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European Central Bank | HearLore
— Ch. 1 · Founding And Early Years —
European Central Bank.
~6 min read · Ch. 1 of 6
The European Central Bank opened its doors on the 1st of June 1998 in Frankfurt, Germany. Wim Duisenberg became the first president of this new institution. He had previously led the Dutch central bank and the European Monetary Institute. The ECB officially replaced the European Monetary Institute that same month. However, it did not exercise full powers until the euro currency was introduced on the 1st of January 1999. This date marked the third stage of Economic and Monetary Union. At its creation, the bank covered a Eurozone with eleven member states. Greece joined the union in January 2001. Slovenia followed in January 2007. Cyprus and Malta entered in January 2008. Slovakia joined in January 2009. Estonia arrived in January 2011. Latvia came aboard in January 2014. Lithuania joined in January 2015. Croatia entered in January 2023. Bulgaria is scheduled to join in 2026. The initial capital allocation key was determined in 1998 based on population and GDP figures. The bank's capital stock eventually reached €11 billion. It is owned by all 27 central banks of EU member states as shareholders. Shares in the ECB are not transferable and cannot be used as collateral.
Crisis Response Strategies
The Euro area crisis began after Greece uncovered its real level of indebtedness in late 2009. Sovereign bond yields for several countries started to rise sharply. This provoked a self-fulfilling panic on financial markets. Jean-Claude Trichet led the ECB during this turbulent period until November 2003 when Mario Draghi took over. On the 10th of May 2010, the ECB announced the launch of a Securities Market Programme. This involved discretionary purchase of sovereign bonds in secondary markets. The decision was taken by the Governing Council during a teleconference call only three days after their usual meeting. Jürgen Stark resigned from the Board in September 2011 in protest against these purchases. He considered them equivalent to monetary financing prohibited by the EU Treaty. By the 18th of June 2012, the ECB had spent €212.1bn for bond purchases covering outright debt. These purchases were intended to dampen international speculation against stressed countries. Controversially, the ECB made substantial profits out of SMP which were largely redistributed to Eurozone countries. In 2013, the Eurogroup decided to refund those profits to Greece. Payments were suspended from 2014 until 2017 over conflicts between Yanis Varoufakis and ministers. Profits refunds were reinstalled by the Eurogroup in 2018.
When did the European Central Bank open its doors in Frankfurt?
The European Central Bank opened its doors on the 1st of June 1998 in Frankfurt, Germany. Wim Duisenberg became the first president of this new institution.
Who is the current president of the European Central Bank as of 2026?
Christine Lagarde serves as the President of the Executive Board responsible for implementing monetary policy defined by the Governing Council. She was appointed for a non-renewable term of eight years alongside Vice-President Luis de Guindos and four other members.
What date did the European Central Bank launch the Pandemic Emergency Purchase Programme?
On the 19th of March 2020, the ECB launched the Pandemic Emergency Purchase Programme worth €750 billion following the onset of the COVID-19 pandemic. This announcement led to an immediate reboot in stock prices and expanded financial support across the euro area.
How much capital does the European Central Bank hold as shareholders?
Capital stock worth €11 billion is owned by all 27 central banks of EU member states as shareholders. The initial capital allocation key was determined in 1998 based on population and GDP figures.
When did the European Central Bank start raising interest rates due to inflation?
The ECB decided to raise interest rates in late July 2022 when the inflation rate in the eurozone reached 8.9%. The main rate transitioned from extremely low levels to reach 4% by end of September 2022.
Mario Draghi replaced Jean-Claude Trichet as President on the 1st of November 2011. His presidency marked the start of an interventionist era. On the 6th of September 2012, the ECB announced the Outright Monetary Transactions programme. This program has no ex-ante time or size limit. However, activation remains conditioned to adherence by the benefitting country to an adjustment programme. The Bundesbank president Jens Weidmann was the sole member voting against it. On the 22nd of January 2015, the ECB announced an extension within a full-fledged quantitative easing programme. It included sovereign bonds at the tune of €60 billion per month up until at least September 2016. The programme started on the 9th of March 2015. On the 8th of June 2016, the ECB added corporate bonds to its asset purchases portfolio. Under this programme, it conducted net purchase of corporate bonds until January 2019 to reach about €177 billion. While halted for 11 months in January 2019, the ECB restarted net purchases in November 2019. By the 5th of May 2020, the Court ordered the Bundestag and Bundesregierung to ensure proportionality assessment of vast government debt purchases. The size of the ECB's quantitative easing programme had reached €2947 billion.
Pandemic Emergency Measures
The onset of the COVID-19 pandemic precipitated an unprecedented crisis impacting global economies. On the 12th of March 2020, the ECB announced additional net asset purchases of €120 billion by end of 2020. Christine Lagarde declared that the ECB was not there to close spreads during a press conference. This statement triggered sudden negative reaction with widening yield spreads in Spain, Italy and Greece. Less than one week later, on the 19th of March 2020, the ECB launched the Pandemic Emergency Purchase Programme worth €750 billion. This announcement led to immediate reboot in stock prices. On the 4th of June 2020, the ECB expanded PEPP by another €600 billion. Half a year later, on the 10th of December 2020, final expansion brought total PEPP to €1.850 trillion. This corresponded to 15.4% of euro-area GDP of 2019. In December 2021, the ECB announced discontinuation of net purchases under PEPP from end of March 2022. By the 31st of March 2022, net purchases amounted to €1.718 billion. Of this total, €1.665 billion was invested in public sector securities and €52 billion in private sector securities. 93% of the full envelope was used due to decreased financial stress.
Inflation Surge And Tightening
In summer 2021, the eurozone witnessed notable inflationary surge following strategic updates. The inflation rate reached unprecedented peak of 4.9% in November 2021. This marked highest level since introduction of the euro. Initially, both European Central Bank and Federal Reserve misjudged situation assuming spike would be temporary. This misperception led to initial inaction regarding monetary policy. After big increases throughout 2021 and 2022, the ECB decided to raise interest rates in late July 2022. At that time, inflation rate in eurozone was already at 8.9%. It had been higher than 2% target for more than a year. The transition away from extremely low interest rates culminated in main rate reaching 4% by end of September. In contrast, Federal Reserve elevated Effective Federal Funds Rate to 5.33% in August. Global monetary tightening cycle turned out most synchronized one in past half-century. By February 2023, more than 90% of economies had hiked their policy rates. Critics emerged regarding methodologies used for inflation estimation and failure to anticipate surge. Traditional indicators like Phillips Curve were found inadequate in signaling overheating economy.
Governance And Leadership
The Executive Board is responsible for implementing monetary policy defined by Governing Council. It normally meets every Tuesday. The board comprises President Christine Lagarde, Vice-President Luis de Guindos and four other members. They are appointed by European Council for non-renewable terms of eight years. José Manuel González-Páramo left the board in early June 2012 without immediate replacement. Luxembourg's Yves Mersch was eventually appointed as his successor after long political battle. Frank Elderson succeeded Yves Mersch in December 2020. The Governing Council is main decision-making body comprising six executive board members plus governors of National Central Banks. As of 2026, there are 21 national central bank governors. Since January 2015, ECB publishes summary of deliberations called accounts on its website. In December 2025, ECB proposed simplification of EU banking rules endorsed by Governing Council. Capital stock worth €11 billion is owned by all 27 central banks of EU member states. Initial capital allocation key determined in 1998 based on population and GDP. Today ECB capital is about €11 billion held by national central banks as shareholders.