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RECOMMENDATION     
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11 May 1998
PE 226.970/fin. A4-0186/98
on the appointment of Mr Otmar Issing as member of the Executive Board of the European Central Bank (7993/98 - C4-0260/98)
Committee on Economic and Monetary Affairs and Industrial Policy
Rapporteur: Mrs Christa Randzio-Plath
By letter of 2 May 1998 the President of the Council forwarded to Parliament the Council's Recommendation concerning the appointment of members of the Executive Board of the European Central Bank (7993/98 - C4-0260/98).
 A MOTION FOR A RESOLUTION
 B EXPLANATORY STATEMENT
 Annex 1
 Annex 2
 Annex 3

 By letter of 2 May 1998 the President of the Council forwarded to Parliament the Council's Recommendation concerning the appointment of members of the Executive Board of the European Central Bank (7993/98 - C4-0260/98).

At the sitting of 11 May 1998 the President of Parliament announced that he had referred the Recommendation to the Committee on Economic and Monetary Affairs and Industrial Policy as the committee responsible.

The committee had decided to draw up a recommendation and appointed Mrs Christa Randzio-Plath rapporteur at its meeting of 14 April 1998.

It considered the draft recommendation at its meeting of 11 May 1998.

At the last meeting it adopted the motion for a resolution by 56 votes to 0, with 3 abstentions.

The following were present during the vote : von Wogau; chairman; Katiforis, Garosci and Secchi; vice-chairman; Randzio-Plath; rapporteur; Anttila, Argyros (for de Brémond d'Ars), Berès, BoogerdQuaak (for Watson), Carlsson, Castagnède, Caudron, Christodoulou, Cox, Donnelly, Ettl (for Billingham), Fourçans, Friedrich, Gallagher, García Arias, García-Margallo y Marfil, Garriga Polledo, Gasoliba i Böhm, Giansily (for Arroni), Harrison, Hautala, Hendrick, Herman, Hoppenstedt, Ilaskivi, Imbeni, Kestelijn-Sierens, Konrad, Kuckelkorn, Langen, Larive, Lindqvist (for RiisJørgensen), Lulling, Malerba (for Mezzaroma), E. Mann (for Glante), Th. Mann (for Mather), Marques, Medina Ortega, Metten, Murphy, Paasilinna, Peijs, Pérez Royo, Pomés Ruiz, Rapkay, Read, Rübig, Sainjon, Scarbonchi, Schöder, Secchi, Siso Cruellas (for Areitio Toledo), Skinner (for Miller), Soltwedel-Schäfer, Svensson, Tappin (for Fayot), Theonas (for Ribeiro), Thyssen, Torres Marques, Trizza, Wibe and Wolf.

The recommendation was tabled on 11 May 1998.


 A MOTION FOR A RESOLUTION

Resolution embodying Parliament's opinion on the appointment of members of the Executive Board of the European Central Bank (7993/98 - C4-0260/98)

The European Parliament,

- having regard to the Council's recommendation of {2-5-1998}2 May 1998 ((7993/98 - C40260/98),

- having regard to Article 109a of the EC Treaty,

- having regard to Article 50 of the Protocol on the Statute of the ESCB and of the ECB,

- having regard to Rule 36 of its Rules of Procedure,

- having regard to the recommendation of the Committee on Economic and Monetary Affairs and Industrial Policy (A4-0186/98),

A. whereas at its meeting of {7-5-1998}7 May 1998 the Committee on Economic and Monetary Affairs and Industrial Policy heard Mr Otmar Issing, the Council's nominee for the office of member of the Executive Board of the European Central Bank, for a term of office of 8 years, and at its meeting of {11-5-1998}11 May 1998 considered the nominee's qualifications in the light of the criteria laid down by Article 109a of the EC Treaty,

1. Confirms the appointment of Mr Otmar Issing as an appropriate candidate for the office of member of the Executive Board of the European Central Bank for an 8 year term;

2. Instructs its President to forward this opinion to the President of the Council, for forwarding to the governments of the Member States.


