Report on the ECB annual report for 2007 (debate) 
President
The next item is the report by Olle Schmidt on behalf of the Committee on Economic and Monetary Affairs on the ECB annual report for 2007.
Olle Schmidt
rapporteur. - (SV) Mr President, Mr Trichet, Mr Juncker, all eyes are on the European Central Bank. The current uncertain economic situation and financial unrest are putting the ECB under great pressure. I am convinced that last week's interest rate rise was the right decision. Inflation is a scourge which redistributes assets unfairly. Europe's political leaders should be grateful that they have an independent central bank which is prepared to act in order to prevent Europe from lapsing into stagflation, low growth and rising inflation.
Ten years after its introduction, the euro is a world currency. The security and stability which it has brought to the euro zone and the Union as a whole, including my country, and even to the global economy are something no one could have dreamt of. Ireland's 'no' in the referendum was not a reaction to the strength of the euro. Asymmetric development of economies between the euro countries may constitute a risk, but it can be remedied by holding fast to the requirements of the stability pact for sound state finances and continued structural transformation in the Member States.
At the same time there is some point in reviewing, after 10 years, how the ECB operates; scrutiny, transparency, decision-making and the international role of the euro could be improved. The committee therefore proposes that the ECB should present a new proposal on how decision-making can be made transparent and more effective as the Eurogroup grows. The ECB should give an account of the discussion between Members of the Governing Council when decisions are taken on the interest base rate in order to increase transparency and enhance predictability. Its role as leader of the Eurogroup should be strengthened in order better to reflect the significance of the euro in the international context as well.
Giving the market better information on the ECB's interest rate decisions has long been crucial to Parliament, as is also the publication of the minutes and voting outcome. The ECB has refused this, however, pointing out that it would create national divisions within the ECB management.
Mr Trichet, we have listened to your views, and the committee is now presenting an amended proposal. The ECB management must provide clearer information after an interest rate decision, i.e. must state whether unanimity was achieved without a discussion or whether there were difficulties in reaching a common position. This would be an important step forward in improving the dialogue between the market, us politicians and the ECB.
Inflation has risen to record levels and now stands at around 4%, which is significantly higher than the inflation target of around 2% in the medium term. Not only the dollar but other currencies too have weakened considerably against the euro, which has revived the discussion on the exchange rate. The enlargement of the euro zone gives the monetary area more weight, but at the same time poses several challenges, since decision-making becomes more unwieldy and differences in economic development between the members increase.
The crisis on the housing loan market has shown that financial stability is a global issue, since crises are no longer limited to a single country or a single region. The combined efforts of the Federal Reserve and the Bank of England have contributed extensively to keeping the financial system afloat, but they have not resolved the crisis. This has also made clear the need for better cooperation between central banks and other institutions. The fact that the ECB and the Fed both warned against underestimating the risk of a crisis on the housing loan market, without any great success, shows the increasing vulnerability of the world's financial markets. Here there is good reason to act, which Parliament among others is now doing, for example by following up the Lamfalussy process to modernise the European supervisory structure.
The common monetary policy and the ECB will face great challenges in forthcoming years. I am convinced that the EU leaders and the ECB will stand the test. At the same time, however, all the EU leaders must understand that price stability and sound state finances are the pillars of growth and new jobs. It is remarkable therefore that the French President, not least in his current role as Council President, questions the ECB's stability targets. In my opinion Europe's leaders should instead explain, in an open dialogue with their citizens, the purposes and goals of the monetary policy. Soaring prices and compensatory wage increases are the worst enemies of prosperity.
Jean-Claude Trichet
President of the European Central Bank. - (FR) Mr President, rapporteur, ladies and gentlemen, it is an honour for me to present the 2007 annual report of the European Central Bank to you, as provided for in the Treaty. Our relations go far beyond the obligations imposed by the Treaty and the European Central Bank appreciates its very close relationship with Parliament.
This is the fourth time I have spoken to you this year. My colleagues on the executive board have also been in close contact with the European Parliament, particularly on matters such as enlargement of the euro zone, payment systems and the tenth anniversary of Economic and Monetary Union.
2007 to 2008 and explain the monetary policy measures taken by the ECB. Then I shall make a few comments on points and proposals that you have put forward in your motion for a resolution on the ECB annual report for 2007.
In 2007 the ECB operated in a challenging environment with rising and volatile commodity prices and, since the second half of 2007, heightened uncertainty stemming from the ongoing correction in financial markets across the world that was mentioned by the rapporteur. Despite these developments, the euro-area economy continued to expand at solid rates in 2007, with annual real GDP growing by 2.7%.
