REPORT on the ECB annual report for 2007
9.6.2008 - (2008/2107(INI))
Committee on Economic and Monetary Affairs
Rapporteur: Olle Schmidt
MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION
on the ECB annual report for 2007
The European Parliament,
– having regard to the Annual Report 2007 of the European Central Bank (ECB),
– having regard to Article 113 of the EC Treaty,
– having regard to Article 15 on the Protocol of 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 phase of EMU[2],
– having regard to its resolution of 20 February 2008 on the Integrated Guidelines for Growth and Jobs (Part: broad guidelines for the economic policies of the Member States and the Community): Launching the new cycle (2008–2010)[3],
– having regard to the Commission Communication on EMU@10: successes and challenges after 10 years of Economic and Monetary Union (COM(2008)0238),
– having regard to the ECB's Financial Stability Review in December 2007 and its report on Financial Integration in Europe of April 2008,
– having regard to the Commission's spring economic forecast 2008-2009,
– having regard to Rule 45 of its Rules of Procedure,
– having regard to the report of the Committee on Economic and Monetary Affairs (A6-0241/2008),
A. whereas in 2007 the GDP of the euro area grew by 2,6 % (in contrast with 2,7 % in 2006) despite heightened uncertainty stemming from the financial turmoil in the second half of the year,
B. whereas the inflation rate was 2,1 % compared to 2,2 % in 2006, despite an economic environment characterised by significant upward price pressures,
C. whereas the ECB continued to adjust interest rates in 2007, to 4,0 % in June from 3,5 % in December 2006, and maintained that level during the second semester,
D. whereas statements made by the International Monetary Fund and the Organisation for Economic Co-operation and Development call for a very cautious approach to the raising of interest rates in the euro area,
E. whereas in 2007 the exchange rate of the euro appreciated by 6,3 % in nominal effective terms, and that appreciation was particularly pronounced in relation to the US dollar (11,8 %),
F. whereas financial turmoil and large global imbalances represent a risk for worldwide economic growth and exchange rate developments,
G. whereas it is expected that inflation will rise to between 2,0 % and 3,0 % in 2008 in the euro area, largely reflecting the current trend of increased commodity prices, before falling to a more moderate range of between 1,2 % and 2,4 % in 2009,
H. Whereas the main objective of the ECB and of the European System of Central Banks (ESCB) is to maintain price stability while supporting the general economic policies of the Community, as defined in Article 105 of the EC Treaty; acknowledging the full independence of the ECB and the ESCB in this context.
I. whereas the ECB has the dilemma of having to meet the challenges of rising inflation and the first signs of an economic slowdown due to the financial turmoil of recent months,
J. whereas Parliament wishes to help strengthen the role and international authority of the ECB and the euro area on the international stage,
ECB today
1. Welcomes the fact that ten years after the launch of economic and monetary union (EMU), both the ECB and the euro are well-respected and generally accepted within the global economy and notes that the euro has become a currency of global standing that almost equals that of the US dollar;
2. Recalls that the EC Treaty explicitly distinguishes between the ECB’s goals of price stability on the one hand and support for general economic policies on the other, and that, therefore, those two goals cannot simply be treated as substitutable; acknowledges the full independence of the ECB in its fulfilment of this double mandate, and welcomes the fact that by means of the Treaty of Lisbon, the ECB will become an EU institution with legal personality and a clearly established independent political and financial status; believes that recognition of the ECB as a European institution increases the responsibility of Parliament, and, in particular, its committee with responsibility for economic and monetary affairs, as an institution to which the ECB is accountable for its decisions on monetary policy;
3. Welcomes Cyprus and Malta to the EMU and takes note of their successful entry;
Financial stability
4. Recognises the excellent work of the ECB in managing the financial turmoil triggered by the US sub-prime mortgage crisis, in particular the operation launched on 9 August 2007, which provided liquidity in the amount of EUR 95 billion to the markets as a fixed-rate tender at 4,00 %, following the same procedure as normal ECB market operations; notes that the operation, together with fine-tuning operations and the abundant weekly refinancing operations that followed, succeeded in stabilising the very short-term interest rates; considers this, once again, to show the value of a common monetary policy as provided for by the ECB, stabilising the economy in periods of instability;
5. Shares the views of the ECB that the growing complexity of financial instruments and the opacity of exposures of financial institutions can give rise to increased uncertainty regarding the degree of risk involved, the ultimate bearer of the risk, and the extent of potential losses;
