Introductory statement by Jean-Claude Trichet,
President of the ECB,
Brussels, 30 November 2010
Dear Madam Chair,
Dear Honourable Members,
Since our last meeting in September, the euro area governments were called upon to demonstrate their ability and willingness to safeguard economic stability in the euro area. I refer in particular to the economic and financial adjustment programme which was agreed by the Irish government following the successful negotiations with the European Commission, in liaison with the ECB, and the IMF, and which the Governing Council welcomes.
In Hinblick auf diese Entwicklungen möchte ich mich in meiner Einführung im Wesentlichen auf zwei Themen konzentrieren: die allgemeine wirtschaftliche Lage im Eurogebiet and das geplante neue wirtschaftspolitische Rahmenwerk für die EU und insbesondere das Eurogebiet. Le sujet crucial de la réforme de la gouvernance économique est particulièrement important pour votre Commission. Je me pencherai enfin brièvement sur les réformes en cours en matière de régulation financière.
I. Economic and Monetary Developments
With regard to the euro area macroeconomic situation, recent surveys and data releases have generally confirmed our view of a positive underlying momentum of the economic recovery in the euro area. Inflation rates in the euro area are currently at 1.9% . Looking ahead, we expect inflation to hover around that level for the next few months before moderating in the course of next year. In the absence of inflationary and deflationary pressures, inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below 2%, close to 2% over the medium term.
Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as reflected in low growth rates of broad money and loans. Developments in recent months suggest that the growth of loans to non-financial corporations has, earlier this year, started to show again an increasing trend, while the growth of loans to households has remained positive.
As regards the Governing Council’s assessment of the monetary policy stance, please note that, with only two days before our next monetary policy meeting this Thursday, I am in the "purdah" period. I cannot prejudge in any respect, according to our rules, the upcoming decisions of the Governing Council. However, as you know, what I can tell you is that all decisions by the Governing Council have been and will be taken with a view to deliver on our mandate from the Treaty, which is to maintain price stability in the euro area over the medium term.
Now turning to the issues that you raised, let me say a few words on exchange rate developments. The concept of “currency war” is one which is completely inappropriate to use. We need no “wars” of any kind, but a strong and renewed commitment to confident and resolute cooperation. There are two main topics that need to be tackled seriously. First, there is the relationship between the major floating convertible currencies of the advanced economies such as the dollar, the euro, the yen and the pound sterling. These currencies – or, in the case of the euro, the currencies that preceded it – have been floating since the collapse of the Bretton Woods system at the beginning of the 1970s. In this respect, we all consider that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. The second topic is that of emerging market economies which have considerable current account surpluses and exchange rates that are not sufficiently flexible. On this issue, commitments have been made by the G20. A move towards more flexible exchange rates, involving a gradual and orderly appreciation of their currencies vis-à-vis the major convertible currencies, is also in the interests of the emerging economies concerned and in the interests of the international community.
II. Reform of Economic Governance
Honourable members, as you know, the ECB is responsible for the “M” in EMU. But we have our views on the “E”. You have asked me to address in more detail in this meeting economic governance. I had the opportunity last week to mention in the Parliament’s Plenary that the Commission proposals represent an improvement of the current fiscal and macroeconomic surveillance framework for EU members outside the euro area. However, the Governing Council considers that these proposals are not bold enough to appropriately consolidate and reinforce the functioning of Economic and Monetary Union. Indeed, a better functioning of economic union is crucial for the long-term stability, prosperity and balanced economic development of the euro area. Now that Council and Parliament have started their legislative work, let me elaborate on the proposed legal acts.
With regard to the fiscal aspects, and the Stability and Growth Pact’s preventive arm, the Commission proposals go in the right direction on a number of issues. We agree in principle with the approach to define prudent fiscal policies on the basis of expenditure growth. However, for the implementation of this approach some detail needs to be added and we think that the limits for deviations from prudent policies should not be overly generous.
Regarding the second main innovation, the operationalisation of the debt criterion on the basis of a numerical benchmark, is in principle welcome. However, we are concerned that the proposed numerical benchmark may not be sufficiently ambitious. Moreover, to ensure strict enforcement of the provision, it is important that the room for interference is limited to the absolute minimum.
