General Glossary

General Glossary

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Early redemption 
The refund of a loan or credit prior to its maturity date.
ECB's capital key 

A mechanism for distributing the share capital of the European Central Bank (ECB) among the central banks of the European System of Central Banks (ESCB), which are its sole shareholders. The ECB's share capital, which is fully subscribed, amounts to €5,760,652,402.58. The central banks integrated in the Eurosystem have paid up the total subscribed capital, while those European Union (EU) States which have not yet adopted the euro have only paid 7%. The weighting criterion followed to assign a percentage of share capital to each central bank has been the sum of 50% of its percentage investment in the EU population and 50% of its percentage investment in the EU's gross domestic product. The value is adjusted every five years based on these same criteria. The ECB's Governing Council uses the weightings of the Eurosystem's central banks as a criterion for allocation and distribution, among others, of the ECB's profits and losses, monetary income and output of euro banknotes. The central banks of Member States which do not participate in Economic and Monetary Union (EMU) do not participate in the distribution of ECB profits and losses.

Ecofin Council 
European Union Council comprised of ministers for economics and finance.
Economic and Financial Committee (EFC) 

A consultative body of the Council of the European Union (EU) and the European Commission created by the Treaty on the European Union, which began its activities at the start of stage three of EMU on 1 January 1999, replacing the Monetary Committee. Its main responsibilities are: to issue advisory opinions; to keep under review the economic and financial situation of the European Community, in particular on financial relations with third countries and international institutions; to report the situation of capital movements and freedom of payments in the Community; and to contribute to the preparation of the work of the Council of the European Union, especially the tasks related to economic and monetary policy. The Committee is made up of two representatives from the European Commission, two from the European Central Bank (ECB) and two from each Member State, one of which is usually a senior official from the Ministry of Economy and the other from the national central bank. To guarantee its smooth operation after the EU enlargement, the Committee has modified the criteria for attending meetings, according to the matters to be debated. In this way, the national central bank representatives only attend when matters relating to their functions and experience are dealt with. In other cases, the Committee can convene in "restricted composition", so that only the representatives from the national administrations, the Commission and the ECB are present.

Economic and Monetary Union (EMU) 

The process that led to the single currency, the euro, the single monetary policy of the euro area and the co-ordination of the economic policies of European Union Member States. This process was implemented in three phases, in accordance with the provisions of the Treaty. The third and last phase commenced on 1 January 1999 with the transfer of monetary competencies to the European Central Bank and the introduction of the euro. The changeover of coins and notes was carried out on 1 January 2002, thus completing the process of creating the EMU.

A written declaration on a commercial document through which the owner or holder transmits their rights to another person.
Financial instruments whose future performance is neither fixed nor known with certainty in advance, but is linked to the economic results of the issuing entity.
A type of investment which does not allow information on the profitability that will be obtained in advance. A typical example of equities are public limited company shares, with dividends depending on the company's performance. The price of listed shares will determine the gains or losses at the time of sale thereof.
Equity market 
Market in which equities are issued and traded.
Establishment dealing in currency exchange and managing bank transfers  
Establishments, other than credit institutions, authorised to carry out the following activities: buying and selling foreign banknotes and travellers cheques, managing the receipt of bank transfers received from abroad or managing bank transfers sent abroad.
Euro area 

The area encompassing those Member States that have adopted the euro as a single currency in accordance with the Treaty, and in which a single monetary policy is applied under the responsibility of the Governing Council of the European Central Bank.