In the first half of 2008, moderate ongoing growth in real GDP has continued, although the quarter-on-quarter profile is likely to show significant volatility owing to temporary, in part weather-related, factors. It is thus important to focus on the medium-term trend when assessing growth developments.
Looking ahead, on the external side, growth in emerging countries should remain robust, supporting euro-area foreign demand. On the domestic side, the economic fundamentals of the euro area remain sound and the euro area does not suffer from major imbalances. Unemployment rates and labour force participation have increased significantly in recent years, and unemployment rates have fallen to levels not seen for 25 years.
That being said, the uncertainty surrounding this outlook for growth remains high, with downside risks mainly relating to further unanticipated increases in commodity prices, possible further spillovers from continuing tensions in financial markets to the real economy and increasing protectionist tendencies.
Turning to price developments, in 2007 average annual HICP inflation in the euro area was 2.1%, slightly above the ECB's definition of price stability. However, at the end of the year, substantial increases in international oil and food prices brought inflation to levels well above 2%. Since then, inflation in the euro area has risen further and, in the wake of renewed sharp commodity price increases, arrived at the worrying level of around 4% in mid-2008. Looking ahead, the annual HICP inflation rate is likely to remain well above the level consistent with price stability for some time, moderating only gradually in 2009.
Risks to price stability over the medium term remain clearly on the upside in 2007 and have intensified over recent months. These risks include possible further rises in commodity prices and unanticipated increases in indirect taxes and administered prices. In addition the Governing Council is strongly concerned that price and wage-setting behaviour could add to inflationary pressure through broadly-based second-round effects. First signs are already emerging in some regions of the euro area. In this context, indexation schemes for nominal wages are of particular concern and should be avoided.
As in 2007, the monetary analysis in the first half of 2008 has continued to confirm the prevailing upside risks to price stability at medium to longer horizons. In line with our monetary policy strategy, we take the view that the sustained underlying strength of monetary and credit expansion in the euro area over the past few years has created upside risks to price stability.
To contain prevailing upside risks to price stability over the medium term, the Governing Council further adjusted the monetary policy stance in March and June 2007. After a period of unusually high uncertainty in the context of the financial-market correction, in July 2008 the Governing Council has brought the minimum bid rate in the euro system's main refinancing operations to 4.25%. This action underlines the Governing Council's strong determination to prevent second-round effects and maintain longer-term inflation expectations firmly anchored in line with price stability. This is the contribution of the ECB's monetary policy to preserving purchasing power over the medium term and supporting sustainable growth and employment in the euro area.
Following last week's decision to raise rates, in the Governing Council's current assessment the monetary policy stance will contribute to achieving price stability over the medium term. We will continue to monitor very closely all developments over the period ahead.
In the draft resolution you raise a number of issues of relevance for the ECB. I would like to assure you that we will consider the remarks which have just been made and all the remarks that are in the resolution with great care and we will report back to you accordingly.
Let me perhaps very briefly elaborate on some of these points. On the monetary policy strategy, I would like to start by welcoming the positive assessment made by the Committee on Economic and Monetary Affairs on the ECB monetary policy strategy. Our two-pillar framework ensures that all information relevant for the assessment of risks to price stability is taken into account in a consistent and systematic manner when taking monetary policy decisions.
In 2007 the Governing Council launched within the euro system a research agenda to enhance further its monetary analysis, as is also proposed in the draft resolution to continue to improve the ECB's analytical infrastructure.
On transparency, I would also like to welcome the Committee's recognition that making the minutes of the ECB Governing Council's meeting available to the public would not necessarily be advisable. Such a measure would draw attention to individual positions when, in a euro area of 15 and very soon 16 countries, what counts is the position of the collegial decision-maker, the Governing Council, the college. It could also lead to pressures on Governing Council members to abandon their necessarily euro-area perspective when taking monetary policy decisions.
As already emphasised on previous occasions, I see the introductory statement I present on behalf of the Governing Council at the monthly press conference as an equivalent to what other central banks call 'summary minutes'. Together with the ensuing question-and-answer session, the introductory statement provides in real time a comprehensive overview on the part of the Governing Council of the current monetary policy stance. This communication instrument has served us well in guiding financial-market expectations.
