REPORT on the ECB annual report for 2006
29.6.2007 - (2007/2142(INI))
Committee on Economic and Monetary Affairs
Rapporteur: Gay Mitchell
MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION
on the ECB annual report for 2006
The European Parliament,
– having regard to the Annual Report 2006 of the European Central Bank (ECB),
– having regard to Article 113 of the Treaty establishing the European Community,
– having regard to Article 15 of the Protocol on the Statute of the European System of Central Banks and of the European Central Bank[1] annexed to the Treaty,
– having regard to its resolution of 2 April 1998 on democratic accountability in the third stage of Economic and Monetary Union[2],
– having regard to its resolution of 14 March 2006 on the strategic review of the International Monetary Fund[3],
– having regard to its resolutions of 6 July 2006 on the interception of bank transfer data from the SWIFT system by the US secret services[4] and of 14 February 2007 on SWIFT, the PNR agreement and the transatlantic dialogue on these issues[5],
– having regard to its resolution of 15 February 2007 on the situation of the European economy: preparatory report on the broad economic policy guidelines for 2007[6],
– having regard to its resolution of 26 April 2007 on public finances in the EMU 2006[7],
– having regard to the Communication from the Commission on Five years of euro banknotes and coins (COM(2006)0862),
– having regard to the Communication from the Commission on the Annual Statement on the Euro area 2007 (COM(2007)0231),
– having regard to the ECB's Financial Stability Review December 2006 and its report on Financial Integration in Europe of March 2007,
– having regard to the Commission's Spring Economic Forecasts of 7 May 2007,
– having regard to Rule 45 of its Rules of Procedure,
– having regard to the report of the Committee on Economic and Monetary Affairs (A6‑0266/2007),
A. whereas the GDP of the euro zone increased by 2,7% in 2006, up from 1,4% in 2005, which leaves no room for complacency, the best performance since 2000, whilst the inflation rate was 2,2%, unchanged compared with 2005,
B. whereas internal demand, notably investment, was the main driving force behind the increase in growth in the euro zone,
C. whereas the increase in energy prices which started in 2005 did not give rise to internal inflationary pressure, since wage increases remained moderate and no second-round effects were observed,
D. whereas the recommendations put forward in Parliament's previous resolutions on the ECB annual report concerning transparency of voting and publication of minutes have not yet been taken into account,
E. whereas Parliament wishes to help strengthen the role and international authority of the ECB and the euro zone on the international stage,
F. whereas there have been many applicants for appointment to senior positions at the IMF, WTO or OECD, quite apart from those at the World Bank,
G. whereas the ECB continued to adjust interest rates in 2006, interest rates having been raised eight times since December 2005, by 200 basis points up to the current 4%,
H. whereas growth is expected to slow down somewhat to 2,6 % in 2007 reflecting the withdrawal of monetary accommodation, with a decline in inflation to 1,9 %,
I. whereas the US current account deficit continued to rise up to 6,5 % of GDP in 2006 and the Eurosystem continued to stress the risks and uncertainties related to the continuation of large global current account imbalances,
J. whereas large global imbalances continue to represent a risk for exchange rate developments and worldwide economic growth and whereas it is imperative that these risks be addressed,
K. whereas in 2006 the exchange rate of the euro appreciated by 11,4 % against the US dollar, 12,4 % against the Japanese yen and 8 % against the Chinese renminbi,
Monetary and economic developments
1. Notes that economic recovery in the euro zone has become a self-sustaining process with domestic demand acting as the main driver ; observes that 2 million jobs were created in 2006 and that unemployment fell from 8,4% to 7,6%; but notes that structural impediments, in particular the paucity of public and private investment in certain key sectors such as research, education and training, continue to contribute to this unacceptably high level of unemployment and participation in the labour market is still low by international standards;
2. Emphasises that, against the background of the recent recovery, any further raising of interest rates should be undertaken with caution in order not to endanger economic growth; points out that in order to support the economic recovery, Member States must implement both the necessary structural reforms and investment activities;
3. Considers that it is still too early to distinguish the cyclical dimension from the structural one in this recovery; considers, however, that some structural reforms, larger than usually estimated, may have already fed through into growth; deems that such recovery should be taken as an incentive to pursue national reforms adapted to each country, notably in the domain of research, innovation and education, in order to increase the potential for growth of the euro zone;
