German Chancellor Angela Merkel and top European Union officials gathered near the bank’s home in Frankfurt for a gala celebration of the ECB’s success in its first decade.
Confounding early critics who doubted the ECB and the euro would survive, the bank has matured into what is now widely respected as one of the leading forces in global finance.
ECB president Jean-Claude Trichet told his guests: “I don’t intend to name and shame those who said that Europe’s single currency would be impossible, or that its introduction would be a failure.”
Instead, he stressed that “Europeans have achieved what was deemed impossible, what had never been tried.”
Earlier in the day, the International Monetary Fund hailed the ECB for its actions during the most recent trial by fire, when the US market for high-risk, or subprime mortgages collapsed in August and money markets dried up almost overnight.
“The ECB’s liquidity management has been timely and proactive and the flexible framework has proven a crucial stabilizer during the turmoil,” the IMF said in a report.
Amid the eulogies and revelling however, the ECB faced what could be its toughest challenge yet – curbing inflation that was clocked in May at a record 3.6 percent, far above the bank’s target of just below 2.0 percent.
“We know that our fellow citizens are asking us to deliver price stability,” Trichet told a ceremony at Frankfurt’s old Opera house. “We also know that price stability is a prerequisite for financial stability, a very important objective at the current juncture.”
Founded on June 1, 1998 with a mandate to keep inflation in check, from the start the ECB has strived to prevent inflation from getting out of hand. The ECB’s quest has often pitted it against critics, led by France, who claim its obsession with ensuring stable prices distracts it from cutting interest rates to boost growth.
Backed by others such as Austria, Germany and the Netherlands, the ECB has steadfastly rejected such criticism and remained true to its mandate. Nonetheless, many euro-zone residents blame the euro for higher prices, saying the cost of everyday items from petrol to beer has shot up.
Despite pressure growing on policymakers to provide relief, euro-zone finance ministers had few answers Monday to the problem. “I think we have to get used to a world of high oil prices,” said Finance Minister Wouter Bos of the Netherlands.
Jean-Claude Juncker, head of the Eurogroup of finance ministers agreed, but added: “We need to think about how we can ease the burden on the most vulnerable.”
The IMF warned that “rising commodity and food prices will cut into consumption,” which governments had hoped would underpin growth as exports were hit by the euro’s rise against other major currencies.
The single currency was another of the ECB’s biggest early challenges as it introduced the euro, first as an accounting unit in 1999 and then in notes and coins in 2002.
The bank then had to hang on as the currency swung in value against the dollar from an all-time low of $0.8230 in October 2000 to a record high of $1.6011 this April.
Looking ahead, Trichet said the ECB faced three principle challenges – “rapid technological progress, globalisation in all its dimensions, including the transformation of global finance, and population ageing.” It also had work “to extend progressively the euro area across the European Union as a whole,” he added.