As regards fiscal policies, the ECB shares the view expressed that all Member States must fully respect the Stability and Growth Pact. A renewed increase in the euro-area aggregate fiscal deficit ratio is projected for 2008. There is a clear risk that some countries will not comply with the provisions of the preventive arm of the Stability and Growth Pact. Achieving sound and sustainable budgetary positions and on this basis allowing the free operation of automatic stabilisers is the best contribution we trust fiscal policy can make to macroeconomic stability.
The draft resolution also refers to the risks posed by economic differentials across euro-area countries, which to some extent reflect structural rigidities and/or inappropriate national policies. It goes without saying that economic divergences across euro-area countries cannot be addressed by monetary policy.
In order to avoid a protracted period of either low growth and high unemployment or overheating, as a country response to asymmetric shocks, reforms to enhance the resilience to such shocks should be undertaken at the national level. These include well-designed structural reforms to enhance competition, increase productivity and foster labour-market flexibility.
Let me emphasise again that there is a need for lucid monitoring of national competitiveness developments - including unit labour costs - as recouping ex post loss of competitiveness is a difficult exercise. In this regard we support Parliament's call for responsible wages and price policies.
Let me now turn to the issues highlighted by the financial-market correction for crisis prevention and crisis management, which also figure prominently in Parliament's analysis.
As regards crisis prevention, the market correction highlighted issues for both supervisors and central banks. Supervisors should make further efforts to reinforce cooperation and exchange of information on a cross-border basis. It is of crucial importance to further exploit the potential of the Lamfalussy framework. The Ecofin Council has agreed on certain measures to that end, and attention should now shift towards implementing those orientations.
The market correction, in our view, has not provided any convincing evidence for an overhaul of the current supervisory framework, for instance through the setting-up of a new authority for EU supervision. Central banks, including the ECB, have to a great extent been effective in identifying the weaknesses and risks to the financial system that materialised as the turmoil unfolded. I will not elaborate on that.
Looking for the lessons for crisis management, the main issue that emerged during the turmoil concerns the need for a smooth flow of information between central banks and supervisors during the unfolding of a crisis. Central banks may need supervisory information for the effective performance of their functions in the management of the crisis. This applies to the Eurosystem as it applies to all central banks. Supervisors from their side may benefit from central bank information. Therefore, the envisaged reinforcement of the EU legal basis for information exchange between central banks and supervisors is very strongly supported by the ECB.
Let me conclude with some remarks concerning the integration of Europe's payment systems. We noted with satisfaction the positive assessments in the draft resolution about SEPA and TARGET2. Concerning the Eurosystem's TARGET2-Securities initiative, the Governing Council will in the coming weeks decide on the continuation of the T2S project. It is important to note that all major CSDs have responded positively to our initiative.
Jean-Claude Juncker
President of the Eurogroup and member of the European Council - (FR) Mr President, rapporteur, ladies and gentlemen, I should first like to pay tribute to your rapporteur for the standard of his work. It is an excellent report that contains all the essential points.
I am pleased to note, from the work of your committee and the report by your rapporteur, that the views of your Parliament broadly coincide with the opinions expressed numerous times by the Eurogroup, of which I am privileged to be President. This consensus, this broad convergence of views relates in particular to the operations and activities of the Central Bank, which, as always, is overwhelmed by the compliments of your Parliament and the governments I am representing here.
That remark is particularly significant in the light of the various criticisms levelled at the Central Bank over recent weeks and months, when a whole arsenal needed to be put in place for the financial crisis that had hit the entire world. Initially criticised for being over-active, the European Central Bank was able to note with satisfaction that all the other major monetary authorities had adopted its instruments and methods.
We also agree with the rapporteur when he urges us, the Eurogroup, the ECOFIN Council in general, and our Bank, to draw the appropriate financial conclusions from the crises we have been facing, particularly as regards monitoring of the markets and the transparency we shall need to add to our current mechanisms.
The fight against inflation is the main concern of our fellow citizens. At the moment, all the surveys show that people are still worried about the loss of purchasing power and the fear that the risks of loss of purchasing power will materialise. It is therefore the right and duty of the Bank to ensure price stability, an objective set for the Central Bank by the founding Maastricht Treaty.
I would add that we should not incline towards the simple idea that the Central Bank, as the monetary authority, is the only body responsible for price stability and the fight against inflation. Inflation and the fight against inflation are also a concern and obligation for the euro zone governments. They too, by supplementing the monetary policies operated by the Central Bank, have to introduce sound policies capable of supporting price stability.
Thus the Eurogroup governments have undertaken, firstly, to make every effort to ensure, in the wage restraint we need, that wages and the public sector do not get out of control. We are therefore absolutely determined to do everything to avoid unnecessary increases in indirect taxation, both VAT and excise duty. We have firmly committed ourselves to doing everything possible to see that prices do not exceed the bounds of commonsense.
