Local view for "http://purl.org/linkedpolitics/eu/plenary/2010-11-22-Speech-1-032"
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"Mr President, Mr Balz, ladies and gentlemen, I have the honour of presenting to you, as provided for by the treaty, the European Central Bank’s Annual Report for 2009. Due to the schedule having been somewhat thrown out by the European elections in particular, I spoke to you last March about the previous annual report. This is therefore the second time I have addressed Parliament this year.
Let me share with you for a moment a few thoughts on the track record of the euro. In my view, three elements are fundamental.
Firstly, the ECB has delivered what it was expected to deliver according to its treaty mandate, namely, price stability. Indeed, euro area average inflation over the past almost 12 years stands at 1.97%. This fully reflects our definition of price stability, namely, our aim to keep annual inflation rates in the euro area below 2% and close to 2% in the medium term. In this sense, the euro system over the past 12 years has operated as an anchor of stability and confidence and has done so during the most recent times, despite the challenging environment created by the global financial crisis.
Secondly – and reflecting favourably on the credibility of the ECB’s monetary policy – inflation expectations have, as I have said, remained solidly anchored at levels in line with price stability.
Thirdly, this success is grounded, we trust, in the full independence of the ECB from political influence, in its primary mandate to maintain price stability and in its transparent communication, particularly concerning the definition of price stability. The ECB’s two-pillar monetary strategy allows for a forward looking and medium-term oriented course of action that is underpinned by a solid analytical framework. That framework includes a thorough analysis of monetary and credit developments, taking the monetary nature of inflation over the medium to longer term into account.
We consider that this comprehensive approach allows for well-informed and consistent decision making, whilst being steady and looking beyond short-term volatility.
As regards the external dimension of the euro, let me only say that our currency has established itself internationally. In 2009, the euro represented around 30% of the stock of international debt securities and the stock of global foreign exchange reserves.
Speaking of the external dimension of the euro, I will say a word on the present foreign exchange rate issues, domains where I would call for great prudence.
There are two major topics. One is the relationship between the major floating convertible currencies of the industrialised countries, such as the dollar, the euro, the yen, the pound sterling and the Canadian dollar. These currencies have been floating since the collapse of the Bretton Woods system at the beginning of the 1970s. I should underline the strong view of the international community that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.
Let me say that the ECB appreciates the recent statements by the US authorities, namely the Secretary of the US Treasury and the Chairman of the Federal Reserve, reiterating that a strong dollar vis-à-vis the other major convertible currencies is in the interests of the United States. I share this view entirely. A dollar that is credible among the major currencies of the advanced economies is in the interests of the United States, of Europe and of the entire international community.
The second topic concerns the currencies of emerging market economies which have current account surpluses and exchange rates that are not sufficiently flexible. On this issue, the international community agrees – and this was restated in Korea last week, as well as by the Commission – that moving towards more market-determined exchange rate systems, enhancing exchange rate stability to reflect underlying fundamentals and refraining from competitive devaluation of currencies are in the interest of the emerging economies concerned and of the international community.
First of all, allow me to say how pleased I am about the support once again expressed by the European Parliament’s motion for a resolution in favour of regular hearings before the Committee on Economic and Monetary Affairs and, more generally, in favour of maintaining close relations with the European Central Bank. I welcome this even more since, this year, the European Parliament has demonstrated very convincingly its willingness and ability to assert the overriding European interest, especially with regard to the financial supervision package.
The ECB used to say that this is no time for complacency. This is truer now than ever. The challenges lying ahead of us are manifold. All relevant authorities as well as the private sector must assume fully their responsibilities, and this is true for executive branches, central banks, regulators, supervisors, the private sector and the financial industry. In particular, the current crisis has clearly demonstrated that implementing ambitious reforms in economic governance is in the interest both of the euro area countries and of the euro area as a whole.
The proposals put forward by President Van Rompuy on the reform of the EU’s economic governance and approved by the European Council meeting of October 2010 represent an improvement to the current surveillance framework at EU level and seem broadly appropriate for the EU countries not participating in monetary union. However, as regards the specific requirements of the euro area, in our opinion, they fall short of what we view as necessary to ensure the best possible functioning of the single-currency economy.
