– having regard to the ECB Annual Report for 2010,
– having regard to Article 284 of the Treaty on the Functioning of the European Union (TFEU),
– having regard to Article 15 of the Statute of the European System of Central Banks and of the European Central Bank,
– having regard to its resolution of 4 May 1998 on democratic accountability in the third phase of the EMU(1),
– having regard to its resolution of 23 November 2010 on the ECB Annual Report for 2009(2),
– having regard to Rule 119(1) of its Rules of Procedure,
– having regard to the report of the Committee on Economic and Monetary Affairs (A7-0361/2011),
A. whereas in 2010 the euro area recovered, with GDP growth of 1.7%, and is expected to grow at 1.6% in 2011, after the slump in 2009 involving -4.2% growth, although some international bodies have warned of a possible world economic slowdown;
B. whereas the average general government deficit in the euro area increased to 6.0% of GDP in 2010 and the average debt burden stood at 85.1% of GDP, up from 0.7% and 66.2% respectively in 2007, and as compared to a debt burden of 101.1% of GDP for the USA and 212.71% for Japan;
C. whereas the average annual HICP inflation rate in the euro area was 1.6% in 2010 and M3 growth has remained low at an average rate of 0.6% in 2010;
D. whereas on 10 May 2010 the ECB announced that the Eurosystem would intervene temporarily in secondary markets for euro area public debt through the Securities Markets Programme, the book value of settled purchases of which amounted to EUR 129 billion at the beginning of September 2011; whereas these securities have been bought at a discount;
E. whereas on 4 June 2009 the ECB decided to launch a programme of purchases of covered bonds in primary and secondary markets to a value of EUR 60 billion which was expected to be fully implemented by the end of June 2010;
F. whereas at the end of 2010 the ECB held EUR 480 billion in asset-backed securities and EUR 360 billion in non-marketable financial instruments, the two categories making up 44% of its total assets;
G. whereas persistent rumours of debt restructuring and the impact thereof on the financial markets and the broader economy may once again delay the ECB’s exit from non-standard measures; considers, however, that a comprehensive, lasting solution not involving the ECB should be sought for sovereign debt management,
H. whereas interest rates in the euro area remained at 1% throughout 2010, but have since been raised by 25 basis points in April 2011 and again by 25 basis points in July 2011, bringing them to 1.5%;
I. whereas Article 282 of the TFEU states that the primary objective of the ECB is to maintain price stability and that the ECB should support general economic policies to help achieve it, and also notes the work by the ESRB under the auspices of the ECB on financial stability;
1. Welcomes the fact that so far the ECB has been remarkably successful in maintaining HICP inflation at close to 2% despite a number of macro-financial shocks and volatile commodity prices and at a time when average GDP growth has been low in the Union;
2. Expresses concern at the effect of interest rate increases on economic growth in the euro area; adds that this could hinder the already slow recovery in the euro area, particularly in its weakest economies;
3. Emphasises that, while month-on-month HICP inflation has generally been above 2% since the beginning of 2010, what matters for monetary policy are future inflation expectations, the low level of which is a testimony to the ECB's high degree of credibility and independence;
4. Stresses that before the financial crisis private debt, as well as credit bubbles and in some cases public debt, increased in an unsustainable way, and that risks were created through private debt bubbles; notes, further, that the increase in government debt was the result of the need to save the private sector, in particular the financial sector;
5. Takes the view that, in addition to the HIPC, asset price trends and credit growth in the EU and in Member States are crucial indicators for the effective monitoring of financial stability within the EMU and, more broadly, the EU;
6. Notes that the public-debt-to-GDP ratio of the euro area is much lower that that of the US and Japan;
7. Believes in the strength of the euro area economy and in the importance of the euro as an international currency;
8. Recalls that, in accordance with Article 282 of the TFEU, the primary objective of the ECB is price stability and that this contributes to financial stability and proper liquidity in financial markets; notes that financial instability poses a serious risk to medium-term price stability in that it hampers the smooth functioning of the transmission mechanisms of monetary policy; welcomes the creation of the ERSB on 1 January 2011 under the auspices of the ECB; congratulates the ECB on the decisive role it has played by taking emergency measures to maintain market stability;