No one can talk about inflation and price stability without mentioning the independence of the Central Bank, as your rapporteur has, in both his written and his oral reports.
I wanted to point out once again that the independence of the Central Bank is a fundamental principle of Economic and Monetary Union, that the independence of the Central Bank is part of the Pact on which Economic and Monetary Union is founded, that, in the work leading up to the constitutional treaty and the subsequent reforming Treaty of Lisbon, no government suggested even so much as a minor change to the general terms of reference of Central Bank, which focus on price stability. I therefore think that one day we shall have to put an end to a futile and pointless debate that has nothing to do with the real situation. That does not mean that we are not all entitled to criticise the Bank, to offer support and advice for its virtuous action, but there is no question of interfering with its independence.
Otherwise, I should like to say that we must not overburden monetary policy with responsibilities. The Treaty sets the Central Bank the objective of price stability. We must not add a whole range of economic objectives to its terms of reference but must follow the rule of coherence, which requires that we do not try and make the Bank pursue too many political objectives. It has an instrument for action, namely monetary policy; it acts with grace and determination.
As far as exchange policy is concerned, I have noticed a slight ambiguity in the report by Mr Schmidt, in that it gives the impression that exchange policy is the sole, if not the exclusive, province of the Central Bank. I am quite happy for the Central Bank to play a leading role in any areas to do with exchange, but even so I would like to draw your attention to the provisions of the Treaty that assign shared powers to the Bank and governments for exchange policy. Otherwise, in regard to both exchange policy and monetary policy, and structural policies, we have an ongoing fruitful dialogue with the Bank, to which everyone contributes.
Thus, as part of this regular dialogue, Mr Trichet and I went to China last November to discuss exchange policy with the Chinese authorities, and we shall be doing so again in the latter half of this year.
A slight ambiguity that I have noticed in the report by your committee relates to the external representation of the euro zone. There again, contrary to what the report indicates, the Central Bank is not solely responsible for taking the necessary steps to strengthen the international role of the euro zone. That is another area in which competencies are shared.
Thomas Mann
on behalf of the PPE-DE Group. - (FR) Welcome to the two Jean-Claudes, President Trichet and President Juncker!
(DE) On 2 June we had a major celebration in Frankfurt am Main, the city where the D-mark and the euro were introduced - ten years of European Economic and Monetary Union. It is thanks to the ECB that the euro has become established internationally and that price stability has remained the primary goal at all times. It was logical that a few days ago the ECB used its most effective weapon to influence the base rate and raise it by a quarter of a per cent. The aim was, and still is, to curb inflation risks created by high living costs, by escalating petrol and oil prices.
This time the ECB announced its measures weeks ahead. It acted differently in the Spring: large-scale effective action within a few hours. The report by Mr Schmidt - an excellent report, on which we worked well together - specifically welcomes that. In the second half of 2007 the property market collapsed. In the sub-prime crisis, banks and insurance companies that had been gambling found themselves in difficulties. The ECB very quickly made adequate funds available, thereby preventing a cross-border collapse.
This speed and effectiveness are evidence of strong action, based on competence and greater trust in your institution. I think that ECB decisions are generally transparent, based on a good flow of information and open objectives. In the monetary dialogue the ECB regularly reports to us in the Committee on Economic and Monetary Affairs on financial policy decisions.
In my view, there is little point in the publication of minutes of board meetings that is often called for. National influence has to be prevented. Unlimited independence is needed. Normally, Mr President, we MEPs have plenty of occasion to criticise. Today, may I express high praise for what has been said, with businesses and citizens in good hands, on the one hand to Mr Trichet and your bank, the ECB in Frankfurt am Main, and on the other hand, of course, to the admirable Jean-Claude Juncker.
Manuel António dos Santos
on behalf of the PSE Group. - (PT) Mr President, Mr Juncker, Mr Trichet, I would first like to say that this report's main objective was to analyse the European Central Bank's activities during 2007. However, the discussion in the Committee on Monetary Affairs could obviously not fail to analyse the future challenges to the European Union's monetary policy and its regulators.
With regard to the remit of the European Central Bank (ECB), as provided for by the Treaties, we have to recognise the value of its work in 2007. Although it was unable to avoid monetary turbulence and the consequent crisis in economic growth that we are living through, it succeeded in mitigating many of the negative consequences of the current situation. I think the main issue remains whether the European Union's current policies and instruments will allow us to definitively overcome the serious crisis in the world economy and its consequences for Europe.