 B EXPLANATORY STATEMENT

Introduction

1. By letter of 2 May 1998, the Council consulted the European Parliament on the nomination of Mr Otmar Issing to be a member of the Executive Board of the European Central Bank for a term of office of 8 years(1). The Parliament's responsible Committee on Economic Affairs then proceeded to evaluate the credentials of the nominee, in particular in view of the requirements laid down in Article 109a of the Treaty and in the light of the need for full independence of the ECB pursuant to Article 107. In carrying out this evaluation, the Committee received a CV from the candidate (see annex 1) as well as his replies to the written questionnaire that was sent out to him. (see annex 2). The Committee subsequently held a one and a half hour hearing with the nominee on 7 May 1998, at which he made an opening statement (see annex 3) and then responded to questions from members of the Committee. (The full transcript of the hearing is available both in paper form ... and on the Internet under the heading " the European Parliament and the Euro".)

Evaluation

2. The rapporteur considers that the nominee's record demonstrates that he is extremely well qualified in terms of the main requirements laid down in the Treaty, namely personal integrity and recognized standing and professional experience in monetary and banking matters. All this was amply confirmed by the nominee's replies at the committee hearing on 7 May.

3. As regards the issues of openness and of democratic accountability of the ECB the rapporteur welcomes the fact that the nominee made it very clear at his hearing that he would welcome a regular monetary dialogue with the European Parliament. The rapporteur believes, however, that these issues will have to be further explored in the context of the future dialogue with the ECB.

(1)() All subsequent appointments to the ECB will be for 8 year terms but the length of the initial appointments varies from candidate to candidate, pursuant to Article 50 of the Protocol on the Statute of the ESCB and of the ECB.


 Annex 1

Professor Dr Otmar Issing

Member of the Board of the Deutsche Bundesbank (since 1 October 1990)

Curriculum vitae

1936 Born in Würzburg, son of Hans and Josefine Issing, née Käfer

1954 School-leaving certificate (Abitur) at the Humanistisches Gymnasium in Würzburg

1954/55 Studied classical philology

1955 to 1960 Studied economics at the University of Würzburg; temporary studies in London and Paris

1960 University degree in economics

1960 to 1966 Research assistant at the Institute of Economics and Social Sciences of the University of Würzburg

1961 Doctorate at the Law and Political Sciences Faculty of the University of Würzburg. Doctoral dissertation on 'Probleme der Konjunkturpolitik bei festen Devisenbursen and freier Konvertibilität der Währungen, Dargestellt am Besipiel der EWG', (Problems of business cycle policy, given fixed exchange rates and free convertibility of currencies, using the EEC as an example.)

1965 Habilitation at the above Faculty. Thesis on 'Leitwährung and internationale Währungsordnung' (Key currencies and the international monetary system); venia legendi for economic theory and economic policy

1965/66 Lecturer at the University of Würzburg

1965/66 (Additional) temporary professorship at the University of Marburg

1966/67 Temporary professorship at the Faculty of Economics and Social Sciences of the University of Erlangen-Nuremberg

1967 to 1973 Full professorship and directorship of the Institute for International Economic Relations in the Faculty of Economics and Social Sciences of the University of Erlangen-Nuremberg; 1973 to 1975 temporary holder of this chair.

1973(to 1990) Full professorship of economics at the University of Würzburg, Chair of Economics, Monetary Affairs and International Economic Relations

1983 Call to take the Chair of International Economics at the University of Constance

1969/70 Dean of the Nuremberg Faculty

1975/77 Member of the Law and Economics Appointments

Committee of the newly founded University of Bayreuth

198⅝7 Dean of the Würzburg Faculty

1984 to 1988 Member of the Senate of the University of Würzburg

1975 to 1979 Chairman of the Economic Policy Committee of the Association for Economic and Social Sciences (Verein für Socialpolitik)

1979/80 chairman of the Academic Preparations Committee for the 1980 Annual Meeting of the Verein für Socialpolitik

1981 Visiting Scholar - The University of Michigan, Ann Arbor, USA (February to March)

1983 to 1985 Member of the joint working group of the Council of the German Protestant Church and the German Episcopal Conference for the elaboration of a joint statement on 'How can we nurture Creation responsibly?'

