Every day, the media inform us of the decisions of the European Central Bank (ECB), whether it concerns increases or decreases in interest rates, or its economic forecasts in terms of inflation, growth or unemployment. These decisions don’t just make headlines; They have a direct and palpable impact on the lives of citizens. Aspects as common as applying for a mortgage, paying rent, applying for credit or controlling the cost of consumer goods are closely linked to ECB policies.
But do we really understand what the ECB is and why its decisions are so relevant? The objective of this article is to understand in an accessible way how this institution works and why its decisions have consequences that affect both the global economy and our daily lives.
The ECB was created in 1999 as part of the process of European economic integration and the launch of the single currency, the euro.. This integration is the result of a long road that began after the Second World War, when European countries decided to increase their cooperation. Later, the Maastricht Treaty of 1992 laid the definitive foundations for the creation of the institution.
The obligation to have a competitive Europe given its economic fragmentation represented a clear disadvantage compared to powers like the United States or Asian countries, which had a more unified market. In a continent characterized by multiple currencies and trade barriers, the lack of regulatory cohesion has generated inefficiencies that have hampered growth and development. This situation has prompted European nations to seek solutions promoting economic and commercial harmonization.laying the foundations for the creation of the ECB.
Its main functions are more clearly defined: Coordination of monetary policy in the euro zone, replacing national central banks in this task.
Over the years, the ECB has evolved and its main functions are now more clearly defined. Among them, the coordination of monetary policy in the euro area, replacing national central banks in this taskin our case to the Bank of Spain.
An example of monetary policy coordination occurred during the Covid-19 crisis in 2020, where the ECB played a crucial role in launching an emergency purchase program, a recovery plan based on acquisition of assets, making it possible to reduce financing costs and ensure market stability. at a time of great uncertainty. Countries with lower credit ratings, which often face higher financing costs in times of crisis, have benefited from the presence of a supranational institution offering support and protection against financial stress.
In addition, the existence of a single currency allows the ECB to be more effective in implementing measures promoting the balance of the euro zone. During the debt crisis that hit Greece in 2010, the use of the drachma as currency reportedly caused a sharp devaluation, which triggered a rise in inflation and made it difficult to obtain financing at low rates. sustainable. However, thanks to the support of the ECB, bailouts and bond buying programs were implemented and stabilized the Greek economy. These actions avoided a deeper bankruptcy and helped preserve Greece’s international credibility.
These are clear examples of how the ECB supports Eurozone countries, as well as some that maintain special agreements, such as Poland or Sweden. However, It is essential to understand how the ECB’s decisions impact our daily lives and how they are transferred to the real economy..
The ECB influences the pace of the economy by manipulating interest rates. When the economy is overheating, raising rates aims to moderate activity, thereby encouraging saving, since deposits generate higher returns. On the other hand, when it is necessary to stimulate consumption, the ECB lowers interest rates, which reduces the profitability of savings and facilitates access to credit, favoring large purchases, such as a car or a house .
In the case of the real estate market, ECB decisions directly affect the cost of mortgage loans. The interest rate set by the Central Bank, considered to be that with the highest creditworthiness, constitutes the basis for calculating the Euribor, the reference on which banks add a risk premium to lend each other money. money. This, in turn, influences the conditions citizens face when applying for a mortgage loan.
Finally, the European Central Bank (ECB) is constantly evolving. In addition to its traditional functions, The ECB indirectly supports initiatives managed by the European Commission, such as the “Next Generation EU” funds. These measures not only promote the competitiveness of the European economy, but also facilitate adaptation to the new digital age and promote a transition towards a more sustainable and environmentally friendly economy.