Thirdly, the introduction of new and graduated financial enforcement measures and sanctions, along with strengthened decision-making procedures (the right of proposal for the Commission and the reverse majority rule) go in the right direction of a rules-based quasi-automatic regime. However, the ECB has serious concerns regarding the provisions according to which, following a reasoned request by the relevant Member State, or on grounds of “exceptional economic circumstances”, the sanction could be lifted. Such provisions leave considerable room for discretion and weaken the ex ante effectiveness of the new framework. In the same vein, the ECB has serious doubts whether the proposed exemption clause in case of a “severe economic downturn of a general nature” should be introduced and specified ex ante.
Moreover, we need more independent assessments. There is a need to reinforce the independence of surveillance by strengthening further the Commission’s internal procedures and by setting up an independent body of “wise persons” at the EU level to provide external assessment of fiscal policies and of the implementation of the surveillance framework. In our view, those issues are not sufficiently addressed in the Commission proposals.
Finally, European commitments are also national commitments, and will naturally continue to be scrutinised within national fiscal frameworks. On this, even if the proposed Directive’s minimum standards are broadly acceptable, I see the requirements spelled out as an absolute minimum. For example, the Directive could be more ambitious on the need for independent forecasts and assessment of fiscal policy, and on the transposition date into national law.
Let me now turn to the proposals on macroeconomic imbalances. The development of a fully-fledged macroeconomic surveillance framework for the EU, and even more so, the euro area closes an important gap in the current governance set-up. The new mechanism is essential for macro-financial stability.
Overall, internal macroeconomic imbalances should be defined in order to focus on Member States which have experienced persistent competitiveness losses and/or large current account deficits.
Second, the specific nature of imbalances needs clear identification on the basis of both appropriate indicators and thresholds. Otherwise, any relevant discussion could prove meaningless.
Moreover, the procedures should ensure linking the outcome of the indicator-based scoreboard more directly to the conduct of in-depth reviews and surveillance missions by the Commission, in both the preventive and corrective arm, and in liaison with the ECB for euro area and ERM II Member States.
Furthermore, sanctions under the corrective arm of macroeconomic surveillance would come too late in the process, only after repeated non-compliance by a Member State; they should be applied earlier and more gradually in order to provide clear and credible incentives. Finally, there are again risks entailed in allowing sanctions to be reduced or cancelled on the basis of ‘exceptional economic circumstances’.
For all these reasons, I would call on the Parliament to be ambitious and timely with this legislative package. And to ensure an appropriately effective surveillance framework, both in terms of fiscal consolidation and the surveillance of macroeconomic imbalances, and especially as regards euro area members.
Finally, a few words on the European Stability Mechanism mentioned by the Eurogroup last Sunday. You know that, since 28 October, I had called upon governments to clarify their position and avoid ambiguity vis-à-vis investors, savers and market participants. In stating very explicitly that Europe will be “fully consistent with IMF policy” and “IMF practices” as regards private sector involvement, the position made public by governments last Sunday is a useful clarification.
III. Financial Sector Issues
Let me allow a few remarks on financial sector issues. Much progress has been achieved since the latest regulatory reform agenda was adopted. The endorsement of the regulatory reforms by the G20 Ministers and Governors and by the meeting of the Heads earlier this month has added to the commitment of all global participants. The reforms constitute an important step forward in strengthening the resilience of the financial system. In this context, let me highlight three issues.
Firstly, the new Basel III framework, as endorsed by the Group of Governors of Central Banks and Heads of Supervisors, forms a cornerstone of the financial reform. In order to reap the full benefits of this reform, consistent implementation and application at international level will be essential. In this context, while the CRD IV could address EU specificities, it is important that it is fully consistent with the Basel III framework. Let me also underline the importance of the agreed transition period.
Secondly, as regards the Alternative Investment Fund Managers Directive (AIFMD), I would like to emphasise the importance of creating a convergent oversight in the EU and the US, resulting in an international level playing field. In addition, as there are still several regulatory initiatives underway, both internationally and at EU level, it is important to ensure that their overall impact achieves the desired results without hampering economic recovery.
Lastly, the European System of Financial Supervision, which includes the ESRB and the ESAs, will start on 1 January 2011. We are preparing for a smooth interplay between the ESRB and the ESAs. To ensure this goal a constructive dialogue is under way in the areas of systemic risk analysis and information exchange between the relevant parties.
I trust that the ESRB will introduce a new policy function at the EU level with great potential for enhancing the ability of European and national authorities to safeguard the stability of the EU financial system as a whole.
I thank you for your attention.
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