4. Notes the low growth in labour productivity and considers that it is crucial that wages increase in line with developments in productivity in order to preserve competitiveness in Member States and to allow for job creation in a non-inflationary environment;
5. Notes that the ECB assesses wage development as an upside risk to price stability; recalls in this context that the Commission's Annual Report on the Euro Area 2007 (SEC(2007)0550) makes plain that wages in the euro area have continued to grow moderately in spite of a sharp rise in oil prices;
6. Emphasises that the Treaty explicitly distinguishes between the goals of price stability and support for general economic policies and that, therefore, the two goals cannot simply be treated as substitutable;
7. Deems that fiscal consolidation is key and all the more necessary in good times in order to achieve long-term growth and must be carefully designed so as to enhance the quality of public expenditure; considers that the golden rule by which a fiscal deficit can be accounted for by investments only is a significant step in this direction;
8. Observes that some economies in the euro zone have performed much better than others in terms of growth, with, notably, Ireland, Luxembourg, Greece, Finland and Spain achieving a higher average growth rate than the euro zone average; notes that higher average growth has also applied to several European countries outside the euro area; considers that useful lessons could be drawn from such developments and that a specific study by the ECB of the reasons underlying these trends would be useful;
9. Notes that the economic cycles followed by the economies of the Member States in the euro zone are at very different stages; calls on the ECB to examine whether such widely divergent behaviour in a single monetary zone could pose a problem in future in terms of stability and economic growth;
10. Expresses concerns about the ongoing appreciation of the euro against most major foreign currencies; points out in this connection that Article 111 of the Treaty assigns responsibility for exchange rate policy to the Council, but without specifying how this responsibility should be exercised; calls on the Eurogroup, the Council and the ECB to exercise their respective competences in full and to coordinate their actions in the field of exchange rate policy more closely; observes that such appreciation has not been harmful to exports on the euro zone level so far, but that the effects vary among Member States ; underlines the risks associated with large global current account imbalances which could result in additional increases in the euro exchange rate; notes that there is now a broad consensus among policy makers on how to tackle the problem of global imbalances; notes that the efforts made by the international community and international financial institutions have been far from adequate; hopes that the implementation of these measures (the adoption of measures to reduce the budget deficit and promote private savings in the USA and to achieve greater exchange rate flexibility in a number of surplus countries in emerging Asia, in particular China), which is to be monitored by the IMF, will make a significant contribution to the gradual resolution of global imbalances;
11. Observes that throughout the euro zone, real estate prices have experienced stark increases for about 10 years now with few exceptions, most notably in Germany; notes that, although there are some signs that this development is slowing down, credit granted to households for the acquisition of property is still rising by around 10 % per year; observes that there has been a decline in US housing prices and a recent deterioration in the mortgage credit market which could have an impact on the real economy; deems that such a development should be taken as a warning for what could take place in the euro area; calls for the ECB to monitor closely these developments which have the potential to have consequences for the real economy; requests the ECB to present ways forward with their respective advantages such as including real estate in the harmonised index of consumer prices, or devising a specific type of indicator, or to suggest specific measures to be taken at national level due to heterogeneities among national markets;
12. Is concerned that interest rates on loans to households for consumption purposes showed the highest level of dispersion; notes in particular that interest rates on overdrafts vary considerably within the euro zone, from less than 7 % to 13,5 % or more, and recommends further ECB research on the reasons for this;
Governance
13. Notes that the ECB and its Executive Board are independent; stresses the necessity of respecting the constitutional principle set out in Article 112(2)(b) of the Treaty; reiterates its support for the independence of the ECB and for sustaining the aim of maintaining price stability and protecting its anti-inflation credentials;
