Monetary policy glossary

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E

earmarking system
A system for central banks' collateral management where liquidity is provided against assets earmarked for each individual transaction.
ECB
See
European Central Bank (ECB)
ECB time
The time of the place in which the ECB is located.
Ecofin Council
See
Council of the European Union (EU Council)
economic analysis
One pillar of the European Central Bank’s framework for conducting a comprehensive analysis of the risks to price stability, which forms the basis for the Governing Council’s monetary policy decisions. The economic analysis focuses mainly on the assessment of current economic and financial developments and the implied short to medium-term risks to price stability from the perspective of the interplay between supply and demand in goods, services and factor markets at those horizons. Due attention is paid to the need to identify the nature of shocks affecting the economy, their effects on cost and pricing behaviour, and the short to medium-term prospects for their propagation in the economy. See also
monetary analysis
Economic and Financial Committee (EFC)
A consultative EU body set up at the start of Stage Three of Economic and Monetary Union (EMU). The Member States, the European Commission and the ECB each appoint no more than two members of the Committee. Each Member State selects one member from among the senior officials of its national administration, and the second member from among the senior officials of its national central bank. However, the national central bank members only participate in EFC meetings when issues of their institution's particular expertise or competence are being discussed. Article 134(2) of the TFEU contains a list of the tasks of the Economic and Financial Committee.
Economic and Monetary Union (EMU)
The outcome of the process laid down in the Treaty establishing the European Community for harmonisation by EU Member States of economic and monetary policies and for introduction of the euro. Three stages were provided for: Stage One (1 July 1990 to 31 December 1993), removal of barriers to free movement of capital within the EU, better coordination of economic policies and closer cooperation between central banks, Stage Two (1 January 1994 to 31 December 1998), establishment of the European Monetary Institute (EMI) followed by preparations for introduction of the euro, avoidance of excessive deficits and enhanced convergence of policies (to ensure stable prices and sound public finances). Stage Three (from 1 January 1999) began with irrevocable fixing of exchange rates, transfer of monetary competence to the ECB and the introduction of the euro. The TFEU no longer refers to the three stages of EMU, as this progressive terminology is outdated. See also
Treaty on the Functioning of the European Union
EEA
See
European Economic Area (EEA)
EER
See
effective exchange rate (EER) of the euro
EFC
See
Economic and Financial Committee (EFC)
effective exchange rate (EER) of the euro
A weighted average of bilateral euro exchange rates against the currencies of the euro area’s main trading partners. The EER indices of the euro are calculated against different groups of trading partners (see EER-19 and EER-38). The weights used reflect the share of each partner country in the euro area’s trade in manufactured goods and account for competition in third markets. See also
nominal effective exchange rate (EER) of the euro
real effective exchange rate (EER) of the euro
EFSF
See
European Financial Stability Facility (EFSF)
EFSM
See
European Financial Stabilisation Mechanism (EFSM)
Employment Guidelines
Guidelines adopted by the EU Council in line with Article 148(2) TFEU to provide the framework for defining the employment policies of the Member States and of the Union. See also
Broad Economic Policy Guidelines (BEPGs)
Integrated Guidelines
EMS
See
European Monetary System (EMS)
EMU
See
Economic and Monetary Union (EMU)
enhanced credit support
The non-standard measures taken by the ECB/Eurosystem during the financial crisis with a view to supporting financing conditions and credit flows above and beyond what could be achieved through reductions in key ECB interest rates alone.
EONIA
See
euro overnight index average (EONIA)
equity market
The market in which equities are issued and traded.
equity price risk
The risk of loss arising from movements in equity prices. The Eurosystem is exposed to equity price risk in its monetary policy operations to the extent that equities are considered to be eligible as tier two assets.