9. Emphasises that under Article 127(6) of the TFEU the Council, acting by means of regulations in accordance with a special legislative procedure, may unanimously, and after consulting the European Parliament and the European Central Bank, confer specific tasks upon the European Central Bank concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings;
10. Emphasises that the repurchasing of bonds on secondary markets is justified by the aim of restoring a monetary policy which functions effectively, during this period of exceptional malfunctioning of certain sectors of the market; notes that these repurchasing programmes are complemented by programmes neutralising liquidity;
11. Is deeply alarmed at the persistence of the renewed financial turmoil in the EU and the persistence of substantial macrofinancial imbalances between the euro area economies and deflationary pressures in many euro-area Member States;
12. Recalls that the persistent and even worsening lack of economic convergence continues to be a structural problem for a single monetary policy in the euro area; emphasises that the impact of monetary policy differs considerably between Member States in the euro area; considers that this asymmetric impact of monetary policy is likely to become even more pronounced if the ECB keeps increasing rates, given the prevalence in several Member States of loans indexed to short-term interest rates; is convinced, therefore, of the need for common EU fiscal governance;
13. Calls on the Commission to set up a European credit rating foundation and evaluate the pros and cons of temporarily suspending credit ratings for countries following an EU/IMF adjustment programme; deplores, further, the current credit rating oligopoly and calls for measures to boost competition among rating agencies and increase the number of such agencies;
14. Calls on the Commission to take the steps needed to establish a European Monetary Fund and so ensure that the IMF will not need to be involved in Europe’s future credit policy, thereby reducing the Member States’ dependence on other international institutions and markets;
15. Welcomes the entry of Estonia into the euro area as proof of the strength of the common currency project;
16. Is concerned about global monetary developments and the external value of the euro, as non-conventional liquidity injections in most OECD countries have significant spillover effects; believes that much stronger international coordination is required to make the global monetary system more stable;
17. Welcomes the determined and proactive stance taken by the ECB throughout the crisis since 2007, especially during the turmoil on the financial markets in 2007, 2008 and 2010 and, more recently, in the summer 2011 when some major EU economies were in difficulties in the face of continued indecisiveness on the part of the Member States, an attitude which is pushing the ECB into taking on an overtly political role in response to the current debt crisis;
18. Notes that monetary policy must take a share of the responsibility for the creation of asset bubbles, given the unsustainable credit growth during the years leading up to the crisis;
19. Takes note of the proposals on crisis management made by the ECB both in terms of economic governance and the bank resolution mechanism;
20 Deplores the lack of an adequate EU economic policy framework for crisis management and the hesitant management of the crisis by the Commission and the Member States, particularly those in which reforms are needed, and urges the Council and the Commission rapidly to put forward the comprehensive and far-reaching measures required to safeguard the stability of the euro;
21. Is alarmed at the continuous strains on the euro area sovereign bond markets, as reflected in widening spreads over the last two years; points out that the flight to safety provoked by the waves of panic during the current financial crisis have had massive distorting effects and have created costly negative externalities; commends the efforts made by the ECB by means of its Securities Markets Programme to reduce spreads in vulnerable Member States;
22. Takes note of the restructuring of Greek debt by means of a coordinated, voluntary EU exchange offer; considers that the Greek debt burden reduction agreed at the 21 July 2011 summit has done nothing to restore public debt sustainability;
23. Notes that, while deleveraging is continuing in parts of the private sector and most Member States, excessive debt levels are still very widespread in the public sector, not least as a result of measures to absorb the outcome of the financial crisis;
24. Recalls that prior to the outbreak of the financial crisis the public-debt-to-GDP ratio of the euro area had fallen from 72% in 1999 and to 67% in 2007 and that, in contrast, debt levels of households and firms and the level of leverage in the financial sector increased significantly over the same period; points out, in particular, that household debt in the euro area increased from 52% to 70% of GDP during the same period and that financial institutions increased their level of debt from less than 200% of GDP to more than 250%; acknowledges that some Member States, such as Greece and Italy, were significant exceptions to these general trends;