A crisis is not necessarily a catastrophe. However, we can only stop a crisis from becoming a catastrophe if we have a correct vision of the future, unencumbered by obsolete orthodoxies and focused on the nature of the new phenomena we have to deal with and overcome. It is unacceptable to defend non-compliance with the rules in force, and we must contribute to the policy debate by developing proposals that seek to change the current situation.
Mr Schmidt's report presents some ways forward: improve cooperation between the central banks and regulatory authorities in the struggle to reconcile financial deregulation and regulation; create a framework for the ECB's financial management role; promote coordination of economic policies between the Eurogroup, the Commission and the ECB; improve transparency of decision-making; and more than anything else, provide information that allows the public to understand ECB measures; promote structural reform of the Bank's governance; manage interest rates with great care, avoiding speculative interventions and inadequate market discounts, in order not to endanger investment policy, job creation, structural reform and economic growth. Independently of all this, which is already rather a lot, we also need to understand we are facing a difficult economic and social crisis, the extent of which we do not yet know. However, we do know it will get a lot worse before it gets better.
We are under no illusions that the remedies at our disposal will be capable of resolving current problems. To recognise the situation is not to be defeatist, but rather to show good sense. We are probably on the threshold of identifying the political solutions to our problems. This is certainly not the end of the world and much less the end of History. We can only ask the ECB for cooperation, competence, transparency and flexibility with regard to its remit and to never exceed its remit.
Wolf Klinz
on behalf of the ALDE Group. - (DE) Mr President, Mr Trichet and Mr Juncker, ladies and gentlemen, I should like to second the compliment from the previous speaker. The ECB did indeed act promptly and competently right at the start of the financial crisis, and without that decisiveness the crisis would probably have turned out much worse. It is not over yet, but through its decisiveness the Bank has not only demonstrated its credibility, it has become a kind of model for competent central bank action and a kind of example for other central banks.
However, I fear that the Central Bank still has the most difficult phase ahead of it. The next eighteen months will be the really critical test of whether the Bank can still retain its credibility. I hope it can. We have galloping oil and raw materials prices, we have escalating food prices and we have inflation. Mr Trichet spoke of 4% in the euro zone. In many Member States it is in fact almost 6%, and the euro is unbelievably strong.
Thus the risk of stagflation is very real. We need to ensure that we really ward off that risk at an early stage. Therefore, in those circumstances, I welcome the fact that the Central Bank proved itself through its interest decisions last week. Certainly combating inflation is and will continue to be our main task.
When Germany was going through a period of stagflation several decades ago, Chancellor Schmidt said that for him 5% inflation was better than 5% unemployment. He was thus directly opposed to the Bundesbank. It turned out that the policy of the Bundesbank to combat inflation immediately and decisively was the right one. Germany emerged from stagflation more quickly than many other countries.
I do not have any advice to give the Central Bank. It knows better than anyone what it has to do. I have three wishes. Two of them have already been granted. I would like to see the dialogue between the Central Bank and the Eurogroup and Mr Juncker, the Eurogroup President, proceed smoothly. I believe that is now happening. I would like to see closer cooperation not just between the Central Banks but also between the Central Bank and the supervisory authorities. That too is already in the offing.
Finally - and here I unfortunately have a negative answer from Mr Trichet - I should like us to receive more information on decision-making. We do not want to know names, but we want to know if the decision was by a narrow or a clear majority and whether there was a great deal of debate or not much.
Claude Turmes
on behalf of the Verts/ALE Group. - (FR) Mr President, I am not a great expert on monetary matters, but I am trying to understand what lies behind the current energy and food crisis; and my conclusion is that we are entering a new era.
We are entering an era in which the resources of the planet are scarce. Why? Because we have a dominant economic model, dating from the 20th century, which was devised and operated by a billion middle class citizens in Europe, the United States and Japan, and small elites elsewhere in the world. That was the 20th century world.
The 21st century world is one in which there will be hundreds of millions more middle class people, in China, India, Indonesia, South Africa, Nigeria, Mexico, Brazil and other countries. Therefore our present dominant economic model has a systemic fault. The system took no account of the fact that resources were limited. Where are we to find fish when the Chinese eat as much fish as the Japanese? Where are we to find petrol when all the Indians are driving Tatamobiles? Where are we going to find coal for steelworks all over the world if the emerging countries develop in line with existing technologies? That is the deep-seated crisis.
