FRANKFURT (MNI) – The following is the first part of the text of
the introductory statement at the quarterly hearing before the Committee
on Economic and Monetary Affairs of the European Parliament in Brussels:

Dear Madam Chair,

Dear Members of the Committee on Economic and Monetary Affairs,

It is a pleasure to be with you today for the first regular hearing
in 2010.

Over the last few months, since our meeting in December 2009, the
euro area economy as a whole has continued to gradually recover. But
there are a number of issues, related to country and financial market
developments, which have led to an intense discussion about the euro
area and its functioning. This makes todays discussion all the more
timely.

Wir sehen, welche groen Herausforderungen sich durch die
Finanzkrise fr die europische Wirtschaftspolitik ergeben. Wir sehen
auch, was es heit, mit Wirtschafts- und Whrungspolitik
verantwortungsvoll umzugehen. Die Stabilitt der gemeinsamen Whrung ist
die Verantwortung aller.

Aujourdhui, comme le veut la tradition, je commencerai mon
intervention par une valuation de la situation conomique, en portant
une attention particulire llimination progressive des mesures non
conventionnelles prises lors de la priode de crise. Ensuite,
jaborderai les deux sujets sur lesquels nous nous sommes mis daccord
concernant la politique budgtaire et les dsquilibres mondiaux.
Economic and monetary developments

As mentioned, since the previous hearing last December, economic
and financial conditions have continued to improve, albeit only at a
moderate pace. Economic activity is estimated to have increased by 0.1%
from the third to the fourth quarter of last year. Recent information
confirms that we can expect a moderate recovery in the current year.
This is in line with the latest ECB staff projections. Also forecasts by
other institutions confirm this expectation, with an annual growth rate
round 1% in 2010, gaining pace in 2011. In the assessment by the
Governing Council, the risks to this outlook remain broadly balanced,
but as predicted already last year, the recovery is likely to be uneven
across regions and sections and over time. High uncertainty continues to
prevail.

As regards price developments, we have continued to witness low
inflation and low inflationary pressures over the recent months.
Inflation in February 2010 stood at 0.9%. The outlook for inflation
remains in line with price stability and risks to this outlook remain
broadly balanced. Specifically, we expect inflation to stay around 1% in
the near term, and to remain moderate over the policy-relevant horizon,
in line with a relatively slow recovery in demand.

Our monetary analysis continues to confirm the expectation of low
inflationary pressures over the medium term, as reflected in weak
expansion of money and credit. The growth of loans to enterprises in
particular is anticipated to remain weak for some time ahead, while the
annual growth rate of loans to households is positive and strengthening.
These developments are still in line with regularities over past
business cycles. We will monitor credit developments very closely in the
months to come. While there is no clear evidence of credit constraints
in the euro area as a whole, the situation differs across countries,
sectors and company sizes. To a large extent, the weak growth of loans
is due to the unprecedented severance of the 2009 recession.

Indicators of inflation expectations over the medium to longer term
remain firmly anchored in line with our aim of keeping inflation rates
below, but close to, 2% over the medium term. It is against this
background that the Governing Council kept the level of key ECB interest
rates unchanged earlier this month, regarding the current level as
appropriate.

The significant monetary impulse stemming from our interest rate
reductions last year has spread to market interest rates, and the
transmission to rates charged by banks to households and corporations
has continued to perform well. This transmission needs to be seen in
conjunction with the non-standard measures that the ECB has taken. These
measures, notably the provision of full allotment of liquidity to banks
with a one-year maturity against collateral, have been effective in
providing funding to banks at favourable conditions, stabilising the
money market, and fostering the pass-through of our interest rate
reductions. Phasing out from non-standard measures

In line with the above economic and monetary assessment, the
Governing Council decided earlier this month to continue the gradual
phasing out of some of the extraordinary measures. We do not wish to
breed dependency. Banks are to take up their intermediation again and
should have all appropriate incentives to do so. The 12-month operations
have already been discontinued and the 6-month operation upcoming next
week will be the last one. In addition, we now decided to re-introduce
variable-rate tenders for the regular three-month operations as of late
April. At the same time, we continue to provide the euro area banking
system with unlimited access to central bank refinancing through
shorter-term operations (with one-week and one-month maturity), for as
long as needed and in any case until mid-October this year. This is to
continue to support the credit provision to the euro area economy.

Let me also say something on longer-term monetary policy issues ,
that I know is of interest to you, namely the relationship between
monetary policy and asset prices. The financial crisis has revived the
long-standing debate on the relationship between monetary policy and
asset price bubbles. This debate is centred on a straightforward
question: Should monetary policy aim to prevent the emergence of asset
price bubbles? While this question has no simple answer, the ECBs
monetary policy strategy is an approach that is well suited to cope with
the challenges brought about by unsustainable asset price developments.

Our mandate is to maintain price stability over the medium term.
Protracted, unsustainable financial trends or atypical swings in risk
pricing in financial markets can pose risks to price stability down the
road. The close link between monetary developments and evolving
imbalances in asset and credit markets implies that our monetary policy
needs to detect such imbalances at an early stage and to respond to the
implied, longer-term, risks to price stability in a timely and
forward-looking manner, thereby contributing to financial stability. Our
monetary analysis, which concentrates on the monitoring of money and
credit, does just that. It is a strategic framework that embeds a degree
of implicit leaning against the wind of excessive money, credit and
asset price growth. Judgement is of course necessary in addressing asset
price dynamics. The ECB has developed considerable expertise in the
analysis of monetary and credit developments and their implications for
risks to price stability, which has proved an invaluable asset also
throughout the financial crisis. Fiscal policies in the euro area

I would like to turn to fiscal policies now. As you know, financial
sector support and the budgetary loosening in the context of the
financial and economic crisis has in most euro area countries caused
sizable fiscal imbalances. Meanwhile, most countries in the euro area
have exceeded the 3% reference value for the deficit ratio. Under these
circumstances, the Stability and Growth Pact, which has been put in
place to safeguard sound and sustainable fiscal positions, should be
rigorously applied. The ECB calls to strengthen the governments
commitment to strictly adhere to its provisions.

National policy makers should give fiscal consolidation top
priority in the context of ongoing economic recovery, and bring the
deficit ratio to below 3% of GDP in line with the Ecofin
recommendations. Based on the Stability Programme updates, governments
appear to be on track this year, but further measures will be necessary
in the coming years to correct excessive deficits within the set time
horizon.

As regards the composition of the fiscal adjustment, we welcome a
focus on the expenditure side, because the size of the public sector has
significantly increased in the crisis and because expenditure-based
consolidation has proven to be more effective in the past.

[TOPICS: M$$EC$,M$X$$$,M$$CR$,MT$$$$]