09-07-2008 EN Debates of the European Parliament 1 WEDNESDAY, 9 JULY 2008 IN THE CHAIR: MR PÖTTERING President 1. Opening of the sitting (The sitting was opened at 9.05 a.m.) 2. Report on the ECB annual report for 2007 (debate) President. − The next item is the report by Olle Schmidt on behalf of the Committee on Economic and Monetary Affairs on the ECB annual report for 2007 (2008/2107(INI) (A6-0241/2007). Olle Schmidt, rapporteur. − (SV) Mr President, Mr Trichet, Mr Juncker, all eyes are on the European Central Bank. The current uncertain economic situation and financial unrest are putting the ECB under great pressure. I am convinced that last week’s interest rate rise was the right decision. Inflation is a scourge which redistributes assets unfairly. Europe’s political leaders should be grateful that they have an independent central bank which is prepared to act in order to prevent Europe from lapsing into stagflation, low growth and rising inflation. Ten years after its introduction, the euro is a world currency. The security and stability which it has brought to the euro zone and the Union as a whole, including my country, and even to the global economy are something no one could have dreamt of. Ireland’s ‘no’ in the referendum was not a reaction to the strength of the euro. Asymmetric development of economies between the euro countries may constitute a risk, but it can be remedied by holding fast to the requirements of the stability pact for sound state finances and continued structural transformation in the Member States. At the same time there is some point in reviewing, after 10 years, how the ECB operates; scrutiny, transparency, decision-making and the international role of the euro could be improved. The committee therefore proposes that the ECB should present a new proposal on how decision-making can be made transparent and more effective as the Eurogroup grows. The ECB should give an account of the discussion between Members of the Governing Council when decisions are taken on the interest base rate in order to increase transparency and enhance predictability. Its role as leader of the Eurogroup should be strengthened in order better to reflect the significance of the euro in the international context as well. Giving the market better information on the ECB’s interest rate decisions has long been crucial to Parliament, as is also the publication of the minutes and voting outcome. The ECB has refused this, however, pointing out that it would create national divisions within the ECB management. Mr Trichet, we have listened to your views, and the committee is now presenting an amended proposal. The ECB management must provide clearer information after an interest rate decision, i.e. must state whether unanimity was achieved without a discussion or whether there were difficulties in reaching a common position. This would be an important step forward in improving the dialogue between the market, us politicians and the ECB. Inflation has risen to record levels and now stands at around 4%, which is significantly higher than the inflation target of around 2% in the medium term. Not only the dollar but other currencies too have weakened considerably against the euro, which has revived the discussion on the exchange rate. The enlargement of the euro zone gives the monetary area more weight, but at the same time poses several challenges, since decision-making becomes more unwieldy and differences in economic development between the members increase. The crisis on the housing loan market has shown that financial stability is a global issue, since crises are no longer limited to a single country or a single region. The combined efforts of the Federal Reserve and the Bank of England have contributed extensively to keeping the financial system afloat, but they have not resolved the crisis. This has also made clear the need for better cooperation between central banks and other institutions. The fact that the ECB and the Fed both warned against underestimating the risk of a crisis on the housing loan market, without any great success, shows the increasing vulnerability of the world’s financial markets. Here there is good reason to act, which Parliament among others is now doing, for example by following up the Lamfalussy process to modernise the European supervisory structure. 2 EN Debates of the European Parliament 09-07-2008 The common monetary policy and the ECB will face great challenges in forthcoming years. I am convinced that the EU leaders and the ECB will stand the test. At the same time, however, all the EU leaders must understand that price stability and sound state finances are the pillars of growth and new jobs. It is remarkable therefore that the French President, not least in his current role as Council President, questions the ECB’s stability targets. In my opinion Europe’s leaders should instead explain, in an open dialogue with their citizens, the purposes and goals of the monetary policy. Soaring prices and compensatory wage increases are the worst enemies of prosperity. Jean-Claude Trichet, President of the European Central Bank. − (FR) Mr President, rapporteur, ladies and gentlemen, it is an honour for me to present the 2007 annual report of the European Central Bank to you, as provided for in the Treaty. Our relations go far beyond the obligations imposed by the Treaty and the European Central Bank appreciates its very close relationship with Parliament. This is the fourth time I have spoken to you this year. My colleagues on the executive board have also been in close contact with the European Parliament, particularly on matters such as enlargement of the euro zone, payment systems and the tenth anniversary of Economic and Monetary Union. 2007 to 2008 and explain the monetary policy measures taken by the ECB. Then I shall make a few comments on points and proposals that you have put forward in your motion for a resolution on the ECB annual report for 2007. In 2007 the ECB operated in a challenging environment with rising and volatile commodity prices and, since the second half of 2007, heightened uncertainty stemming from the ongoing correction in financial markets across the world that was mentioned by the rapporteur. Despite these developments, the euro-area economy continued to expand at solid rates in 2007, with annual real GDP growing by 2.7%. In the first half of 2008, moderate ongoing growth in real GDP has continued, although the quarter-on-quarter profile is likely to show significant volatility owing to temporary, in part weather-related, factors. It is thus important to focus on the medium-term trend when assessing growth developments. Looking ahead, on the external side, growth in emerging countries should remain robust, supporting euro-area foreign demand. On the domestic side, the economic fundamentals of the euro area remain sound and the euro area does not suffer from major imbalances. Unemployment rates and labour force participation have increased significantly in recent years, and unemployment rates have fallen to levels not seen for 25 years. That being said, the uncertainty surrounding this outlook for growth remains high, with downside risks mainly relating to further unanticipated increases in commodity prices, possible further spillovers from continuing tensions in financial markets to the real economy and increasing protectionist tendencies. Turning to price developments, in 2007 average annual HICP inflation in the euro area was 2.1%, slightly above the ECB’s definition of price stability. However, at the end of the year, substantial increases in international oil and food prices brought inflation to levels well above 2%. Since then, inflation in the euro area has risen further and, in the wake of renewed sharp commodity price increases, arrived at the worrying level of around 4% in mid-2008. Looking ahead, the annual HICP inflation rate is likely to remain well above the level consistent with price stability for some time, moderating only gradually in 2009. Risks to price stability over the medium term remain clearly on the upside in 2007 and have intensified over recent months. These risks include possible further rises in commodity prices and unanticipated increases in indirect taxes and administered prices. In addition the Governing Council is strongly concerned that price and wage-setting behaviour could add to inflationary pressure through broadly-based second-round effects. First signs are already emerging in some regions of the euro area. In this context, indexation schemes for nominal wages are of particular concern and should be avoided. As in 2007, the monetary analysis in the first half of 2008 has continued to confirm the prevailing upside risks to price stability at medium to longer horizons. In line with our monetary policy strategy, we take the view that the sustained underlying strength of monetary and credit expansion in the euro area over the past few years has created upside risks to price stability. To contain prevailing upside risks to price stability over the medium term, the Governing Council further adjusted the monetary policy stance in March and June 2007. After a period of unusually high uncertainty in the context of the financial-market correction, in July 2008 the Governing Council has brought the minimum bid rate in the euro system’s main refinancing operations to 4.25%. This action underlines the Governing Council’s strong determination to prevent second-round effects and maintain longer-term inflation 09-07-2008 EN Debates of the European Parliament 3 expectations firmly anchored in line with price stability. This is the contribution of the ECB’s monetary policy to preserving purchasing power over the medium term and supporting sustainable growth and employment in the euro area.