CONTENTS
FOREWORD 9
CHAPTER 1
ECONOMIC DEVELOPMENTS
AND MONETARY POLICY
1 MONETARY POLICY DECISIONS 18
2 MONETARY, FINANCIAL AND ECONOMIC
DEVELOPMENTS 25
2.1 The global macroeconomic
environment 25
2.2 Monetary and fi nancial
developments 29
2.3 Price and cost developments 54
2.4 Output, demand and labour
market developments 64
2.5 Fiscal developments 70
2.6 Exchange rates and balance of
payments developments 78
3 ECONOMIC AND MONETARY
DEVELOPMENTS IN NON-EURO AREA
EU MEMBER STATES 83
CHAPTER 2
CENTRAL BANK OPERATIONS AND ACTIVITIES
1 MONETARY POLICY OPERATIONS,
FOREIGN EXCHANGE OPERATIONS
AND INVESTMENT ACTIVITIES 96
1.1 Monetary policy operations 96
1.2 Foreign exchange operations 104
1.3 Investment activities 104
2 PAYMENT AND SECURITIES SETTLEMENT
SYSTEMS 107
2.1 The TARGET system 107
2.2 TARGET2 108
2.3 TARGET2-Securities 110
2.4 Settlement procedures for
collateral 111
3 BANKNOTES AND COINS 113
3.1 The circulation of banknotes
and coins and the handling
of currency 113
3.2 Banknote counterfeiting and
counterfeit deterrence 114
3.3 Banknote issuance and production 115
4 STATISTICS 118
4.1 New or enhanced euro area
statistics 118
4.2 Other statistical developments 119
4.3 Preparing for euro area
enlargement 120
5 ECONOMIC RESEARCH 121
5.1 Research priorities 121
5.2 Publications and conferences 122
6 OTHER TASKS AND ACTIVITIES 124
6.1 Compliance with the prohibition
of monetary fi nancing and
privileged access 124
6.2 Advisory functions 124
6.3 Administration of the borrowing
and lending operations of the
European Community 128
6.4 Eurosystem reserve management
services 128
CHAPTER 3
ENTRY OF CYPRUS AND MALTA INTO THE
EURO AREA
1 ECONOMIC AND MONETARY
DEVELOPMENTS IN CYPRUS AND MALTA 132
2 LEGAL ASPECTS OF THE INTEGRATION
OF THE CENTRAL BANK OF CYPRUS AND
THE CENTRAL BANK OF MALTA INTO
THE EUROSYSTEM 137
3 OPERATIONAL ASPECTS OF THE
INTEGRATION OF THE CENTRAL BANK
OF CYPRUS AND THE CENTRAL BANK OF
MALTA INTO THE EUROSYSTEM 139
3.1 Monetary policy operations 139
3.2 Contribution to the ECB’s capital,
reserves and foreign reserve assets 140
4 THE CASH CHANGEOVER IN CYPRUS AND
MALTA 141

CHAPTER 4
FINANCIAL STABILITY AND INTEGRATION
1 FINANCIAL STABILITY 146
1.1 Financial stability monitoring 146
1.2 Financial stability arrangements 148
2 FINANCIAL REGULATION AND
SUPERVISION 150
2.1 General issues 150
2.2 Banking 151
2.3 Securities 151
3 FINANCIAL INTEGRATION 153
4 OVERSIGHT OF MARKET
INFRASTRUCTURES 157
4.1 Oversight of large-value
euro payment systems and
infrastructures 157
4.2 Retail payment services 160
4.3 Card payment schemes 160
4.4 Securities clearing and settlement 161
CHAPTER 5
EUROPEAN AND INTERNATIONAL RELATIONS
1 EUROPEAN ISSUES 166
1.1 Policy issues 166
1.2 Institutional issues 167
1.3 Developments in and relations
with EU candidate countries 168
2 INTERNATIONAL ISSUES 170
2.1 Key developments in the
international monetary and
fi nancial system 170
2.2 Cooperation with countries
outside the EU 172
CHAPTER 6
ACCOUNTABILITY
1 ACCOUNTABILITY VIS-À-VIS THE
GENERAL PUBLIC AND THE EUROPEAN
PARLIAMENT 178
2 SELECTED TOPICS RAISED AT MEETINGS
WITH THE EUROPEAN PARLIAMENT 179
CHAPTER 7
EXTERNAL COMMUNICATION
1 COMMUNICATION POLICY 184
2 COMMUNICATION ACTIVITIES 185
CHAPTER 8
INSTITUTIONAL FRAMEWORK,
ORGANISATION AND ANNUAL ACCOUNTS
1 DECISION-MAKING BODIES AND
CORPORATE GOVERNANCE OF THE ECB 191
1.1 The Eurosystem and the European
System of Central Banks 191
1.2 The Governing Council 192
1.3 The Executive Board 194
1.4 The General Council 196
1.5 Eurosystem/ESCB committees,
the Budget Committee, the
Human Resources Conference
and the Eurosystem IT Steering
Committee 197
1.6 Corporate governance 198
2 ORGANISATIONAL DEVELOPMENTS 201
2.1 Human resources 201
2.2 New ECB Premises 203
2.3 The Eurosystem Procurement
Coordination Offi ce 204
3 ESCB SOCIAL DIALOGUE 205
4 ANNUAL ACCOUNTS OF THE ECB 206
Management report for the year
ending 31 December 2007 207
Balance Sheet as at 31 December 2007 210
Profi t and Loss Account for the year
ending 31 December 2007 212
Accounting policies 213
Notes on the Balance Sheet 218
Notes on the Profi t and Loss Account 229
Auditor’s report 233
Note on profi t distribution/allocation
of losses 234

5 CONSOLIDATED BALANCE SHEET OF THE
EUROSYSTEM AS AT 31 DECEMBER 2007 236
ANNEXES
LEGAL INSTRUMENTS ADOPTED BY THE ECB 240
OPINIONS ADOPTED BY THE ECB 243
CHRONOLOGY OF MONETARY POLICY
MEASURES OF THE EUROSYSTEM 247
DOCUMENTS PUBLISHED BY THE EUROPEAN
CENTRAL BANK SINCE 2007 250
GLOSSARY 257