25. Notes the rapid increase in the leverage ratio of the ECB, as measured by its capital and reserves in relation to its assets, even though the leverage ratio cannot be applied to central banks in the same way as it can to commercial banks; notes, however, that by mid-August 2011 the ECB's balance sheet had already shrunk by around 10% from its peak, although it has been increasing rapidly since then; notes that, while there has been also a substantial expansion in the balance sheets of other central banks, the ECB's leverage ratio is higher than that of other comparable central banks, with the exception of those which have implemented quantitative easing programmes, such as the Federal Reserve or the Bank of England;
26. Points out and welcomes the fact that the ECB's balance-sheet expansion has not led to inflation; highlights its increasing role as a central counterparty between euro area banks, which reflects a temporary shift in intermediation from the interbank market to the Eurosystem and an increase in euro area assets held by the Eurosystem which will mature over time; points out, further, that providing liquidity to solvent banks does not necessarily entail an increase in monetary supply and notes that the non-standard measures are of a temporary nature; is convinced that all these developments, together with external factors, have ensured that inflation has consistently remained around 2%;
27. Draws attention once again to the worrying overreliance of many euro area banks on the liquidity provided by the ECB, in the absence of a fully functional interbank market; notes that while in 2010 the Eurosystem accepted EUR 488 billion of asset-backed securities (ABS) as collateral the eligibility criteria for ABS in Eurosystem credit operations have been tightened significantly, which should lead to a reduction in this amount over time;
28. Stresses that the Eurosystem has refused to disclose the method used to determine the 'theoretical price' of impaired assets eligible for its liquidity operations in the framework of the Enhanced Credit Support programme; emphasises that it is therefore impossible to verify whether the ECB has played a quasi-fiscal role; calls, therefore, on the ECB to disclose the valuation methods it has used throughout the crisis,
29. Emphasises that given the lack of a proper euro area crisis framework the ECB was pushed to take risks not covered by its mandate;
30. Asks the ECB to be more open about the quality and quantity of the securities it holds, including ABS accepted as collateral and other marketable and non-marketable securities held for monetary purposes and securities not held for monetary purposes;
31. Acknowledges the need for non-standard monetary policy measures and notes their temporary nature, but calls for a those programmes to be phased out as soon as the financial markets have stabilised and the sovereign debt crisis has been resolved and provided that a Community framework is established to deal properly with financial instability; calls for measures to establish more integrated economic governance;
32. Calls on the ECB to introduce as part of the Security Markets Programme a discount rate mechanism that can be adjusted if a given security is further downgraded by most credit rating agencies, with a view to ensuring that the ECB does not end up with too many risky assets; believes, further, that the ECB should consider the possibility of extending the policy of requiring at least two credit ratings before accepting a security as collateral from only ABS to all other types of collateral for which only one rating is currently required, and calls on the ECB to develop its own risk-assessment framework;
33. Emphasises that conditions imposed on banks benefiting from the Target-2 settlement system and, more generally, ECB liquidity provision facilities are a matter of concern in terms of credit risks for the ECB itself; calls on the ECB, therefore, to provide more regular public information on flows between euro area central banks, as measured under the Target-2 settlement system, for the sake of increased transparency and to provide a proper insight into recent developments so that these flows are not mistakenly interpreted as permanent transfers from current account surplus countries to deficit countries;
34. Is concerned at the high levels of debt maturity and currency mismatch of several systemically and non-systemically relevant euro area banking institutions;
35. Takes the view that in the current emergency there is an urgent need to define and disclose additional strict conditions attaching to ECB liquidity provisions, including prudential conditions which go beyond internal and non-disclosed rules and haircuts linked to the collateral accepted for its refinancing operations;
36. Asks the ECB to explore whether compulsory-reserve requirements could be an additional instrument, alongside the interest rate, to safeguard financial stability without hampering the recovery;