6. Emphasises the need to set up an EU framework for financial supervision, stresses that although the EC Treaty does not entrust the ECB with any direct responsibility related to the prudential supervision of credit institutions and the stability of the financial system, there is a need closely to involve the ECB in supervision;
7. Believes that the ECB has been strengthened by its successful handling of the current financial crisis; welcomes the ECB’s enhanced credibility and international recognition; calls on the Eurogroup to follow the ECB's example and to enhance its expertise and coordination in matters relating to the regulation and supervision of financial markets;
8. Highlights the increased need for cooperation between central banks and supervisory authorities, in order to uphold stability in the financial markets, in particular taking into account the increasingly integrated financial systems; asks the ECB to continue to push for improved integration and communication on an intra-EU level as well as in its relationship with other central banks and relevant institutions, in particular as regards the relationship with the Bank of England, since London is the most important financial centre within the European Union; calls on the ECB to play an active role in the various forums discussing changes in supervision, such as the Lamafalussy follow-up;
9. Recognises that major central banks such as the ECB and the US Federal Reserve warned against underestimating the risks to the economy prior to the IT-bubble in 2000 and the sub-prime crisis in 2007; notes that the financial markets failed effectively to respond to those warnings; asks the ECB, therefore, to analyse that response and suggest how to improve the correlation between such forward-looking warnings and market reactions; calls on the ECB, in the light of recent financial turmoil, to analyse and evaluate the aftermath of the financial crisis and examine whether it has sufficient instruments for handling a cross-border European financial crisis, and which powers it needs in order to improve macro-prudential supervision in the euro area;
Economic and monetary development
10. Notes the ongoing discussion on how to define price stability, in regard to which some argue in favour of a direct inflationary targeting; believes, however, that a two-pillar system based on M3 is the most suitable way of measuring price stability; calls on the ECB to take measures for a continuous improvement of that system; recognises the added value of the additional information and early warning of inflationary risk and the operational discretion that such a system provides;
11. Highlights that the risks of asymmetric economic developments within the euro area could increase with enlarged membership as the differences in size and maturity of members' economies grow; calls on the ECB to pay particular attention to this situation and tackle those risks at an early stage as well as communicate them to the Member States;
12. Calls upon all Member States participating in the euro area, the Member States that have opted out, as well as the applicant Member States to take note of those challenges and therefore fully respect the criteria of the Stability and the Growth Pact and fulfil the Maastricht criteria, as appropriate, as this, together with fiscal consolidation and wage policy in line with developments as regards growth and productivity, provides the strongest protection against challenges presented by asymmetric developments;
13. Emphasises that against the background of the recent correction of growth expectation, 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;
14. Expects the Council to treat all euro area applicant Member States equally and fully respect the assessment and recommendations of the ECB concerning their readiness for joining the euro area;
15. Takes note of the appreciation of the euro especially with respect to the US dollar; underlines the goal of price stability, but recognises that strong and rapid changes in the euro exchange rate should not impede the ECB's ability to manage its monetary policy, confronted by a source of inflation, or, alternatively, difficult growth perspectives for the export-dependent countries; asks the ECB to monitor this development and to take action if deemed necessary and invites the Eurogroup, the Commission and the ECB to step up coordination of their action in the sphere of exchange rate policy;
16. Recognises the increasing upward pressure on inflation to which food and energy prices contribute in particular; calls on the ECB to strengthen its dialogue with national central banks on the issue to promote a strong focus on price stability globally;
Governance and effective decision-making
17. Recalls the ongoing call for more transparency in the ECB which would result in increased credibility and predictability and appreciates the improvements in this area that have already been implemented; recognises, in this respect, the difficulties in making the minutes of the ECB Governing Council's meetings available to the public, as differences in individual positions could be interpreted as representing national interests, leading to pressure from Member State governments on Governing Council members; asks the ECB to provide Parliament and the public with an annual summary of measures taken to improve its performance in line with this resolution;