ERM II
See
exchange rate mechanism II (ERM II)
ESCB
See
European System of Central Banks (ESCB)
ESFS
See
European System of Financial Supervision (ESFS)
ESRB
See
European Systemic Risk Board (ESRB)
EU enlargement
The European Union currently has 28 Member States. In addition to the first six Member States of the EEC — Belgium, France, Germany, Italy, Luxembourg and the Netherlands — 22 further countries are now members of the Union. These are: Denmark, Ireland and the United Kingdom (1973); Greece (1981); Spain and Portugal (1986); Austria, Finland and Sweden (1995); the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia (2004); Bulgaria and Romania (2007); and Croatia (2013). Albania, Iceland, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey have the status of candidate countries.
EU Member State
See
Member State
EURIBOR
See
euro interbank offered rate (EURIBOR)
euro
The name of the European single currency adopted by the European Council at its meeting in Madrid on 15 and 16 December 1995.
euro area
The area formed by the EU Member States whose currency is the euro and in which a single monetary policy is conducted under the responsibility of the Governing Council of the ECB. The euro area currently comprises Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.
euro interbank offered rate (EURIBOR)
The rate at which a prime bank is willing to lend funds in euro to another prime bank. The EURIBOR is calculated daily for interbank deposits with a maturity of one week and one to 12 months as the average of the daily offer rates of a representative panel of prime banks, rounded to three decimal places.
euro overnight index average (EONIA)
A measure of the effective interest rate prevailing in the euro interbank overnight market. It is calculated as a weighted average of the interest rates on unsecured overnight lending transactions denominated in euro, as reported by a panel of contributing banks.
European Central Bank (ECB)
The ECB was established on 1 June 1998 in Frankfurt am Main as the body at the centre of the European System of Central Banks (ESCB) and the Eurosystem. Together with the national central banks of the EU Member States whose currency is the euro, the ECB defines and implements the monetary policy for the euro area. Since the entry into force of the Treaty of Lisbon on 1 December 2009, the ECB has been an EU institution. See also
euro area
European System of Central Banks (ESCB)
Eurosystem
national central bank (NCB)
European Commission
The EU institution established in 1967 (for the then three European Communities) that drafts proposals for new EU legislation (which it presents to the European Parliament and the EU Council for adoption), makes sure that EU decisions are properly implemented and supervises the way EU funds are spent. Together with the Court of Justice of the European Union, it ensures that legislation applying to all EU Member States is properly implemented and that the provisions of the TFEU are applied in full. See also
Court of Justice of the European Union (Court of Justice)
European Council
An EU institution that brings together the Heads of State or Government of the EU Member States, the President of the European Council and the President of the European Commission to provide the European Union with the necessary impetus for its development and to define the general political guidelines thereof. See also
Council of the European Union (EU Council)
European Economic Area (EEA)
A free-trade area encompassing EU Member States and Iceland, Liechtenstein and Norway.
European Financial Stabilisation Mechanism (EFSM)
An EU facility, based on Article 122(2) of the Treaty, that allows the Commission to raise up to €60 billion on behalf of the EU for lending to EU Member States experiencing, or being threatened with, exceptional circumstances beyond their control. EFSM lending is subject to strong conditionality in the context of joint EU-IMF programmes. See also
European Stability Mechanism (ESM)
European Financial Stability Facility (EFSF)
A limited liability company established by the euro area Member States, on an intergovernmental basis, for the purpose of providing loans to euro area countries in financial difficulties. Such financial assistance is subject to strong conditionality in the context of joint EU-IMF programmes. EFSF loans are financed through the issuance of debt securities, guaranteed up to a total of €440 billion by euro area countries on a pro rata basis. See also
European Stability Mechanism (ESM)
European Monetary System (EMS)
An exchange rate regime established in 1979 to foster closer monetary policy cooperation between the central banks of the Member States of the European Economic Community (EEC) so as to lead to a zone of monetary stability in Europe. The main components of the EMS were the ECU (a basket currency made up of the sum of fixed amounts of currencies of EEC Member States), the exchange rate and intervention mechanism (ERM) and various credit mechanisms. It was replaced by ERM II (exchange rate mechanism II) at the start of Stage Three of Economic and Monetary Union (EMU) on 1 January 1999. See also
European Currency Unit (ECU)
exchange rate mechanism II (ERM II)
European Parliament
An EU institution that currently consists of 751 directly elected representatives of the citizens of the Member States. It plays a role in the EU's legislative process, although with differing prerogatives that depend on the procedures through which the respective EU legislation is to be enacted. Where monetary policy and the ESCB are concerned, the powers of the European Parliament are mainly consultative in character, although the TFEU provides for certain procedures with respect to the democratic accountability of the ECB vis-à-vis the Parliament (presentation of the ECB's Annual Report, including a general debate on monetary policy, and hearings before the competent parliamentary committees).