14. Takes the view that the degree of maturity achieved by all the players in the European Exchange Rate Mechanism should facilitate the emergence of a policy mix to accompany the effective implementation of the requisite structural adjustments on which any increase in the potential for growth in the euro zone depends; advocates a more active macroeconomic dialogue between the Council, the Commission, the ECB, the Parliament and the European social partners and supports the Eurogroup's efforts to bring about such dialogue;
Financial stability and integration
15. Welcomes the publication of a new ECB annual report on financial integration in Europe as a useful contribution for advancing European financial integration;
16. Fully supports the ECB's efforts to foster financial integration in the euro zone, notably by acting as a catalyst for private sector initiatives such as the single European payments area (SEPA) and Short-Term European Paper (STEP); recognises the importance of further financial integration to help protect the European Union from external economic shocks;
17. Considers that ECB services can foster European financial integration and notes in this respect that Target has been instrumental in achieving a high integration of the money markets and the repo market; considers that the Target 2 Securities project might have the potential to foster the integration, the efficiency and the safety of the clearing and settlement infrastructure which currently offers an insufficient degree of integration and interoperability; however, emphasises that this will make the ECB an active market operator, so requiring appropriate scrutiny of the ECB outside its area of responsibility in monetary policy; recalls that the presentation of an appropriate governance is overdue; therefore notes with interest the Target 2 Securities project and will continue to closely monitor developments in this project; deems it essential that an appropriate governance be put in place;
18. Is fully aware of the rapid rise of alternative investment vehicles (hedge funds and private equity), recognises that they provide liquidity and diversification in the market and create an opportunity to improve efficiency of corporate, but shares also the concerns of some central banks and supervisors that they may give rise to systemic risk, and to high levels of exposure of other financial institutions; welcomes the Commission's recent studies on hedge funds and private equity , but regrets that these studies have so far focused only on barriers to growth of such funds; invites the Commission to monitor any potential policy gaps, and asks for a broader and more critical approach with regard to the extent to which hedge funds pose a risk to financial stability and to the risk management of the level of leverage and diversification; urges the Commission to assess the quality of supervision in offshore locations and to step up cooperation with the supervisors in these jurisdictions;
19. Observes that non-bank lenders (private equity) are playing an increasing role in the leveraged sector in the European Union and are prepared in many cases to take on a higher risk than traditional banking institutions; furthermore, notes that non-bank lenders have made a significant contribution to greater employment and growth in the companies in their sector; deems that it could raise problems when the credit cycle next turns and could lead to a much more complex cycle of large corporate debt restructuring; requests the ECB and other bodies involved to assess the adequacy of current debt restructuring processes in this new context;
20. Takes note of the strong position taken by the ECB against detailed plans for a public bail-out of a failing bank within the European Union; deems that more work on improving cooperation and planning of stress tests is required, but that it is right that moral hazard should be minimised by a firm commitment to the primacy of private sector solutions in crisis management in order not to encourage banks to take ill-considered risks;
21. Reiterates its call on the Council and the ECB in the context of data transfers by SWIFT to the US authorities to reflect together on the way to improve the system of supervision of SWIFT, as well as its call on the ECB for action in its role regarding SWIFT as an overseer, a user and a policymaker;
External role of the euro
22. Notes that the euro has undergone a successful phase of development towards a reserve and reference currency in worldwide use; points out that further steps are necessary in order to continue the positive development of cash usage of the euro (e.g. the billing of aerospace products and commodities in euro);
23. Repeats its request for moves to unify representation of the euro zone within international financial institutions so as to defend its interests with a force consistent with its economic weight;