18. Considers that the monetary policy dialogue between Parliament and the ECB has been a success, and one which should be built on further; emphasises that the ex-post accountability of the ECB is of primordial importance for confidence, and hence stability, on the financial markets; considers that it is important for the unity of the ECB's Executive Board and Governing Council to continue to be confident in their public presentation; supports a targeted information policy on the part of the ECB towards Parliament, the Council, the Commission and the Eurogroup; is disappointed by the low level of commitment that the ECB has demonstrated in its response to Parliament’s resolution of 12 July 2007 on the ECB annual report for 2006[4]; strongly stresses that the call for improvements to the ECB's communication policy must be seen only in the context of the simultaneous preservation of the independence of the ECB and its bodies;
19. Calls upon the ECB, in its statements following decisions taken by its Governing Council, to elaborate clearly about whether, in the course of discussions, a consensus was reached easily or if divergent views persisted, since this would provide markets with more information without hampering the common European perspective for the decision of the ECB's Governing Council;
20. Calls on the ECB to present its ideas for reforming the structure of the Governing Council, as the number of governors is expected to exceed 15 from 1 January 2009; notes that with the increasing number of euro area countries reforms will become even more necessary; supports the ECB's earlier suggestion that the economic weight of participating Member States should be treated as the most significant factor for the rotating voting rights, and that the number of decision makers should be kept low in order to ensure efficiency;
21. Considers that the independence of the ECB, including the procedure for appointing the members of its Executive Board, has proved its worth; stresses that Article 112(2)(b) of the EC Treaty provides for the members of the Executive Board to be appointed from among persons of recognised standing and professional experience in monetary or banking matters, and emphasises that their nationality should be irrelevant and that they will continue to be judged by the strict criteria set out in the EC Treaty, such as that of their qualifications; considers 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 Parliament;
22. Believes that given the ECB’s future status of institution under the Treaty of Lisbon, Parliament’s role in appointing members of the Executive Board should be enhanced; stresses its willingness, together with the other institutions, to explore possible improvements of the procedure before the next renewal of the Executive Board in 2010;
23. Recognises the increasing role of the Eurogroup and its President for setting a major part of the economic agenda within the European Union, in particular the more formal structure and central role in coordinating the economic policy within the Eurogroup, as set out in Article 136 of the EC Treaty, as amended by the Treaty of Lisbon, also for Member States not participating in the euro area; supports a strengthening of the development of the euro area speaking with one voice in international forums as provided for in Article 138 of EC Treaty, as amended by the Treaty of Lisbon, and by the President of the Eurogroup;
24. Welcomes the cooperation between the ECB, the Commission and the financial services industry in the successful launch of the Single Euro Payment Area (SEPA) and the Short-Term European Paper (STEP) initiatives; considers these to be positive contributions from the financial services industry for driving forward financial integration in the European Union;
25. Welcomes the start of Target 2 operations and the finalised migration activities to the single shared platform; considers that it is an important step in the direction of financial integration and reduction of clearing and settlement costs; believes that it is urgent that the ECB now comes up with a governance structure for T2S;
External dimension of the euro
26. Notes a steady rise in the status of the euro as an international currency; points out that the European Union's representation concerning economic and monetary affairs in international forums poorly reflects the true economic weight of the euro area and that this may be seen as an obstacle for an increased influence in international financial affairs; calls, therefore, for concrete steps to be taken towards a unified euro area representation within international financial institutions such as the IMF;
27. Encourages the ECB to continue moving towards strengthening its process of coordination in international financial contexts; believes that an internationally stronger status for the euro will lead to benefits for the euro area which will encourage Member States currently not participating, to seek full membership;
o o
o
28. Instructs its President to forward this resolution to the Council, the Commission, 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] Text adopted, P6_TA(2008)0058.
- [4] Texts adopted, P6-TA(2007)0349.
EXPLANATORY STATEMENT
In its report concerning the ECB's annual report, the European Parliament evaluates the work of the European Central Bank in 2007. This year the report focuses on the challenges ahead for the ECB, especially in the wake of the financial turmoil that has followed the US sub-prime mortgage crises, but also on governance issues such as effective decision-making and transparency.
