FRANKFURT (MNI) – The following is the first half of the
introductory statement given by European Central Bank President
Jean-Claude Trichet at the Quarterly Hearing before the Committee on
Economic and Monetary Affairs of the European Parliament, in Brussels.
The text was provided by the ECB and is available at
http://www.ecb.int/press/key/date/2010/html/sp100927_2.en.html:
“Dear Madam Chair,
Dear Honourable Members,
We are having our regular meeting at a time of considerable
progress in Europe on matters of economic governance and financial
regulation. I would like to congratulate the European Parliament, and
especially this Committee, on the adoption of the EU financial
supervisory package. Witnessing how the Parliament has worked on this
issue makes clear to me that the institution has truly made a quantum
leap in its role following the Lisbon Treaty. The European Parliament
was instrumental in pursuit of an ambitious reform with a true European
perspective. As a European institution, the European Central Bank very
much appreciates your efforts and support in this regard.
Since the previous hearing in June, incoming data have been better
than expected at that time. The economy grew strongly by 1.0%
quarter-on-quarter in the second quarter of this year, which would
correspond to an annualised rate of growth of around 4%. Looking ahead,
we expect the recovery to proceed at a moderate pace, with a positive
underlying momentum but also with continuing uncertainty surrounding the
outlook.
The annual rate of inflation in the euro area stood at 1.6% in
August, a slight decrease from the figure of 1.7% in July. This is in
line with our expectations. Looking ahead, the rate of inflation could
increase slightly in the short term, but it should remain moderate over
the policy-relevant medium-term horizon. In our view, risks to this
outlook are tilted slightly on the upside, but euro area inflation
expectations remain firmly anchored in line with our definition of price
stability.
Our monetary analysis confirms that inflationary pressures over the
medium term remain contained. This is reflected in weak growth of money
and credit. The subdued growth in loans conceals the fact that growth is
positive for households but in line with patterns observed in earlier
recoveries still negative for enterprises.
As regards our non-standard measures, we decided earlier this month
to continue conducting our regular refinancing operations with fixed
interest rates and full allotment of the amounts demanded by euro area
banks, at least until mid-January 2011. We will also carry out three
additional fine-tuning operations in the remainder of this year when the
6-month and 12-month refinancing operations mature, in order to ease the
transition to the regular refinancing operations. Through our Securities
Markets Programme we have continued to intervene in moderate amounts in
some segments of euro area bond markets. As I have explained to
Parliament before, this intervention is designed to help improve the
functioning of the transmission of our monetary policy.
Overall, the Governing Council views the current monetary policy
stance as accommodative. Given moderate price developments and firmly
anchored inflation expectations, the ECBs key interest rates are
appropriate. Let me re-emphasise that all non-standard measures taken by
the Eurosystem during the period of acute financial market tensions are
fully consistent with our price stability mandate and they are temporary
in nature.
Turning to budgetary policies, a return to credible, sound and
sustainable fiscal positions is urgently needed. We call on all
countries to undertake ambitious fiscal consolidation. Positive fiscal
developments, which might arise, for example, from higher-than-expected
economic growth, should be used to make faster progress in this respect.
Let me now turn to the specific topics, beginning with the reform
of economic governance. II. Economic governance update on the state of
play
President Van Rompuy has recently informed you about progress made
by the Task Force under his chairmanship. Work has advanced on some
issues, notably on the European Semester. On other issues, such as
reinforced budgetary surveillance and a new macroeconomic surveillance
framework, more ambition is required. Both for the ECB and for euro area
governments, the central objective must be to achieve all that is
necessary to ensure the smooth functioning of our monetary union.
Once the European Commission has presented its legislative
proposals, the European Parliament, as co-legislator, will have the
responsibility of designing an effective framework for economic
governance. The negotiations over the supervisory package have
demonstrated that the Parliament is not willing to accept compromises
based on the lowest common denominator.
Ideally, a quantum leap in strengthening EU and euro area
economic governance would require a Treaty change. This means that,
short of an immediate or rapid Treaty change, we have to exploit to the
maximum all the possibilities for EU secondary legislation under the
current Treaty to achieve this quantum leap. The ECB counts on the
support of the Parliament in its belief that the appropriate reform of
economic governance especially of the euro area needs to exploit to
the full the scope offered by the Lisbon Treaty.
ECB Board member Lorenzo Bini Smaghi has recently presented to you
our position on the various aspects of economic governance reform,
including a number of important issues related to crisis resolution. He
has also outlined the economic rationale underlying our position. Let me
today stress what we consider to be indispensable elements of a reformed
framework of fiscal and macroeconomic surveillance, which is the centre
of ongoing discussions.
The new framework should be well targeted, notably on countries
with high debt levels and significant losses of competitiveness. Public
debt levels, as well as the evolution of deficits, can be a source of
financial instability and contagion across countries sharing a common
currency. So, debt should receive a reinforced status in budgetary
surveillance, in both the preventive and corrective arms of the
Stability and Growth Pact. I am concerned that substantial progress is
still needed to give public debt the prominent role it has in the letter
of the Treaty.
Progressive losses of relative competitiveness within the monetary
union are another source of severe instability. A new system of
surveillance to check and correct macroeconomic imbalances where they
are emerging is needed. This idea has garnered support in principle, but
concrete measures to make it operative and sufficiently binding are
still to be agreed.
Once imbalances and vulnerabilities have been identified, there
must be effective follow-up, including dedicated country missions,
specific policy recommendations, increased public peer pressure and
eventually a set of clear adjustment measures. Since the vulnerabilities
of any one member can have direct effects on other members, this
surveillance framework must be supported by a graduated system of
incentives and sanctions, which can be activated sufficiently early in
the process and which should be commensurate with the severity of the
infringement.
Indeed, a core, absolutely indispensable, element of an effective
surveillance mechanism is a functioning mechanism of incentives and
sanctions both financial and non-financial in particular for the
countries in the monetary union. I am sure that the Parliament will
adopt an ambitious stance on this matter.
The relevant procedures should be quasi-automatic, based on
Commission proposals rather than recommendations. The ECB has proposed a
reversal of the voting procedures that lead to the adoption of
incentives and sanctions. Such decisions would be considered adopted
unless a qualified majority in the Council were to vote down the
Commission proposal. The role of the Commission would therefore be
significantly strengthened.
Moreover, in order to internalise the requirements of membership in
monetary union, the European rules need to be owned by the Member
States. Strong national fiscal frameworks, including the creation of
independent monitoring institutions and the adoption of national fiscal
rules that reflect the requirements of the Stability and Growth Pact,
are essential steps in this regard.
Surveillance cannot be effective unless it can rely on complete and
accurate statistics. We call for a strengthening of the duties and
powers of the European Statistical System, and a reinforcement of the
mandates for data collection, adequacy of resources, accuracy and
relevant auditing. Changes must go beyond the recent Council Regulation
on Eurostat, which focuses on statistics for the excessive deficit
procedure.”
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