37. Notes that in the US and the EU one of the consequences of the monetary policies implemented before and during the crisis has been the engineering of a steep yield curve which helps the banking system to recapitalise more rapidly with the help of depositors and short-term lenders;
38. Emphasises the constant and rigorous stance taken by the ECB over many years on the issue of strengthening economic governance in the European interest;
Economic and financial governance
39. Calls for macro-prudential supervision of the financial system which is better integrated into the monetary policy context and which takes account of differences between euro area and non-euro area countries; calls for further efforts to develop an integrated analytical framework to jointly assess the effects of macro-prudential and monetary policies and to further develop the ESRB's macro-prudential policy toolkit, taking national, legal and other financial system specificities into account ;
40. Calls for a significant increase in the resources available for the new financial supervisory architecture in order to increase its effectiveness, calls, further, for continuous analysis of the effectiveness of the new financial supervisory architecture with the aid of impact assessments and for an evaluation of the long-term option of establishing a single European financial supervisory authority, unifying under its umbrella the current European supervisory authorities and the European Systemic Risk Board;
41. Stresses the need for a single European Minister of Finance, possibly drawn from the Commission, in keeping with the proposal made by Jean-Claude Trichet in Aachen on 2 June 2011; believes that the issue of the democratic legitimacy of such a proposal must be properly addressed; notes, in that connection, that in a monetary union fiscal policy does not only concern the Member States, but has many cross-border spillovers and that the present crisis has revealed the limits of 100% decentralised fiscal policies; believes that the single European Minister of Finance should be democratically accountable to the European Parliament; stresses that a further step of this kind towards a fiscal union based on the Community method requires enhanced democratic ownership and a potential Treaty revision in the long term, but recognises that the current framework allows for stronger economic governance in the short term;
42. Stresses the need for a single European Treasury to relieve the ECB of its quasi-fiscal role; takes the view that this European Treasury could be established by means of a change to the EU Treaty;
43. Welcomes the fact that the European Stability Mechanism (ESM) has been given the right to purchase government bonds on the secondary market, as this could relieve the pressure on the ECB in the current circumstances;
44. Deplores, in that connection, the fact that the ESM has been established outside the EU Treaties, and therefore calls on the Commission to propose a permanent crisis management mechanism based on Community rules (e.g. a European Monetary Fund);
45. Emphasises the absolute need to quickly implement and apply the provisions of the economic governance package; in that connection, calls for the consistent and balanced application of the European Stability and Growth Pact and an automatic mechanism for the imposition of sanctions on countries which run budget deficits ;
46. Is looking forward to the submission before the end of 2011 of the Commission report on the setting-up of a system for the common issuance of European sovereign bonds, or euro securities, on the basis of joint and several liability, accompanied by legislative proposals if appropriate;
47. As the ECB, the IMF and the Commission work together on missions in some Member States, calls on the Commission to put forward proposals for a single external representation of the euro area, in accordance with Article 138 of the TFEU, particularly in the IMF;
Transparency and accountability
48. Recommends that the ECB enhance the transparency of its work in order to increase its legitimacy and predictability; reiterates its long-standing call for the summaries of minutes of meetings of the Governing Council to be made public;
49. Calls, in line with the Court of Auditors' reports, for more transparency and accountability when it comes to the documentation of decisions concerning the recruitment procedures and salaries and bonus reviews;
50. Welcomes the ECB's commitment to its accountability to the European Parliament and stresses the very constructive role played by the ECB at the highest level and through its staff in the codecision procedure;
51. Instructs its President to forward this resolution to the Council and the Commission, the Eurogroup and the European Central Bank.
As I write this explanatory statement on the 2010 ECB report, the risk premiums of Italy and Spain have reached historical limits, and on this 11th and 12th of July they seem to be approaching a level of no return, as only the intervention of the ECB has calmed down financial markets and brought temporary relief.