1983 to 1987 Specialist advisor to the Deutsche Forschungsgemeinschaft (German Research Association) in the area of economic policy

1984 Academic Director of the Second Colloquium of the Confederation of European Economic Associations on the subject of 'disinflation'

1985 Visiting Scholar - International Monetary Fund, Washington DC (September to October)

1980- Member of the Economic Advisory Council at the Federal Ministry of Economics; Deputy Chairman in 198⅞8 (currently dormant)

1987 to 1990 Member of the 'Kronberger Kreis'

1988 to 1990 Member of the German Council of Economic Experts

1990- Member of the Board of the Deutsche Bundesbank

1991- Full member of the Akademie der Wissenschaften und der Literatur (Academy of Sciences and Literature) (1989 to 1991 corresponding member)

1991- Honorary professorship at the University of Würzburg

1992 to 1996 Member of the CEPR Executive Committee

1992- Member of the CEPS International Advisory Council

1992- Member of the Board of the Ludwig Börne Foundation

1993- Member of the Inner Board of the Verein für Socialpolitik (Treasurer)

1993- Member of the Supervisory Board of the Institute for Bank-Historical Research

1993- Member of the Foundation Board of the International Centre for Monetary and Banking Studies, Geneva

1994- Member of the Academic Advisory Council at the Institute for the World Economy at the University of Kiel

1996 Honorary doctorate of the Faculty of Law and Economic Sciences of the University of Bayreuth

1997- Founding member of the Advisory Board of International Finance

Membership of academic associations:

- Verein für Socialpolitik (Association for Economic and Social Sciences)- American Economic Association

- List Gesellschaft (List Society)

- Arbeitskreis Europäische Integration (Working Party on European Integration).

Co-founder (1972) and co-editor of the journal WiSt (Wirtschaftswissenschaftliches Studium, Zeitschrift für Ausbildung and Hochschulkontakt - Economic Studies, Journal for Education and University Contacts).

Married since 1960, two children.


 Annex 2

REPLY BY MR ISSING

A. Personal and professional background

1. Please highlight the three most important aspects of your professional experience in monetary, financial and business matters.

First of all, I should like to point to my academic work in this field. Since my graduation in 1960, in addition to general economic problems my interest has focused on issues of monetary theory and the financial markets. My list of publications gives full details of these studies.

Secondly, I should like to point to the many contacts in both the political and economic worlds which I have cultivated during my academic career. This has been reflected in a wide variety of speeches to relevant bodies, discussions and advisory work. As a member of the Advisory Board of the Federal Ministry for Economics (as from 1980, membership in abeyance since I joined the Board of the Bundesbank) and of the Council of Experts which delivers opinions on general economic trends I have dealt with the full range of matters referred to above.

Lastly, I should mention my work as a member of the Board of the Bundesbank and of the Central Bank Council. When I joined the Board in October 1990 I took responsibility for the areas of economics and statistics. It was my task to cover the entire field and to incorporate the results of my work, carried out with the assistance of my outstanding staff, into the decision-making process in connection with monetary policy.

2. Please highlight the three most important aspects of your European and international experience.

These aspects are essentially the same as those referred to under (1), but with the focus on European and international issues. From the start of my career, I have been very closely involved with aspects of European integration and international economic relations. For the sake of brevity, may I once again point to the relevant titles in my list of publications. I have attended or organized many conferences, both in Germany and abroad, which dealt with the matters under discussion here. I deepened my knowledge by taking up research fellowships, for example with the International Monetary Fund in Washington D.C., and exchanged experiences in the course of advisory work, for example with the European Commission. In the course of my work as a member of the Board of the Bundesbank I had the opportunity to study in most of the world's leading economic centres.

3. What are the two most important decisions to which you have been party in your professional life? Could you explain your choice?

As a member of the Central Bank Council I was involved in all the monetary policy decisions taken by the Bundesbank during that period. The following stand out because of the particularly difficult problems connected with them.