European System of Central Banks (ESCB)
The central banking system of the European Union. It comprises the ECB and the national central banks of all EU Member States (but the national central banks of EU Member States whose currency is not the euro are not involved in the conduct of the Eurosystem's monetary policy for the euro area because they retain responsibility for monetary policy under national law). See also
euro area
European Central Bank (ECB)
Eurosystem
national central bank (NCB)
European System of Financial Supervision (ESFS)
The group of institutions in charge of ensuring the supervision of the EU’s financial system. It comprises the European Systemic Risk Board, the three European Supervisory Authorities (the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority), the Joint Committee of the European Supervisory Authorities, and the national supervisory authorities of the EU Member States.
European Systemic Risk Board (ESRB)
An independent EU body responsible for the macro-prudential oversight of the financial system within the EU. It contributes to the prevention or mitigation of systemic risks to financial stability that arise from developments within the financial system, taking into account macroeconomic developments, so as to avoid periods of widespread financial distress.
Eurosystem
The central banking system of the euro area. It comprises the ECB and the national central banks of those EU Member States whose currency is the euro. See also
euro area
European Central Bank (ECB)
European System of Central Banks (ESCB)
national central bank (NCB)
Eurosystem business day
Any day on which the ECB and at least one national central bank are open for the purpose of conducting Eurosystem monetary policy operations.
Eurosystem staff projections
The results of exercises conducted by Eurosystem staff to project possible future macroeconomic developments in the euro area as part of the economic analysis.
excessive deficit procedure
The provision set out in Article 126 TFEU and specified in Protocol No 12 on the excessive deficit procedure requires EU Member States to maintain budgetary discipline, defines the criteria for a budgetary position to be considered an excessive deficit and regulates steps to be taken following the observation that the requirements for the budgetary balance or government debt have not been fulfilled. This is supplemented by an EU Council Regulation on speeding up and clarifying the implementation of the excessive deficit procedure, which is one element of the Stability and Growth Pact.
exchange rate mechanism II (ERM II)
The exchange rate arrangement established on 1 January 1999 that provides a framework for exchange rate policy cooperation between the Eurosystem and EU Member States whose currency is not the euro. Although membership in ERM II is voluntary, Member States with a derogation are expected to join. This involves establishing both a central rate for their respective currency's exchange rate against the euro and a band for its fluctuation around that central rate. The standard fluctuation band is ±15%, but a narrower band may be agreed on request. Foreign exchange intervention and financing at the margins of the standard or narrower fluctuation bands are, in principle, automatic and unlimited, with very short-term financing available. However, the ECB and the non-euro area national central banks participating in ERM II could suspend automatic intervention if such intervention were to conflict with their primary objective of maintaining price stability.
exchange rate targeting
A monetary policy strategy aiming for a given (usually a stable or even fixed) exchange rate against another currency or group of currencies.
Executive Board
One of the decision-making bodies of the ECB. It comprises the President and the Vice-President of the ECB and four other members, all of whom are appointed by common accord by the Heads of State or Government of the EU Member States whose currency is the euro. See also
General Council of the ECB
Governing Council