24. Calls on the ECB to closely monitor developments in the use of the euro as a reserve currency for central banks and, in the context of its annual report on the international role of the euro, to quantify and analyse the effects of this, particularly as regards exchange rates;
Democratic scrutiny
25. Considers, regarding the procedure for appointing the members of the Executive Board of the ECB, that ex-ante democratic accountability and transparency would improve if the Council evaluated several potential candidates and if the candidate proposed by the Council were then subject to a vote of approval by the Parliament; stresses its willingness to join the other institutions in exploring possible improvements in the procedure of appointment before the Executive Board next comes up for renewal in 2010;
26. Emphasises that the credibility of the ECB is also dependent on a high degree of transparency in its decision-making process; therefore reiterates its call that, shortly after meetings of the Governing Council of the ECB, summary minutes of these meetings be published containing a clear statement of the arguments in favour and against the decisions taken and whether or not these decisions were taken unanimously;
27. Points out that it rejected as too complex the system of rotating voting rights applicable to decisions of the Governing Council as adopted in 2003; considers, with a view to future enlargements of the euro zone, that a system should be introduced which combines fairness and effectiveness;
28. Invites the ECB to give greater weight in its communication strategy to the hearings of its President by the Parliament committee responsible for economic and monetary affairs;
Five years of euro banknotes and coins
29. Notes that the value of the euro banknotes in circulation has continued to increase quickly, with a rise of 11,2 % in 2006; notes that this steady increase continued to be mainly accounted for by large denomination notes, in particular EUR 500 banknotes, the number of these in circulation having increased by 13,2 %; reiterates its call to the ECB to examine the reasons for this substantial increase and to analyse the type of transactions carried out with these notes and the breakdown in demand by country, with a view to identifying any attendant risks;
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30. Instructs its President to forward this resolution to the Council, the Commission, the President of the Eurogroup and the European Central Bank.
- [1] OJ C 191, 29.7.1992, p. 68.
- [2] OJ C 138, 4.5.1998, p. 177
- [3] OJ C 291 E, 30.11.2006, p. 118.
- [4] Texts Adopted, P6_TA(2006)0317.
- [5] Texts Adopted, P6_TA(2007)0039.
- [6] Texts Adopted, P6_TA(2007)0051.
- [7] Texts Adopted, P6_TA(2007)0168.
EXPLANATORY STATEMENT
In its resolution it adopts on the ECB's annual report, the European Parliament assesses the work of the Central bank. This year I would like to stress the role of the ECB in terms of financial stability and financial integration, and also address in the context of the 5 years of the launch of the Euro the mixed perception of the Euro by European citizens.
1. Comment on the monetary and economic developments which took place in 2006.
First some facts and then some observations.
1.1 Facts
The fact is that the economic situation was much better for the Euro zone in 2006: the GDP of the Euro zone increased by 2.8% in 2006, up from 1.5% in 2005 and the best performance since 2000. Internal demand, notably investment, was the main driving force behind the pick-up. The economic recovery in the Euro zone has become a self sustaining process with domestic demand acting as the main driver. 2 million jobs were created in 2006 and unemployment fell from 8.4 % to 7.5 %, all of which contributes to enhancing consumer confidence.
The inflation rate was 2.2%, unchanged compared with 2005. The increase in energy prices which started in 2005 did not give rise to internal inflationary pressure, since wage increases remained moderate and no second-round effects were observed. But there is no room for complacency.
In this context of recovery the ECB continued to adjust interest rates in 2006, interest rates having been raised seven times since December 2005 by 175 basis points up to the current 3.75 %.
Turning to the future, growth could slow down somewhat in 2007 reflecting notably the withdrawal of monetary accommodation.
1.2 Observations
In this context of recovery, I would like to make following observations:
It is still too early to distinguish the cyclical dimension from the structural one in this recovery. However, it can be considered that some structural reforms may have already fed through into growth. In this context such a recovery should be taken as an incentive to pursue national reforms adapted to each country notably in the domain of research, innovation and education in order to increase the potential for growth of the Euro zone.
It is crucial that wages increase in line with productivity developments in order to preserve competitiveness in member states and to allow for job creation in a non inflationary environment.