In December 1990 the Bundesbank was required to take a fundamental decision: should it continue with the strategy for controlling the money supply, first announced in 1975, in spite of the particular circumstances created by the recent economic and political reunification of Germany. On the one hand, all the possibilities offered by scientific methods of analysis had to be exploited, on the other, the right conclusions for monetary policy had to be drawn on the basis of what was necessarily incomplete knowledge of the processes then at work and the economic behaviour of Germany's new citizens. The decision to institute the first money supply target for the united Germany was anything but obvious. With hindsight, in the view of the vast majority of experts it has been proved correct.

During the first few months of 1996 the money supply in Germany was expanding exceptionally quickly and greatly exceeded the upper limit of the target band for that year (4-7%). At the same time, all other indicators pointed to low inflation combined with relatively weak economic growth. In the light of these circumstances, the Central Bank Council decided to cut both the discount rate and the Lombard rate by 50 basis points. The accompanying explanation, which included a forecast that the growth in the money supply would slow down, convinced the public and the financial markets, as the expert comment and market reactions at the time illustrated.

4. Do you intend to serve out your full term of eight years? Do you have any intentions of asking the Governing Council for an exemption under the terms of Article 11.1 of the ECB statute?

I intend to serve out my full term. I have no plans to seek an exemption pursuant to Article 11.1.

5. Do you have any business or financial holdings or other commitments that might clash with your prospective duties, and are there any other relevant personal or other factors that need to be taken account of by the Parliament in considering your nomination?

The answer to both questions is no.

6. On the basis of your own experience and philosophy, and in view of the uniquely independent position of the ECB, what do you believe should be the guiding principles for a European Central Banker?

Let me answer briefly and clearly: the main guiding principle must be to fulfil the task laid down in Article 2 of the Protocol on the Statute of the ESCB and the ECB, i.e. that of ensuring that the priority objective, price stability, is achieved. General Community economic policy must be supported, provided that this does not compromise the objective of price stability. In addition, the other principles laid down (open market economy with free competition, and those referred to in Article 3a) must be complied with.

The supreme authority lay down the task, the Central Bank must do everything in its power to fulfil it. To my mind, this is axiomatic. Setting that issue aside, the objectives laid down in the Statute tally with the understanding I have always had of the role of a central bank in a free society.

B. Monetary and economic policy

7. Which definition of price stability and which monetary concepts, targets and instruments do you favour for the monetary policy of the future ECB?

The definition of price stability raises difficult problems of measurement. Last year, the EMI stated that there was a broad measure of consensus among the central banks to the effect that a margin of 0-2% in the annual inflation rate would be appropriate. On that basis, in the area covered by Monetary Union we have clearly achieved price stability.

The preparatory work under the auspices of the EMI has led to a broad measure of agreement in the areas referred to above. That applies first of all to monetary policy instruments. In connection with the concepts and targets, the discussion focussed on two options: the strategy based on a money supply target and that based on an inflation target. The final decision can and will only be taken by the ECB Governing Council, however.

8. Would you support the ECB being held accountable for realizing an explicit inflation target and over what time period? To what extent could a mixed targeting strategy (inflation target + money supply target) be defined and evaluated?

At all events, the ECB will be accountable in connection with the objective of price stability. Exactly how that accountability will be defined, whether it is enshrined in a money supply target or explicitly laid down as an inflation target, depends on the strategy to be chosen. From the outset, I have been involved in the discussion on the strategy to be adopted by the future ECB and I have advocated a 'mixed strategy' combining control of the money supply with a comprehensive analysis of the prospects for inflation, including a model-based inflation forecast. Moreover, the Subcommittee on Monetary Policy, in which experts from all the EU Central Banks and the EMI are involved, is working hard to move this strategy debate forward, not least on the basis of that variant.

9. Assuming price stability has been achieved and can be maintained, what would you consider to be the appropriate interest rate policy, and in which way and to what extent would this take into account the need (pursuant to Article 105 of the Maastricht Treaty) to achieve the goals of Article 2 and 3a concerning growth and a high level of employment?

