ECB to buy government debt on the markets to lower financing costs. The economy held up but inflation did not pick up.
It took a global pandemic to restart the machine. At the beginning of 2020, the coronavirus spread around the world and confined European states. The economy was at a standstill. In March 2020, the ECB launched an unprecedented support plan (750 billion euros) and bought back almost all the bonds issued by the States to finance the crisis. It was the return of no matter what ».
The return of inflation
Successive confinement episodes have disrupted supply chains. Many sectors have been affected by problems of shortages. Inflation is back. Initially viewed favorably by the ECB, it quickly got out of control with the outbreak of war in Ukraine on February 24, 2022 and the ensuing energy shock. In the summer of that same year, gas prices increased tenfold.
In July 2022, the ECB abruptly raised its key rates, in the wake of the US Federal Reserve (Fed). In ten months, they went from -0.50% to 3.25%. The objective: to discourage investments to prevent too much money from circulating and therefore limit the risk of inflation.
A birthday in the shadow of inflation
On the eve of his twenty-fifth birthday, the shadows multiply. With record inflation of 7% in April 2023, the 2% target seems distant. Projections do not envisage a return to a level close to 2% before 2025. At the same time, growth is stagnating: 0.1% in the first quarter of 2023.
Nothing to spoil the party though. ” Today, as we celebrate the 25e anniversary of this institution, we know that the euro works and that it has brought Europeans togethersays Christine Lagarde in a column published in the newspaper The echoes. The euro is today the second most important currency in the international monetary system after the dollar. »
Much work is underway, including that of a digital currency by 2027. But while their purchasing power is declining, the 346 million Europeans in 20 countries who use the euro every day could begin to question the effectiveness of the ECB.
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