And so today, and especially today, it is very important to recall that the success of the euro has also been the success of the idea of Europe. In 1989, a wall divided Europe in two opposite blocks. Today the euro covers seventeen countries coming from very different backgrounds; Ireland, Cyprus or Malta come from the British Empire; there are ex-communist countries like Slovakia, Slovenia or Estonia; neutral countries like Austria and Finland or even countries coming from military dictatorships as Spain, Greece or Portugal. If the euro makes it through the critical moments of our time, it may even be possible that other European countries knock on its door to join it. Although recent tensions may indicate the opposite, since 2008 the euro has been an ‘island of stability in the unstable and agitated sea of the global financial crisis’ as the British financer David Marsh recently acknowledged.
It is then, during these moments of rising tensions for the European project that our currency symbolises that it is important to remember that the euro has been, at least during its first ten years of life, a resounding success as: 1) Without the euro the global financial crisis would have been much worse for all European countries - taste of this is the constant depreciations that the secularly strong Sterling has suffered since 2008 and its related inflation. 2) Without the euro, Europe’s northern countries wouldn’t have recovered as quickly as they have done since 2009 through their exports-based model. In fact, if the Deutsche Mark nowadays still existed, it would be so strong against the dollar and other world currencies that it would hurt its own growth. 3) Without the euro, some European countries, especially those that have made the more frivolous fiscal policies and less orientated to raise competitiveness, possibly would have suffered a ‘corralito’. Its subsequent moral and economic wreckage would have had terrible consequences for all countries involved.
Obviously, the euro has also some responsibility in current events: without the negative real interest rates that have some peripheral countries have experienced in the first years of the single currency, the asset price bubbles that they suffered would not have been so strong. However, if there is any consensus today in the academic field it is that without the euro this financial crisis would have been much worse for Europe. It is also a shared view to acknowledge that without the euro, the single market and the free movement of people, which are the greatest successes of the EU, would have probably imploded.
And yet, today, the permanent convulsion in which financial markets live is bringing the euro zone close to the break-up. Country after country, bail-out after bail-out, the debt crisis menaces to create a contagion effect on ever bigger countries, Spain and Italy are not impervious from it.
The euro has not failed in its function to ensure a soft landing in front of a big banking crisis; the euro has not failed in its anchoring function against inflation as the ECB is a guarantee of success in that field; and finally the euro has neither failed as an integration mechanism deepening the single market, as the rising commercial flows between countries acknowledge since its birth.
However, something has clearly failed. And that is unmistakably the governance of the euro zone. Economic theory teaches us that the viability of a single currency is based on its capacity to belittle big macroeconomic imbalances when existing. What has also failed is the eurozone’s internal discipline, particularly on the compliance of the Stability and Growth Pact, as since 1999 dozens of violations were accounted for many countries, including Germany and France, and fines have never been enacted. Lastly, the no bail-out provision that forbids the purchasing of sovereign debt by the ECB has been interpreted in a limp mode. Because of all this, the eurozone has become vulnerable to speculative attacks focused on the sovereign debt of the less efficient and competitive countries. These speculative processes will make a comeback in the future until the economic governance of the eurozone is solved. Without financial stability, reforms for the peripheral countries of the euro will be impossible and ineffective.
European institutions have, until now, followed a kick-the-can-down-the-road strategy that has only been useful to win some time while waiting for an economic recovery that may strengthen banks balance sheets and hoping that economic growth, which has been present in central and northern Europe for six quarters, arrives finally to the peripheral countries of the eurozone. This strategy may work, but it is risky. A speculative attack can make it lose track and bring the euro very close to an abyss. Maybe it is time to question the official statement that says that Greece does not have a solvency problem, as this thesis is less sustainable every day: instead of containing speculations, it is feeding doubts on other countries’ adjustment plans.