Once price stability has been achieved, and on the basis of public and market confidence in its sustainability, the interest-rate premium to cover inflation risks will no longer be required. Price stability, and the resulting low interest rates, will be instrumental in securing higher levels of investment, increased growth and new jobs.

10. How would you seek to resolve the policy mix problems entailed in the combination of a centralized monetary policy and decentralized fiscal policies?

It will be incumbent on those responsible for national financial policy to take due account of the interdependence which will result from Monetary Union and to coordinate the relevant measures.

11. What are your views as regards possible mechanisms for ensuring stability between the exchange rates of EURO-area countries and those of Member States not immediately adopting the single currency?

The mechanisms are laid down in the corresponding agreements ('EMS II'). The EURO will anchor the new system and thus also act as a point of reference for those joining Monetary Union at a later date.

12. How do you envisage the ECB's role in establishing an appropriate exchange rate for the EURO vis-à-vis the currencies of third countries?

An additional exchange rate objective laid down by the ECB itself is not compatible with the task assigned to the Central Bank in the Statute. A stable EURO, which enjoys the confidence of the public and the markets, will act as an important stabilizing factor on world financial markets and help to stabilize exchange rates. Furthermore, may I draw your attention to Article 109 of the Treaty.

C. Functioning of the ECB

13. What decision-making procedures do you envisage for the Executive Board, and between the Executive Board and the Governing Council?

As the supreme decision-making body, the ECB Governing Council has the power to lay down the relevant procedures. I cannot and do not wish to prejudge its decisions.

14. Which conflicts do you foresee on the way to a single monetary policy?

I do not foresee any conflicts which might jeopardize a single monetary policy. Should such conflicts arise unexpectedly, I would seek to deal with them immediately.

D. Democratic accountability

15. How do you see the distinction between ECB independence and its accountability, and what steps do you consider should be taken to ensure democratic accountability?

In a democracy, the independence of an executive body is inextricably linked to its task. The task of the ECB has been laid down by the supreme authority in the Statute. The independence of the Central Bank is not an end in itself, but rather a means of achieving the objective laid down by the legislature. The ECB is accountable for the decisions it takes with a view to achieving that objective. It must disclose and justify the degree to which that objective has been achieved, its approach to monetary policy and its current monetary policy measures.

16. More specifically, how do you see the future development of the ECB's relations with the European Parliament? How often, and under what circumstances, would you appear before the European Prliament's responsible committee?

In this area, the Treaty lays down clear rules with which the ECB must, of course, comply. However, the ECB is itself interested in exchanges of views with the European Parliament. The resulting transparency will be instrumental in achieving the objective of increasing the credibility of monetary policy. The Treaty offers both sides possibilities in this respect. The practical arrangements will develop out of fruitful relations between the European Parliament and the ECB.

17. Would you be prepared to support the idea of an agreement with the European Parliament on the terms of the future monetary dialogue between the ECB and the European Parliament? What in your view might be the specific content of such an agreement and how would you envisage the reporting procedure?

I attach great important to the dialogue between the European Parliament and the ECB. To my mind, no formal agreement is required regarding the practical arrangements for that dialogue. Experience will very quickly reveal the need for exchanges of views which are useful to both sides.

18. What steps should be taken to ensure transparency of the ECB's decision-making? Would you be prepared to publish minutes after decisions have been taken, and, if so, how long after and to what extent?

One important task for the ECB will be to provide the public with comprehensive information about its policies. That applies first of all to the interpretation of current decisions. In that connection, the ECB should offer the public a broad-ranging insight into the considerations on which such decisions are based. It will also be important to set out the reasons behind the choice of its monetary policy strategy. The ECB has a major interest in making the basis on which its decisions are taken transparent. In that connection, the central issue must be accountability as regards the priority objective of price stability. The independence of the institution, transparency and accountability to the public must be complementary factors.