An international payment system created by banks from several countries, mainly used in Central Europe. The Eurocheque book is linked to an electronic debit card.
An informal gathering of the ministers of economics and finance of the euro area countries, at which they discuss issues connected with EMU Member States. Representatives of the European Commission and the ECB are invited to take part in meetings. The Eurogroup usually meets immediately before an Ecofin Council meeting.
European Central Bank (ECB) 
The ECB was established on 1 June 1998 with its own legal personality as the body at the centre of the European System of Central Banks (ESCB) (formed by the ECB and the central banks of the European Union) and the Eurosystem (formed by the ECB and the central banks of the Member States whose currency is the euro). Its main mission is to guarantee that the functions performed by the Eurosystem in the euro area are fulfilled: the definition and implementation of monetary policy, the holding and management of the official foreign reserves of the Member States, the conduct of foreign exchange operations and the promotion of the smooth operation of payment systems. Its basic legal framework is formed by the Treaty establishing the European Community and the Statute of the ESCB and the ECB. As part of the regulatory powers assigned by the Treaty, the ECB has a consultative function with respect to Community and national authorities in matters within its scope of competence on the basis of advisory opinions.
European Council 
An EU institution that brings together the Heads of State or Government of the EU Member States, assisted by their ministers of foreign affairs, and the President of the European Commission. Its primary objective is to drive the process of European integration and to define the European Union's general political guidelines. It meets at least twice a year and is chaired by the Head of State or Government that at the time holds the rotational presidency of the European Union Council.
European Monetary Institute (EMI) 
A temporary EU body established on 1 January 1994 at the start of stage two of Economic and Monetary Union. It was wound up on 1 June 1998, after the creation of the European Central Bank.
European Monetary System (EMS) 
This regime was established based on a European Council Resolution of 5 December 1978 and began to function on 13 March 1979, according to the agreement reached that same day between the central banks of the Community Member States. Its main objectives were to stabilise interest rates to correct existing instability, to reduce inflation and to prepare European monetary union through co-operation. The EMS was made up of three basic elements: ECU. EUROPEAN CURRENCY UNIT: European unit of account made up of a basket of Member State currencies, whose value was the weighted average of its component currencies based on indicators of their economic weight and international trade. Although it was not legal tender, the ECU was used as a unit of account of the Community budget, it served as a method of payment and reserve of the central banks and was used as a denomination currency for financial instruments. During the European Council held in Madrid on 16 December 1995, it was agreed that the future Community currency would be called the euro. The ECU was replaced by the euro on a one-for-one basis (1 euro=1 ECU) at the start of stage three of EMU on 1 January 1999. ERM. EXCHANGE RATE AND INTERVENTION MECHANISM: A mechanism whose objective was to establish the different exchange rates between the participating currencies. A central exchange rate was established for each currency against the ECU and bilateral central rates between the participating currencies. The exchange rates could fluctuate within a band established around the bilateral rates. The central exchange rates could be modified by mutual agreement among all the ERM participating states. In 1993, upon extending the system's fluctuation band, the ERM entered a crisis and was substituted in 1999 by a new framework for exchange rate co-operation between the euro area and EU Member States whose currency is not the euro: the ERM II or the Exchange Rate Mechanism II. EMCF. EUROPEAN MONETARY CO-OPERATION FUND: Created in October 1972 to promote the progressive narrowing of fluctuation margins between European currencies, to make interventions in Community currencies on exchange markets easier and to promote settlements between the central banks whose objective was a concerted policy on reserves.
European Union (EU) 

Political structure created by the 1992 Maastricht Treaty, consisting of Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. It is based on three basic pillars: The European Communities, co-operation regarding a common foreign and security policy and police and judicial co-operation in criminal matters. Its main objectives are: The creation of an area without internal frontiers, the strengthening of social and economic cohesion and the establishment of an economic and monetary union. The five basic institutions of the EU are: The European Parliament, the Council of the European Union, the European Commission, the Court of Justice of the European Union and the European Court of Auditors.

Exchangeable and convertible bonds and debentures  

Private debt assets or securities that confer their owner the right to exchange them for shares of the issuing entity, at an established price and on an established date. If they entitle their owner to obtain old company shares they are referred to as "exchangeable", but if they can be transformed into newly issued shares they are referred to as "convertible" bonds.

Exchange rate mechanisms II (ERM II) 
Exchange rate co-operation framework between the euro area and those EU Member States whose currency is not the euro. It was established by the European Council on 16 June 1997 to substitute th exchange mechanism of the European Monetary System on initial recognition of the third stage of EMU. Its objective is to maintain exchange rates as stable as possible between the EU Member States which have adopted the euro and those who have not, avoiding, as far as possible, mismatches in real exchange rates or excessive fluctuations in nominal exchange rates which could lead to trade shocks and affect the smooth operation of the single market. Its operating procedure consists of fixing a central exchange rate or parity with respect to the euro for the currency of each non-euro area EU Member State that participates in this mechanism. Although membership in ERM II is voluntary, it is considered one of the convergence criteria for adopting the euro. A fluctuation margin of up to +15% is established for the currency of each participant Member State with respect to the euro central rate or parity supported, in principle, by automatic and unlimited intervention at the margins, with very short-term financing available. However, the ECB and central banks participating in ERM II could suspend automatic intervention if such intervention were to conflict with their objective of maintaining price stability. Likewise, the central rate or fluctuation band can be modified through agreements between the parties. At present, the Danish krone, Estonian kroon, Latvian lats, Lithuanian litas and Slovak koruna participate in ERM II.
Exchange rate policy 
A set of actions aimed at setting or influencing the exchange rate of a country's own currency with respect to other currencies.
Executive Board of the ECB 
One of the governing bodies of the European Central Bank (ECB), the Eurosystem and the European System of Central Banks (ESCB). It comprises the President and Vice-President of the ECB and four other members, all of whom are appointed by the government of euro area Member States, from people of renowned prestige and experience in monetary or banking issues. The term of office is eight years and is not renewable. Its main responsibilities are: to implement monetary policy for the Eurosystem in accordance with the guidelines specified and decisions taken by the ECB Governing Council; to exercise certain powers delegated to it by the Governing Council, including some of a regulatory nature; to prepare Governing Council meetings and to manage the day-to-day business of the ECB. It normally takes its decisions by simple majority of votes cast by attending members. The president has the casting vote.