Fiscal consolidation is key and all the more necessary in good times in order to achieve long-term growth. Such consolidation must be carefully designed so as to enhance the quality of public expenditures. The golden rule is a significant step in this direction;
"Small" economies have performed better than "large" economies since the creation of the Euro zone in terms of growth with notably Ireland, Finland, and Luxembourg achieving a higher average growth rate than the Euro zone average. Lessons might be drawn from such developments and a specific study by the ECB of the reasons underlying these trends would be useful.
I would like also to underline the risks associated with large global current account imbalances (the US current account deficit continued to rise up to 6.5 % of GDP in 2006) which could result in additional increases in the Euro exchange rate. In 2006 the exchange rate of the Euro appreciated by 11.4 % against the US dollar, 12.4 % against the yen and 8 % against the Chinese renminbi. Such a trend will not be sustainable for the Euro zone and I note the European Commission Annual Report on the Euro Area - 2007 states that there is now a broad consensus among policy makers on how to tackle the problem of global imbalances following multilateral consultation launched by the IMF in April 2006.
I would like to draw the attention to developments in real estate prices. All over the Euro zone real estate prices have experienced stark increases for about 10 years now with few exceptions, most notably in Germany. There are some signs that this development is slowing down, but credit granted to households for housing purchases is still rising by around 10 % per year. There has been a recent decline in the US housing prices and a deterioration in the mortgage credit market which could have an impact on the real economy. I suggest that such a development should be taken as a warning for what could take place in the Euro zone. Therefore the ECB should monitor closely these developments which have the potential to have consequences for the real economy. It would be useful for the ECB to present ways forward with their respective advantages such as: including real estate in the Harmonised Index of Consumer Prices or devise a specific type of indicator or to suggest specific measures to be taken at national levels due to heterogeneities among national markets.
I would also like to draw attention to the fact that interest rates on loans to households for consumption purposes show the highest level of dispersion. In particular, interest rates on overdrafts vary considerably within the Euro area from less that 7% to 13.5% or more and should be the subject of further ECB research and report.
2. Turning to the financial stability and integration
I welcome the publication of a new ECB annual report on Financial integration in Europe.
Financial integration and financial stability is a major issue taking into account the significant changes in the financial sector currently occurring with an incredible speed, in terms of means of financing for corporates, financial innovation, new types of financial actors and cross border mergers of financial actors.
We should first fully support the ECB efforts to foster Euro zone financial integration notably by acting as a catalyst for private sector initiatives such as SEPA and STEP.
Central bank services can also foster European financial integration. In this respect TARGET has been instrumental in achieving a high integration of the money markets and the repo market. The Target 2 Securities project has the potential to foster the integration, the efficiency and the safety of the clearing and settlement infrastructure which currently offers an insufficient degree of integration and interoperability. Therefore we should support the Target 2 Securities project provided that an appropriate governance is set up, and we should continue to closely monitor developments in this project.
Regarding new actors in the financial sector, the issue of hedge funds needs to be adressed. It is generally agreed that hedge funds have positive impacts on financial stability notably by delivering liquidity and fostering dispersion of risks. But it is also generally agreed that combined with the increased use of complex financial instruments they also have the potential for making the financial system more vulnerable to unexpected shocks. Therefore, due to the global dimension of financial markets, I feel we should support strong international cooperation to foster transparency through higher disclosure and exchange of information among financial supervisors and central banks. We should also support increased indirect supervision by which supervisors are ensured that banks assess and monitor carefully their exposures to their hedge funds counterparts.
We can also observe that new non-bank lenders (private equity) are playing an increasing role in the leveraged sector in the EU. Without entering into the debate of pros and cons, I suggest that it could raise problems when the credit cycle next turns and could lead to a much more complex cycle of large corporate debt restructuring. Therefore we should request the ECB and other bodies involved to assess the adequacy of current debt restructuring processes in this new context.