The proceedings of the ECB Governing Council will be confidential. The Treaty makes no provision for the publication of detailed minutes. The early publication of the minutes would jeopardize the open nature of the dialogue in the Governing Council, openness which is essential to the decisionmaking process. The disclosure of voting details would personalize the ECB's decisions, perhaps exposing the members of the Governing Council to political pressure, something which is incompatible with the independence of the ECB.

19. If the European Parliament were to recommend rejection of your nomination, would you still wish to pursue that nomination?

I hope this situation will not arise.


 Annex 3

It is both my duty and an honour to be able to present my views on European Economic and Monetary Union to the representatives of the European Parliament. You raised a number of important questions in your questionnaire and I attempted to answer them with the necessary concision. In this introductory statement therefore I should like to emphasize my fundamental position.

To my mind, Economic and Monetary Union is anything but a purely technocratic matter.

My first, and abiding impression of monetary union goes back to the days when I neither knew what economics was all about nor had any interest in the subject. The picture I recall is that of a merchant setting off from Rome in the first century A.D. on a journey to Colonia Claudia Ara Agrippinensis, known today as the city of Cologne. On his long journey north he was able to pay all his bills, wherever he stopped, with the same coin, the denarius. If he had wanted to, he could also have used it as a means of payment on the other side of the Channel. The Pax Romana provided political cohesion, and the natural scarcity of money guaranteed the stability of the currency.

What path has Europe taken since those days?

Anyone who, like myself, was born in 1936, was able, after a terrible war, to experience the opening of the borders and to witness how travelling in western Europe has gradually become something that is taken for granted. I was able to contemplate the miracles of European culture, and make friends in the countries in which, according to the war-mongering schoolbooks of my childhood, the enemy was supposed to live.

That experience has moulded my personal view of history. Accordingly, when I opted to study economics, I then took an intense interest in the economic side of European integration. The removal of barriers to trade, the free movement of persons, in short the four economic freedoms have for me always been an economically and politically enticing goal. I make no secret of the fact that I have been much more hesitant in my approach to the issue of European monetary union and, with the objective being full integration, I am not without anxiety about taking this major step because I know what a common currency entails. With the impressive progress that has been made towards convergence, this anxiety has receded somewhat, but it has not been completely dispelled. The key factor here is the success of the fight against inflation. I must confess that, only a few years ago, I found it inconceivable that we could have achieved virtual price stability in the EU, and that, with the lowest inflation rate for many years, Germany's performance would be no better than average for the Member States. Indeed, Eurostat has just announced an annual rate of 1.2% for the eleven Member States.

In other areas, however, progress has unfortunately not been so convincing. The international organizations, and most recently the IMF which is almost effusively enthusiastic about monetary union, are warning that reforms will be necessary if the single currency's potential is to be fully exploited. The euro will change the face of Europe; more than that, it is the most significant event in the post-war history of the international monetary and financial system.

But whether at European or international level, the euro will be able to perform its hoped-for role only if it proves to be what everyone is promising Europeans it will be, i.e. a stable currency.

The Maastricht Treaty requires the ECB to give priority to this objective and grants its officials the independence they require in order to make the necessary decisions to that end. Currency stability is an important foundation which will enable other areas of economic policy to be focused on achieving macro-economic conditions in which, above all, the intolerably high level of unemployment in Europe can be reduced. Monetary policy alone does not hold the key to this.

Currencies rely on the confidence of the population. That confidence will be expressed in low interest rates and long-term agreements based on the principle that a euro equals a euro. Fortunately the ECB is beginning its work in an environment in which markets are giving the new currency an impressive vote of confidence. It is important that we should exploit and build upon this initial boost.

In this context the transparency of monetary policy is extremely important. The ECB must give the European public full information about its policy - from the strategy pursued to its ongoing decisions. Statements to the European Parliament will be a key feature of this process, where else could dialogue with the European public be more effectively held?

To be involved in forging the new single currency is the most fascinating task with which an economist can be entrusted. I think I have no illusions about how difficult this task will be. I believe that after a career in which I have combined the study of economics with practical experience in a key post with a by no means unimportant Central Bank, I can make a contribution to the success of this historically unique venture. In any event I am prepared to devote all my energies to that end.

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