The European Central Bank (ECB) is preparing to change its president in November, amid what has been its most testing times since it took charge of monetary policy for nations sharing the euro 12 years ago. A two-day European Union summit starting Thursday was expected to sign off on Italian central banker Mario Draghi taking over from France's Jean-Claude Trichet as ECB head for an eight-year term, despite last-minute speculation that France might block the move.
The Financial Times reported France has conditioned its backing of Draghi to Italy's representative in the ECB's executive board, Lorenzo Bini Smaghi, stepping down in favour of a French official. But EU diplomats insist the appointment should go through.
After steering the eurozone economy through the 2008 financial crisis, the fiercely independent ECB found itself at the centre of the debt crisis that has so far claimed as victims three peripheral euro members: Greece, Ireland and Portugal. This helped to spark a public row between Trichet and Axel Weber, the former head of Germany's influential central bank, the Bundesbank, over the ECB's purchase of government bonds as a way of supporting weaker eurozone members.
After a somewhat faltering start under its first president, Dutch-born Wim Duisenberg, the ECB has managed to sharpen its message with Trichet, who completes his eight-year term in October. In particular, this includes communicating the bank's primary mandate, which is to keep annual inflation at below or close to 2 percent. Other leading central banks have broader mandates, taking into account more general economic issues.
Inflation was also the key focus of what was essentially the ECB's model - the Bundesbank, which played a major role in Germany's post-Second World War economic recovery. Demonstrating its anti-inflationary credentials has also helped to expose the fault lines in the ECB between the hawks, the hard money men taking a tough approach to inflationary risks, and those arguing a less hard-line and somewhat more pragmatic course.
The ECB also closely guards its independence waving off periodic calls for action from Europe's political leaders to address particular economic issues or even to accept more political influence. In addition, some political leaders have sought to extend the bank's mandate to take in job creation.
In recent years, the ECB has also established a series of code words to signal its plans on interest rates. For example, the use of the phase "strong vigilance" at the ECB president's regular monthly press conference normally signals that a rate hike is likely at the bank's next meeting. Some critics have dismissed the ECB's code words as like running monetary policy through the use of traffic lights. Enshrined in the Maastricht Treaty on European Union, the ECB has also presided over the expansion of the eurozone since it emerged in 1999.
Originally comprising 11 members - including Europe's biggest economies such as Germany, France and Italy - the eurozone is now made up of 17 countries. In 2007 Slovenia became the first of the former communist central European states to join the currency bloc. Its other members are Belgium, Greece, Estonia, Ireland, Spain, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovakia and Finland.
The ECB's governing council is now made up of 23 members, including the 17 heads of eurozone national central banks and the ECB's top officials. But the size of the governing council has also been a source of criticism with some analysts claiming it is far too unwieldy for dealing with the issues often facing the bank.
While the governing council sets the ECB's overall strategy, the six-member executive board is responsible for the day-to-day running of the bank. Membership of the executive board has often been a source of friction among eurozone member states since the ECB was established. At one point, Britain, which is not a member of the euro club, demanded a seat on the ECB board.
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