I also take note of the strong position taken by the ECB against detailed plans for a public bail-out of a failing bank within the European Union. I think that such a view has to be supported. More work on improving cooperation and planning of stress test is required but that it is right that moral hazard should be minimised by a firm commitment to the primacy of private sector solutions in crisis management in order not to encourage banks to take il- considered risks.
I want also to mention in this report the issue of the transfer of data by SWIFT to the US authorities. I would like to reiterate the European Parliament call on the Council and the ECB to reflect together on the way to improve the system of supervision of SWIFT. I would like also to reiterate the call on the ECB for action in its role regarding SWIFT as an overseer, a user and a policymaker.
3. Democratic scrutiny
Regarding democratic scrutiny, I would like to reiterate one important point raised in last year's resolution regarding the procedure for appointing the members of the Executive Board. Actually ex-ante democratic accountability and transparency would improve if the Council evaluated several potential candidates and if the candidate proposed by the Council were then subject to a vote of approval by the Parliament. Improvements in the procedure of appointment have to be explored before the Executive Board next comes up for renewal in 2010.
4. Five years of Euro banknotes and coins
At the end of 2006, the number of banknotes in circulation stood at 11.3 billion with a value of Euro 628.2 billion. The dynamic growth of the number of 50 euro, 100 euro, and 500 euro banknotes combined, with rates of 12.5 %, 9.6 % and 13.2 % respectively raises questions about the need for and use of such large denominations, including the possibility of criminal activities, and requires further examination by the ECB.
Turning to the fact that Euro banknotes and coins were introduced five years ago, I observe that according to the Eurobarometer survey, the number of European citizens who consider the adoption of the Euro as advantageous for their country have kept declining since the launch of the Euro in 2002 from 59 % to 48 %. In some countries (in Italy, the Netherlands and Greece) a majority of the citizens express a negative opinion.
There may be many reasons for this trend notably the perception by a large majority of citizens that prices have increased due to the Euro. I also consider that the first generation of banknotes, devoid of all representation of real living beings, landscapes or monuments, may have helped to convey a cold image of monetary integration and perhaps contributed to Europeans distancing themselves from the Euro. Therefore it would be useful for the ECB to present its ideas on the second generation of banknotes to the Parliament in order that we can consider together the reasons for the change in public opinion.
PROCEDURE
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Title |
ECB annual report for 2006 |
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Procedure number |
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Committee responsible |
ECON |
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Rapporteur(s) |
Gay Mitchell 13.3.2007 |
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Previous rapporteur(s) |
Pervenche Berès |
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Discussed in committee |
24.4.2007 |
8.5.2007 |
21.5.2007 |
26.6.2007 |
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Date adopted |
26.6.2007 |
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Result of final vote |
+ - 0 |
41 0 0 |
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Members present for the final vote |
Mariela Velichkova Baeva, Zsolt László Becsey, Pervenche Berès, Sharon Bowles, Ieke van den Burg, David Casa, Christian Ehler, Jill Evans, Elisa Ferreira, Jean-Paul Gauzès, Donata Gottardi, Benoît Hamon, Gunnar Hökmark, Sophia in 't Veld, Othmar Karas, Christoph Konrad, Guntars Krasts, Kurt Joachim Lauk, Andrea Losco, Astrid Lulling, Cristobal Montoro Romero, Joseph Muscat, Lapo Pistelli, John Purvis, Alexander Radwan, Bernhard Rapkay, Eoin Ryan, Heide Rühle, Antolín Sánchez Presedo, Olle Schmidt, Cristian Stănescu, Margarita Starkevičiūtė |
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Substitute(s) present for the final vote |
Katerina Batzeli, Harald Ettl, Werner Langen, Maria Petre, Gianni Pittella, Gilles Savary, Kristian Vigenin, Corien Wortmann-Kool |
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Substitute(s) under Rule 178(2) present for the final vote |
Slavi Binev |
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Date tabled |
29.06.2007 |
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Comments |
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