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ESCB / Euros y stem : Main Objectives 1/2

ESCB / Euros y stem : Main Objectives 1/2.

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ESCB / Euros y stem : Main Objectives 1/2

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  1. ESCB / Eurosystem: Main Objectives 1/2 The legal basis for the single monetary policy is the Treaty establishing the European Community, i.e. European Union and the Statute of the European System of Central Banks and the European Central Bank. According to the provisions of the mentioned documents, on 01 June 1998, the ECB was formed as a central and key part of the ESCB, i.e. European System of Central Banks. Since 1 January 1999 the ECB has taken over responsibility for conducting single monetary policy for the euro area - the world’s largest economic area after the United States. The transfer of responsibility for monetary policy from national central banks to a new supranational institution was a big step in the integration of European countries.

  2. ESCB / Eurosystem: Main Objectives 2/2 The primary objective of the Eurosystem and single monetary policy which is in the competence of the Eurosystem is to maintain price stability. The Treaty on EU, Article 105/1 sets the price stability as the most important task of monetary policy, but it also states that “independent of the main objective, i.e. price stability, the ESCB shall support general economic policy in the European Community”. Maintaining price stability is a key precondition for achieving favourable economic environment, high level of employment and sustainable growth without inflation. So, beside the implementation of decisions of monetary policy with purpose of price stability, Eurosystem takes into account also wider economic objectives of the European Community. In 1998, the ECB’s Governing Council has specified the monetary policy mandate, by announcing a quantitative definition of price stability as a key element of the ECB monetary policy strategy: "Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%.“ It was also stated that the price stability is to be maintained during the medium term period. The Governing Council of the ECB has also clarified that, in the pursuit of price stability, it aims to maintain inflation rate below, but close to, 2% over the medium term.

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