So I have three specific questions. First, speculation. Speculation is not, of course, the grassroots movement, but what is to be done for citizens weighed down by rising prices, whilst Total and Eon shareholders and other speculators are weighed down by profits? Mr Juncker, you put forward the idea of a speculation tax. Is any progress being made on that idea, because I think citizens want us, as politicians, to take action?
My second question: what action can be taken quickly to make the European economy less dependent, especially on imported oil and gas and their prices? Could we not consider a major investment programme, with the help of the European Investment Bank, to modernise buildings, public transport, and also, for example, install electric motors and other systems in small and medium-sized enterprises? I think that is the only way to reduce consumption, because we are not controlling prices.
My third point relates to the wage indexing system. Mr Trichet, you and I earn high enough salaries not to be too much affected by energy and food prices. You undoubtedly earn more than I do, but at the same time you say that the national indexing systems we have in Luxembourg and Belgium should be abolished. Mr Juncker, is that not the only way people can have extra income at a time when prices are soaring? I do not really understand why you are so set against indexing systems.
Johannes Blokland
on behalf of the IND/DEM Group. - (NL) Thank you, Mr President. Welcome too to Mr Trichet, President of the European Central Bank, and to Mr Juncker.
I would like first of all to congratulate Mr Trichet on the annual report he has just presented. Things are not looking good for the euro area, let us make no bones about it. I fear that in the years ahead many of the doubts voiced at the launch of the euro are going to be proved right. After a few years of prosperity we shall now see whether the European Central Bank can manage to keep inflation low.
The euro area has a single monetary policy, but each of its sixteen countries has its own economic policy. Sixteen countries, each with its own HICP and its own policy for promoting employment. With inflation in the euro area at 4%, the latest interest rate hike by the European Central Bank means that the real interest rate is 0.25%. But that rate is not enough to counter rising inflation and the threat of recession in every Member State.
Is Mr Trichet able to give us an estimate of how far the available instruments will be adequate in the years to come?
Sergej Kozlík
(SK) I support the view that the introduction of the euro, the gradual enlargement of the euro area and the application of consistent economic policies combined with the cautious approach of the European Central Bank have led to the present relatively stable economic development in the European Union countries.
It is also undisputable that, due to the dynamic growth in the number and variety of financial market operations, these operations are becoming less transparent. This then results in a growing number of risks that may potentially harm not just supplier and consumer groups but also the economies of entire nations. Consequently, there is a need to set up a wider EU framework for financial supervision and to involve the European Central Bank more closely in supervision to solve any problems in the financial system.
I agree with the rapporteur, Mr Schmidt, that increased cooperation between central banks and national supervisory authorities will become inevitable. The goal is to uphold stability in the financial markets, in particular taking into account the increasingly integrated financial systems. In this day and age, what applies to ecology applies to the financial markets as well. Without the participation of other big players, such as the US, Russia, Japan, China, India and others, achieving a successful result in the worldwide context will not be possible.
José Manuel García-Margallo y Marfil
(ES) Mr President, Mr Trichet, Mr Juncker, the President of the European Central Bank and the President of the Eurogroup are in agreement that, for ten years, there has been consistent agreement about the relative roles of the various policies. The Central Bank and monetary policy are responsible for ensuring price stability, public accounts need to be balanced in the medium term and the other policies need to create economic growth and growth in employment.
When things go wrong, we begin to question this model. We start to offload our own responsibilities onto the shoulders of the European institutions. Some people lay the blame at Mr Trichet's door, others blame Mr Juncker. If things go from bad to worse, it will be Mr Pöttering who ends up being blamed.
At this time, therefore, I think it is important - and Mr Trichet is a good navigator - to keep a steady course and to maintain the model which has enabled us to come this far.
I would like to add a few words in terms of prices. It is true, as Mr Juncker says, that we are all responsible in this matter and that governments need to take action; it is a matter which will need to be examined when we tackle market flexibility, when we work out the post-Lisbon strategy.
However, there is one matter where the Central Bank needs to take the lead. People say - I do not have the figures - that to a certain extent price increases are due to financial speculation; the transfer of money from the sub-prime and variable interest rate markets to the futures market is partly responsible for this situation, and we will all need to do something about this.
In terms of institutional architecture, I would agree with the rapporteur, Mr Schmidt, that now is probably not a good time for publication of the full minutes. However, I think that it would be good to publish a summary of the minutes and, even more importantly, I think that the Central Bank should tell us the relative weight given to the two pillars on which its strategy is based when taking decisions to increase transparency and market awareness.
