The monthly meetings conducted by the European Central Bank’s Governing Council on monetary policy are not intended to make news but, as most know, these have an important bearing on the economic scene. Today’s meeting has garnered more attention than usual as it could indicate an opposite trend to what had previously been expected from the ECB in relation to its decision on interest rates.

Since June 2003, when the minimum interest rate stood at two per cent, there have been various quarter point increases to reach the current level of four per cent which became effective as of last June. It must be said that the upswing gathered rapid momentum from 2006 onwards. It had been widely expected that this would again be increased by a quarter of a percentage to reach a level last witnessed in 2001 prior to the 11 September attacks.

The current crisis in the financial markets, mostly blamed on the downturn in the United States sub-prime mortgage sector and the negative effect that this has had on other sectors of the global economy including investments in hedge funds and cash liquidity, has meant that expectations have had to be revised. In fact, last week the international media reported that Jean-Claude Trichet, the president of the ECB, remarked that the bank is not “pre-committed” to raising interest rates for the eurozone.

What will actually happen today is anyone’s guess. The European Parliament’s Committee on Economic and Monetary Affairs has already indicated its concerns on the current global financial situation and its opinion that monetary policy has a role to play in this scenario – an opinion which seems to be shared by a wide array of observers, including the European Trade Union Confederation.

In its announcement of an extraordinary hearing with Trichet on 11 September, the committee has underlined the need to place attention on organisations involved in “excessive risk taking” as well as the role of credit rating agencies. The latter had been mentioned earlier last month as a possible target of investigation in their role in the current crisis. The inquiry was expected to be headed by Commissioner McCreevy, responsible for the internal market.

With the onset of the adoption of the new currency, it may be interesting to know what the ECB Governing Council’s responsibilities are. Its members consist of six officials from the executive board and all the governors of the national central banks within the eurozone. Officials sitting on the executive board of the ECB are appointed following agreement among the member states using the euro currency.

In general terms, the governing council is responsible for ensuring that the economic system on which the euro is founded performs well. It is also responsible for formulating the monetary policy for the euro area, which includes establishing key interest rates and controlling reserve supplies. This is done in the framework of the monetary objectives the ECB wishes to pursue.

As from next year, the Central Bank of Malta shall be fully represented on the Governing Council through its governor, while its experts will become full members in the various committees and sub-structures dealing with the Eurosystem.

Today’s announcement on the ECB interest rates is being followed closely by more observers than usual. Its effect on the economic market remains to be seen.

Julian Micallef is Civil Society Coordinator at Forum Malta fl-Ewropa