The Eurosystem

The Eurosystem is the system of central banks of the euro area responsible for conducting the single monetary policy. It comprises the European Central Bank (ECB) and the national central banks (NCBs) of the EU member states that have adopted the euro.

From 1 January 2023 the euro area comprises twenty countries: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.

The United Kingdom was a member of the European Union from 1973 to 2020.

The European System of Central Banks (ESCB) is made up of the European Central Bank (ECB) and the national central banks (NCBs) of 27 EU Member States (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden).

All EU countries except Denmark, which has an opt-out, are expected to join the monetary union and to introduce the euro as soon as they fulfil the convergence criteria.

The ECB is an independent supranational institution with legal personality under Community law and is the centre of the ESCB and the Eurosystem. It makes sure that the tasks assigned to these institutions are performed either itself or through the NCBs, in accordance with the Statute of the ESCB/ECB. The ECB is located in Frankfurt am Main (Germany) and came into being in June 1998, replacing the European Monetary Institute (EMI).

Each NCB has legal personality under its national legislation. As an integral part of the Eurosystem, the euro-area NCBs perform the duties assigned to the Eurosystem under the rules set by the decision-making bodies of the ECB. Under their own responsibility they may perform tasks not related to the Eurosystem if the Governing Council considers they do not conflict with the objectives and tasks of the Eurosystem.

The ESCB and the ECB were set up under the terms of Article 8 of the Treaty Establishing the European Community (EC Treaty). They operate within the limits imposed by the Treaty and by the Statute of the European System of Central Banks and the European Central Bank (Statute of the ESCB/ECB), which are the primary sources of law.

ECB's capital and reserves

The ECB's capital is subscribed by the NCBs of all the EU member states according to shares (capital key) which are calculated as the equally weighted sum of each country's share of the total GDP and total population of the European Union (see Articles 28 and 29 of the Statute of the ESCB/ECB). The ECB recalculates the capital key every five years or whenever a new member joins the EU, on the basis of information provided by the European Commission. The latest adjustment took place on 1 February 2020 following the withdrawal of the United Kingdom from the EU.

The shares in the subscribed capital of the ECB are paid up in full by the Eurosystem NCBs. For the non-euro area NCBs, the ECB sets a minimum share (on 29 December 2010 this was reduced from 7% to 3.75% of the subscribed capital) as a contribution to its operational costs (see Article 47 of the Statute of the ESCB/ECB).

In addition to the capital, the Eurosystem NCBs provide the ECB with a share of their foreign reserve assets, also in proportion to their capital key shares. In return, they are credited with a remunerated claim (see Article 30 of the Statute of the ESCB/ECB).

The ECB can decide to increase its capital (the amount originally prescribed by Article 28 of the Statute of the ESCB/ECB was EUR 5 billion) or make further calls for foreign reserve assets (the limit originally prescribed by Article 30 of the Statute of the ESCB/ECB was EUR 5 billion) within the limits and according to the conditions set by the EU Council.

However, when one or more countries become EU member states and their central banks become members of the ESCB, both the subscribed capital of the ECB and the total foreign reserve assets that can be transferred to the ECB are automatically increased in accordance with Article 48 of the Statute of the ESCB/ECB. The Bank of Italy's share in the subscribed capital of the ECB, as of 29 December 2020, is EUR 1,288,347,435.28, or 13.8165% of the total capital of the ECB.

The euro area NCBs will pay up in full their increased subscriptions as a result of the Bank of England's withdrawal from the European System of Central Banks in two annual instalments at the end of 2021 and 2022 respectively (see ECB press release published on the ECB's website on 30 January 2020).

Monetary income

The capital key shares of the Eurosystem NCBs are also used for the allocation of the monetary income accruing to the NCBs as a result of their monetary policy functions (see Article 32 of the Statute of the ESCB/ECB). Monetary income is defined as the net income derived from assets held against monetary liabilities (mainly banknotes in circulation and bank deposits).

Moreover, under Article 32 of the Statute the ECB settles the balances resulting from the allocation of monetary income. These balances are calculated as the difference, for each NCB, between the monetary income derived from its balance sheet and the share in the total monetary income of the Eurosystem due to it on the basis of the capital key.

Legal acts of the ECB

Article 110 of the EC Treaty and Article 34 of the Statute of the ESCB/ECB set out the legal acts that the ECB may issue so that the ESCB can carry out its tasks.

The ECB can adopt regulations and decisions. A regulation has general application, is binding in its entirety, and is directly applicable in all member states. A decision is binding in its entirety upon those to whom it is addressed. In addition, the ECB may make recommendations and deliver opinions. These have no binding force. The Statute of the ESCB/ECB (in particular Article 14.3) also allows the ECB to adopt guidelines and instructions addressed to the national central banks of the Eurosystem. The competences and procedures for the adoption of legal acts by the ECB are set out in Article 17 of the Rules of Procedure of the ECB.

The EUR-Lex website is the portal to EU legislation in general.