I am convinced that, over the coming months, the European Parliament will help Europe make the necessary quantum leap in economic governance a reality. With its legislative role concerning financial supervision and the ESRB, Parliament has shown its determination when it comes to major issues.
I would like to take this opportunity to thank you for this and to express again my conviction that the influence of Parliament will be decisive in the economic governance debate.
Another important challenge relates to financial regulation. We should take full advantage of the lessons of the crisis and maintain the momentum for financial reform. As advocated in your draft resolution, a speedy implementation of Basel III is of crucial importance. The Commission’s legislative proposals on short selling and over-the-counter derivatives are also indispensable to making the financial system more transparent and resilient.
We are facing a decisive year. 2011 should see the adoption of the revised governance framework, in-depth discussions on the crisis management framework and possibly the launch of the procedure for a treaty change. We need to get all these reforms right, so as to ensure that Europe as a whole and the euro area can meet future challenges with even greater capacity and conviction.
2011 will be also the first year of the existence of the European Systemic Risk Board. As is called for in your draft resolution, we are doing our utmost to support the new body. At the same time, of course, the complete independence and the primary mandate of the ECB, enshrined in the Maastricht Treaty, are unchanged, and I have already stressed this point before Parliament.
We will continue to deliver on our mandate. This is what the treaty requires from us. You can trust that we will deliver what our fellow citizens expect.
I would like to start by giving you a brief overview of the monetary policy measures taken by the European Central Bank during the financial and economic crisis. Beyond the crisis period, I would also like to look back on the ECB over the first twelve years of its existence. Finally, I would like to look at the most pressing challenges that await us in 2011.
Mr President, let me first mention the action taken during the crisis.
2009 was a most challenging year for the ECB’s monetary policy. It started with a severe economic downturn worldwide following the outbreak of the financial crisis in autumn 2008. In this environment of subdued inflationary pressures, we continued with our policy of lowering our key rates further. Overall, within a period of only seven months – between October 2008 and May 2009 – we lowered our main refinancing rate by 325 basis points. This brought our main refinancing rate to 1%.
To ensure that households and firms in the euro area would benefit from these most favourable financing conditions, in 2009 we also continued with – and even extended – our enhanced credit support to euro area banks. We did this in response to dysfunctional money markets that had weakened the ability of monetary policy to influence the outlook for price stability by means of interest rate decisions alone. Among those non-standard measures – as we used to call them – the most prominent is the full allotment liquidity provision through our refinancing operations with euro area banks against good collateral and at the main refinancing rate prevailing at the time for several maturities extending well beyond the weekly operations. In 2009, we also extended the maturity of our longer-term refinancing operation to one year. These were, of course, decisions of extreme importance.
As rightly emphasised in your draft resolution on the ECB’s annual report, this enhanced credit support has been successful in avoiding what would have been – if additional dysfunctional tensions had been observed – a depression or a much deeper recession. Let me emphasise that all our action was fully in line with our mandate to deliver price stability in the medium term for the euro area as a whole. That we have been able to credibly deliver on our mandate is reflected in a favourable inflation outlook and well-anchored inflation expectations in the euro area.
Following some improvements in financial market conditions in the course of 2009, renewed market tensions erupted in a number of segments of the euro area bond market. Since the smooth functioning of the bond market is essential to the transmission of the ECB’s key interest rates, we decided to intervene in the euro area’s debt security markets with the aim of helping restore a more normal transmission of monetary policy to the economy. To this end, we introduced our Securities Markets Programme. To ensure that this programme does not impact on our monetary policy stance, we re-absorb all the liquidity injected.
To sum up, let me emphasise that all the non-standard measures we have adopted during the period of acute financial stress are temporary in nature and were designed with exit considerations in mind. Some of the non-standard measures initiated in 2009 and early 2010 have already been phased out in view of improvements in conditions in some financial markets and taking the ongoing recovery of the euro area economy into account."@en1
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