In May 2010, the ECB began the Securities Market Program (SMP), acting nearly in a ‘quasi fiscal role’ that has had to fill the lack of a common fiscal policy on a European scale. Nevertheless, this strategy cannot be indefinitely maintained and strengthens those who put into question the independence of the ECB, one of the founding pillars of the euro as a single currency, and also the lack of transparency in its main decisions. This is why in my report I ask for the publication of the Governing Council minutes that may reduce the impact of discrepancies on the media. I interpret its non-publication as a sign of weakness for the European integration, as the necessary individual accountability will remain to be interpreted as a possible source of disputes between Member States.
The euro’s existence has meant that some peripheral countries that historically depreciated their currency in order to regain competitiveness have been pushed into applying harsh austerity measures to fight the crisis. However, this is the right choice as the euro needs to keep being a stable currency as the EU should not walk its way into inflationary horizons or excessive economic redistribution.
The European Monetary Union has the duty to keep inflation under control and protect the purchasing power of the currency. It also needs to reduce the moral hazard that may imply the undercover redistribution in favour of those countries whose governments inflate the monetary base faster than the others through uncontrolled processes of credit expansion. This redistribution is enhanced if the ECB accepts too often debt emitted by the Member States as a guarantee, and even more so if it buys them.
In order to continue making the euro a viable project, it is necessary to build a clear framework that allows to help countries with liquidity problems, but at the same time be able to incentivise fiscal responsibility and a sustained convergence of competitiveness levels among member countries. All this time, the system has worked only by reacting to market discipline, organising bail-outs only when a country was in trouble.
However, there is another way: making progress enhancing fiscal integration through relevant transfers of sovereignty from the Member States to the EU. Of course this is a complicated path and so it is important to keep in mind that there is a middle way, more realistic in the short-term, in which it is possible to integrate at the same time market discipline and the necessary external fiscal discipline of member countries, a middle way that can be effective but has to be designed with great precision.
The present failures in the euro area are a valuable experience in order not to repeat the same mistakes. In this sense I propose the creation of a European Ministry of Finances and a European Treasury able to emit Eurobonds. I am conscious that this proposal can only become a reality after a much-needed reform on the Stability and Growth Pact that allows for a better control of the dysfunctional budgetary policies in the eurozone Member States.
Eurobonds can simultaneously achieve a remarkable source of financing for countries with low levels of debt and a very expensive financing for those countries that break the rules, following the red and blue bonds model. Finally, Eurobonds can give an impulse to the euro as a global reserve currency, as with them a debt obligations market would be born on a European scale, five times bigger than the German one and closely as big as the North American.
The euro’s architects built a monetary union while conscious of the instability that a single currency would generate in countries with a wide range of different economic and production structures. Possibly those architects thought that steps towards a bigger political union would come when the need for them was great. Today, with the full explosion of the debt-crisis in the eurozone, their time has finally come.
RESULT OF FINAL VOTE IN COMMITTEE
Result of final vote
Members present for the final vote
Burkhard Balz, Udo Bullmann, Pascal Canfin, Nikolaos Chountis, George Sabin Cutaş, Leonardo Domenici, Diogo Feio, Elisa Ferreira, Ildikó Gáll-Pelcz, Jean-Paul Gauzès, Sven Giegold, Sylvie Goulard, Othmar Karas, Wolf Klinz, Jürgen Klute, Rodi Kratsa-Tsagaropoulou, Werner Langen, Astrid Lulling, Arlene McCarthy, Ivari Padar, Alfredo Pallone, Anni Podimata, Antolín Sánchez Presedo, Olle Schmidt, Edward Scicluna, Peter Simon, Peter Skinner, Theodor Dumitru Stolojan, Ivo Strejček, Kay Swinburne, Marianne Thyssen, Ramon Tremosa i Balcells, Corien Wortmann-Kool
Substitute(s) present for the final vote
Elena Băsescu, Pilar del Castillo Vera, Sari Essayah, Vicky Ford, Ashley Fox, Sophia in ‘t Veld, Olle Ludvigsson, Thomas Mann, Sirpa Pietikäinen, Gianni Pittella