I also think that increased economic governance would need a counterpoint, a balance: but this is not the fault of Mr Trichet. It is our fault for not yet having approved the Lisbon Treaty, and this is something which I would like to see remedied.
Pervenche Berès
(FR) Mr President, Mr Trichet, Mr Juncker, I should first like to thank our rapporteur for his excellent work. I think the contributions everyone has made have produced a result that makes the situation clear; the message might be a little vague, but I think it has useful elements.
Mr Trichet, everyone was impressed by your speeches in the summer of 2007. We appreciate the fact that you reported immediately to the Committee on Economic and Monetary Affairs. Now, however, you have increased the rates in a climate in which we all believe that the crisis is not behind us and the bad news, including that from the major European banks, is still to come.
When we saw you last December, you told us that you were basically expecting 3% inflation in 2008 and then things would calm down. Now inflation is at 4% and you are telling us you have increased the rates by a quarter of a point and that is it. With imported inflation though, if your strategy is actually to remain so vigilant on price stability, will you be able to stick to that in the short and medium terms, with the risks we are aware of for growth and so for employment?
It seems to me that the phenomenon Mr Turmes has referred to, which we might describe as the European Union entering the second phase of globalisation, is leading us to reassess the tools we had at our disposal to deal with the first phase of globalisation. That first phase favoured price stability, or at any rate a reduction in the prices of consumer goods, connected in particular with relocation.
Now, in this new phase, we have a new balance and a new model in which what were previously emerging countries are now fully established, also in their access to raw materials, with the effects on prices that we are aware of.
In these circumstances therefore - and I am addressing my remarks both to Mr Trichet and to Mr Juncker, since Mr Juncker rightly draws attention to the competencies of the Eurogroup and ECOFIN in this area, but they never come to this committee or to Parliament - is not the fundamental issue at the moment the exchange rate ratio, the buying of oil supplies in euros and the ability of the European Union, particularly its euro zone, to speak with one voice, so that, ten years after changing to the euro, we can at last contribute to a coordinated and responsible dialogue between the main world currencies to secure the best exchange rate for our growth?
Margarita Starkevičiūt
(LT) May I point out that during our term of office the European Central Bank, thanks to its impressive work, has risen from being just one of the world's many central banks into the world leader in central banking. Today it is facing the new challenge of establishing its increasingly important role in the globalised world.
We would like the bank to enhance its role of forecasting and management of macroeconomics and financial stability as, since the majority of crises have their roots in third countries nowadays, it would be appropriate to say that the European Central Bank has failed to produce an accurate forecast of the extent of the crisis and its possible impact. What could be done to improve the situation? First of all I would mention increased coordination between economic and monetary policy. The Third World is now entering the stage of price liberalisation, which is very familiar to me, as a representative of Lithuania. It could last longer, and Europe would then be under a lot of pressure as regards prices. However, this pressure could be overcome by our monetary policy, which would be more taxing on our economy. Alternatively, we could offer to help developing countries to put their revenue policy in order and stabilise prices. This could be done through our increased participation in the International Monetary Fund and communication with the World Bank. This is one possible tool that could help curb inflation in developing countries as well as relieve the World Bank of the burden of adjusting monetary policy.
There is one more aspect that worries me, and that is the European settlement system. Despite the European Central Bank's substantial input into the implementation of SEPA and the development of the TARGET 2 security system, the problem is yet more complicated than that.
Ryszard Czarnecki
(PL) Mr President, the annual report of the European Central Bank does not, it appears, speak of a certain tendency that has developed in recent years. Whereas up to now one could speak of the European bank in Frankfurt acting with real independence, in recent times we have seen attempts by the largest European Union countries to put pressure on the ECB and to influence its decisions.
This is a worrying tendency since, in practice, it means that the EU is being divided into countries that are equal and those that are more equal than others. This could lead to double standards. Countries such as France or Germany are given the right to put pressure on the ECB but, when it comes to smaller countries, the principle of the independence of the European Central Bank from the governments of European Union Member States is adhered to very strictly. I speak of this because it is a worrying development.
Finally, one cannot say that Europe has a proper and stable financial system. This is something that is in the process of development. An illustration of this is given by the paradoxical example of London, which is the most important financial centre in the European Union, even though it is the capital of a country outside the euro zone.