1. The ECB today
The European Central Bank is the only truly common body within the European Union that deals with financial stability and monetary policy. Ten years after launching the EMU the role of the euro area and its common currency has proven to be a great success. Still, even after this promising decade some politicians in Europe, even Heads of State, continue to question the independence of the ECB. As the rapporteur I support the independence of the ECB, as it is fundamental for securing a stable monetary policy, and I wholeheartedly welcome that this independence is clearly acknowledged and strengthened in the Lisbon treaty.
The Commission estimates that the benefits of the introduction of the euro include:
Inflation around 2% on average over the last 10 years.
The creation of almost 16 million jobs since 1999.
Lower long-term interest rates fell to less than 4%, half the level of the 1990s.
There is no longer a need for exchanging currencies which facilitates travel and shopping throughout the euro area.
Stable exchange rates, which have boosted trade among euro area countries.
These above mentioned effects are tangible changes for all citizens within the euro area. But the changes have not only been felt by its members; with the increasing role of the euro and the common currency area the costs for staying outside rise. Even though the candidate countries, such as my own country Sweden and the opt-outs Denmark and the United Kingdom are not yet members of the euro area, the establishment of the President of the Euro Group and the increasing need for cooperation in these matters makes this informal group much more important. The Lisbon treaty article 136 clearly states the role of the Euro Group and emphasises its importance in coordinating the economic policy. I strongly support this, and recognise at the same time that this raises the stakes of not being able to take part in these deliberations. The cost of staying outside the most fundamental part of the deeper integration within Europe remains substantial not only in economical, but also in political terms. My own country Sweden has stated the goal to enter the core of European integration. A full membership in the economic cooperation would therefore, from my point of view be most welcome, if not even inevitable.
2. 2007 a year of many challenges
2007 has proven to be an interesting and difficult year for the ECB, presenting a strong growth in the first half of the year followed by the financial turmoil from August and onwards. The inflation has risen steadily and is now around 3 per cent, considerable higher than the target of inflation around 2 per cent on the medium term. The dollar, but also other currencies, have weakened considerable against the euro which has restarted the exchange rate discussions.
The enlargement of the euro area gives the monetary area more weight, but at the same time presents more challenges as the decision-making becomes more cumbersome and the differences in economic development between the members grow. Thus, this involves a number of challenges for the ECB, to which this report gives its views upon, also suggesting how the ECB might improve their actions.
3. Financial Stability
The sub-prime mortgage crises has proven that financial stability is a global matter since a crisis no longer is contained to one country or one region. The August 9 operation of the ECB provided the market with liquidity in the amount of EUR 95 billion to the markets as a fixed rate tender. This operation by the ECB followed the same procedure as normal ECB market operations. Together with fine-tuning operations and the following abundant weekly refinancing operation, it succeeded in stabilising the very short-term interest rates. The coordinated efforts with the FED and Bank of England have to a large extent helped keeping the financial system afloat, but have not solved the crises. It has also shown the need for better cooperation between central banks and other institutions. The fact that the ECB as well as the FED both warned for underpricing risk ahead of the sub-prime mortgage crisis, without a sufficient response from the markets gives rise to questions on how to facilitate better responses.
The ongoing discussions in different fora are important for taking balanced measures in how to connect central banks and supervision on a more global level. As the turmoil still evolves it is important to make a thorough analysis together with the industry before taking any major new actions. Within the European Union the Lamfalussy follow-up should be one of the pillars for updating a European supervisory structure.
4. Enlargement and governance
The European Central Bank derives its acceptance among the public by the fact that it upholds goals, such as price stability and economic growth, considered necessary by the public and that measures taken to uphold these goals are explained sufficiently by the ECB. This gives rise to forces in very different directions; effective decision-making versus openness and inclusiveness. These different tendencies may strengthen as the number of EU member states fulfilling the criteria for euro area membership increases. The effect will be an enlarged area including more of the unions' citizens, but also a broader spectrum in economic development, growth rate and maturity of the economies. Within the ECB challenges of effective decision-making will have to be balanced with the need for inclusion. In order for the ECB to cope with these upcoming challenges it should initiate a review of the possible options for changes in its decision-making and at an early stage involve relevant institutions in these deliberations.
