PARIS (MNI) – The following is the second part of a prepared text
delivered by European Central Bank Vice President Vitor Constancio in
his presentation of the ECB’s Annual Report 2010 to the Economic and
Monetary Affairs Committee of the European Parliament:
More generally, all euro area governments need to achieve the
consolidation targets for 2011. For the following years, consolidation
targets need to be underpinned by concrete consolidation measures. The
deadlines to correct excessive deficits agreed in the ECOFIN Council
need to be respected.
Estonia and Luxembourg are the only euro area countries currently
not subject to an excessive deficit procedure. In view of very high
expenditure ratios in the euro area, consolidation plans need to focus
on expenditure reduction. Strengthening confidence in the sustainability
of public finances is key, as this will reduce interest rate risk premia
and improve the conditions for sound and sustainable growth.
Moreover, it is key to strengthen incentives for sound economic
policies, notably in good economic times. I will turn to efforts in this
area shortly.
Financial stability I would now like to touch briefly on financial
stability issues. The start of the preparatory work for the European
Systemic Risk Board (ESRB) — the body in charge of macro-prudential
oversight in the EU — allowed its smooth establishment in 2011,
together with the European Supervisory Authorities. The ESRB is now
fully operational, with its General Board having already met twice and
its advisory committees in place.
The ECB has been entrusted with the provision of analytical,
statistical, logistical and administrative support to the ESRB. Hence,
the ECB is making the utmost effort to enhance its capabilities and
analytical tools for conducting systemic risk analysis.
In the context of the Basel III framework, the ECB fully supports
the European Commission’s work on the Capital Requirements Directive
(CRD) IV. The Commission’s proposal by mid-2011, as envisaged, would
provide the European Parliament and the Council with sufficient time to
put the new framework in place by the end of 2012.
The ECB Annual Report highlights our support to the Commission’s
initiative regarding a crisis management and resolution framework for EU
financial institutions. The EU clearly needs better tools with well
designed triggers to tackle problems in the banking sector more
effectively. National regimes should be harmonised as much as possible
and arrangements for better coordination between Member States in crisis
situations need to be devised.
The ECB shares the overriding policy objective of the new EU regime
to provide a framework within which financial institutions can fail,
while at the same time safeguarding the stability of the EU financial
system as a whole and minimising public costs and economic disruption.
From this perspective, a credible resolution framework that disciplines
large and cross-border financial institutions, in particular, is
essential.
In this context, the setting up of a network of national resolution
funds that could evolve, in the medium to long term, to a European
Resolution Fund, is undoubtedly very important. The ECB is also actively
contributing to the discussions in the FSB and the G20 to putting in
place arrangements that will reduce the systemic risk emanating from
so-called global systemically important financial institutions.
As regards the new round of the EU-wide stress test, which will be
conducted under the aegis of the newly established European Banking
Authority (EBA), it is designed as a sufficiently severe and rigorous
exercise to be credible. It is expected to reduce uncertainty among
market participants concerning the health of European banks.
Let me just mention some of the enhanced features. First, the
assumed macroeconomic shock is stronger than in the previous exercise.
In addition, the EBA has provided more rigorous guidance to banks on the
cost of funding and static balance sheet assumptions. Second, the
capital metrics is now Core Tier I capital ratio instead of the broader
concept of Tier I capital used previously. Third, a stricter peer review
will be performed, with enhanced disclosure of results.
Finally, Member States have committed to specific and ambitious
strategies for the reinforcement of vulnerable institutions. In this
context, it is important that appropriate backstops be in place for
those banks which do not pass the test.
Let me finally congratulate your Committee on its recent vote on
the economic governance package. ECON has undoubtedly taken an important
step towards the much needed strengthening of economic and budgetary
surveillance in the EU and the euro area.
In particular, I very much welcome the fact that the automaticity
of procedures has been stepped up by extending the use of reversed
qualified majority voting. The room for halting or suspending procedures
against those Member States breaking the rules must be reduced. The
strengthening of the Commissions role in the procedures that the
approved reports propose in this context are therefore welcome.
Moreover, the political and reputational measures that you are
proposing are necessary to foster early compliance with the surveillance
framework. An earlier and more gradual application of financial
sanctions within the macroeconomic surveillance framework goes in the
same direction. Your support in the same framework for a clear
distinction between Member States belonging or not to the euro area is
also positive.
The requirements of avoiding negative imbalances must be more
demanding for members of the monetary union. This type of distinction,
making full use of the Treatys new Article 136, has to be to be applied
in different domains, drawing the appropriate lessons of the crisis for
the functioning of the monetary union.
Finally, compliance by Member States with the obligations under the
Stability and Growth Pact is facilitated by the strong national
budgetary frameworks that you want to establish within the euro area by
proposing several concrete mandatory features. The proposal of a
financial sanction for the manipulation of data is also to be welcomed,
as well as the institutional provisions for reliable, timely and
accurate statistical information.
At the same time, there are certain aspects of the Committees
position, on which we have concerns. Most importantly, the Stability and
Growth Pact should not be softened by introducing further exceptions and
a longer list of “relevant factors” (including cyclical developments to
some public investments or state aid measures for the financial sector),
that can be invoked in the assessment of compliance with the deficit and
debt criteria. This could create further room for unwarranted
discretionary decisions and may open the door to lax fiscal policies at
a time of much needed fiscal consolidation.
As regards macroeconomic surveillance, we have often emphasized
that, in order to be effective, it should have a clear focus on a
restricted number of indicators capturing macro-economic imbalances per
se. This procedure is specifically targeted at macroeconomic imbalances,
meaning extreme and persistent divergences from a sustainable trend that
threaten the proper functioning of monetary union.
It is not about achieving higher growth potential which is of
course highly desirable and is the goal of the EU 2020 strategy. This
does not imply that I do not recognise the need to co-ordinate all the
dimensions of economic policy under the umbrella of the European
Semester.
Overall, the reports approved by your committee are a positive
contribution for the trialogue that follows and that, I hope, can be
successfully finalised so that the economic governance package can be
adopted and implemented as soon as possible.
The lessons of the financial crisis for Europe are responsible for
the vast programme of reforms that we have been implementing. Last year,
focused in the euro area, the crisis highlighted the interplay between
the sovereign debt problems and the financial sector, since they
represent two faces of the same crisis.
Weak financial sector can have an adverse impact on public
finances, while deficient fiscal policies and macro imbalances can have
negative repercussions on the financial sector. Resolving both problems
will put the euro area on a track of renewed sustainable growth, leaving
this crisis behind us. This requires the implementation of effective
economic governance that can ensure fiscal sustainability,
competitiveness and growth, the completion of the permanent European
Stability Mechanism and the efficient functioning of the new European
System of Financial Supervision.
In all these endeavours, the European Parliament and the ECB share
common values and goals and will, I am sure, continue to collaborate in
order to ensure the success of Europe.
Thank you for your attention.
[TOPICS: M$$EC$,M$X$$$,MT$$$$,MGX$$$,M$$CR$]