Following the previous debates on how to reform the Governing Council and how to achieve effective discussions, deliberation and decision-making, today's system seems unviable as it would widen the wedge between the economic and political weight of euro area member countries within the ECB. A pragmatic option would to put more power into the hands of the Executive Committee, but as the one-person-one-vote is an established function and an important part of the democratic aspect, such a system is not politically acceptable. This leaves four options: vote-weighting, representation, regional central banks or rotation. I consider rotation of the membership of the Governing Council based on economic weight to be the best option as it combines effectiveness with democratic legitimacy. Giving up the principle of equality of member states is a problem, but I believe this must be done in order to ensure the necessary decision-making capability; the best way to ensure that national interests will not unduly influence ECB policy making is to bring political power and economic weight of national central bank governors as closely into line as possible. Therefore, the main trust of the proposal should focus on economic weight as the determinating factor for selecting how regularly one can sit in the Governing Council.
5. Transparency
As the rapporteur I consider openness and transparency to be of outmost importance, and I believe that providing the public with information will strengthen the legitimacy and predictability of the ECB. I however recognise the difficulties in making the minutes of the Governing Council public, since different individual positions may be interpreted as national interests. If views were presented with names this would also increase risks for governments pressuring their "own" national central bank governor. This could lead to an obstruction of the aims of the European Central Bank´s actions, which in the long run may weaken its status and legitimacy among the public. Taking these difficulties into account, the need for more and better information still persists. I therefore call on the ECB´s Governing Council to always present the discussions leading up to a decision and especially elaborate on whether the consensus was reached easily or if divergent views persisted. This would give the public as well as the financial markets more information on how the discussions between the members of the Governing Council were taking place, without mentioning names or countries.
6. The international role of the Euro
Since its introduction the euro has firmly established itself as a major international currency, second only to the US dollar. Euro-denominated international debt securities surpassed those of the US dollar in 2004, while the percentage of bank loans issued by euro-area banks to non-euro-area borrowers which are denominated in euro stand at 36% as compared to 45% in US dollars. The euro is also the second most actively traded currency in foreign exchange markets worldwide, and is used in more than a third of all foreign exchange transactions.
In my view this proves the value of monetary cooperation, and that the euro is a major asset for all EMU members. However, the euro has a clear disadvantage compared to the dollar since it is a less unitary actor than the dollar in international fora, which leads to an absence of a strong voice in these contexts. Therefore, I call on the ECB to take measures towards a European representation in international financial institutions that reflects the true economic weight of the euro area; a unified euro area representation in these matters would increase the position of the euro in international financial institutions and thereby strengthen the currency's status. Furthermore, this will lead to significant profits for the EMU members which will spur the enlargement of the euro area, since the countries outside the euro area will clearly see the benefits of a membership in the EMU.
RESULT OF FINAL VOTE IN COMMITTEE
|
Date adopted |
3.6.2008 |
|
|
|
||
|
Result of final vote |
+: –: 0: |
40 1 1 |
||||
|
Members present for the final vote |
Mariela Velichkova Baeva, Zsolt László Becsey, Pervenche Berès, Sharon Bowles, Udo Bullmann, David Casa, Manuel António dos Santos, Elisa Ferreira, José Manuel García-Margallo y Marfil, Donata Gottardi, Dariusz Maciej Grabowski, Benoît Hamon, Karsten Friedrich Hoppenstedt, Sophia in ‘t Veld, Othmar Karas, Piia-Noora Kauppi, Wolf Klinz, Christoph Konrad, Guntars Krasts, Kurt Joachim Lauk, Andrea Losco, Astrid Lulling, Florencio Luque Aguilar, Hans-Peter Martin, John Purvis, Alexander Radwan, Bernhard Rapkay, Dariusz Rosati, Eoin Ryan, Antolín Sánchez Presedo, Olle Schmidt, Peter Skinner, Margarita Starkevičiūtė, Ivo Strejček, Ieke van den Burg |
|||||
|
Substitute(s) present for the final vote |
Mia De Vits, Ján Hudacký, Janusz Lewandowski, Vladimír Maňka, Theodor Dumitru Stolojan |
|||||
|
Substitute(s) under Rule 178(2) present for the final vote |
Milan Gaľa, Tobias Pflüger |
|||||