Luca Romagnoli
(IT) Mr President, ladies and gentlemen, the euro area is suffering from energy prices which neither the ECB, nor the Union, nor governments are able to control. The German Finance Minister, Peer Steinbrück, told you that, Mr Trichet, and the ECB then announced that it intended to support banks facing difficulties. I wonder when the ECB will announce that it wants to support citizens who fail to make it to the end of the month, by cutting the cost of money and forcing the banks to charge mortgage rates which are not as crippling as they are at present?
Maintaining growth is more important than keeping the currency high. That is the policy of the dollar to which the ECB is not mounting an effective response. Mr Schmidt is keen to strengthen the role and authority of the ECB, while I am with those who continue to question the independence of the ECB. The introduction of the euro has undoubtedly had some benefits: some of those cited by Mr Schmidt are unquestionable, but there is not one word about the tangible adverse effects for every citizen of the euro area who has suffered from real inflation which is much higher than official figures as a result of the widespread speculation which accompanied the introduction of the currency and which the ECB and the institutions did far too little to control.
As Mr Schmidt writes, the ECB derives its acceptance among the public from the fact that it upholds goals, such as price stability and economic growth, and for that reason he considers transparency to be less important; he also proposes that the principle of equality of Member States should be given up and would like to put more power into the hands of the Executive Committee. Mr Schmidt is afraid that the governments will in practice exert pressure on the president of their central bank, in other words he is afraid that politics will gain the upper hand over finance. I believe the opposite to be true.
Mr Schmidt, Mr Trichet, I absolutely cannot go along with these proposals.
Gay Mitchell
Mr President, I should like to thank Mr Schmidt for a very good report.
Let me say at the outset that some Member States are in, or near to, recession, and we must ask ourselves what is the most important thing we can do in those circumstances. I believe the most important thing we can do in those circumstances is to protect jobs and promote the creation of jobs. Let us look at the situation between 1990 and 1998 when, in what is now the euro area, five million jobs were created. But what happened in the 10 years between 1998 and 2008, when the euro was in situ and Mr Trichet and his predecessors were pursuing their policies, was that almost 16 million jobs were created.
Therefore, we have to reflect on this. This is a success story, and the contribution that the policies being pursued by the Central Bank made to this have to be acknowledged. We must give credit where credit is due.
But is this story being sold? The reasons for the success clearly are low interest rates in the main, but in particular low inflation, and I think Mr Trichet's constant refrain about that holds true.
But do we need continued increase in interest rates? It is time now to examine this more deeply. Current economic conditions call for calm and sensible action. That is why we have an independent Central Bank.
However, I would like to make a comment on the strength of the euro. This is negatively impacting exporting economies. The euro exchange rate with the dollar and sterling is not softening and not likely to soften with the divergence between the US and euro interest rates. The rate rise, while targeting inflation, may present further risks to the euro exchange rate and impede economic growth potential in a time of economic uncertainty.
In the moments that are left to me, let me say that last year I was rapporteur for the Report on the ECB annual report and I pointed out then that there were EUR 223 billion in EUR 500 denominations - that is 446 million notes! I asked that it be examined, particularly because it seems to me that it is likely to be used for criminal purposes. Perhaps Mr Trichet would say in his reply what has been done about the concerns I raised then.
Ieke van den Burg
Mr President, I would like to join in the compliments and congratulations given to the ECB for what it did last year in the financial crisis. The ECB's role as liquidity provider of last resort and market maker of last resort has been emphasised in the report and I share this view. I think it also achieved this.
Linked to this, Mr Trichet, I think it is correct that you emphasised the necessity of better information access and exchange of information, where I think the ECB could take a leading role. This is also what we presented in a report for Parliament in the Committee on Economic and Monetary Affairs, which we will discuss next week, about the reform of the supervisory system. I think it is very important that we have a better link between the micro-prudential information that market and banking prudential supervisors have and the ECB information, and I think the ECB can take a leading role there.
You have said that you do not want to overhaul the supervisory systems - that is not what we proposed - but I think it should also be in your interest not to be too dependent on the voluntary cooperation of Member States and Member States' supervisory authorities in this exchange of information. Therefore, it is important that there will be more independent players in this area and there will be a stronger system and a stronger structure at European level.
Another element is the payment and settlement systems. I am happy to hear that the Target 2-Securities proposal, which is elaborated by the ECB and other central banks, has now been received positively by the CSDs. I think this could be an important basis for further improvement of that system. I would also like to ask your opinion about what happens now, also from the market, in the sphere of derivatives and the over-the-counter market in order to create more central counterparties and a better system of supervision there.
My last remark is a parallel with the Bernanke speech yesterday, but I will not go into detail about it.
Daniel Dăianu
Madam President, I wish to commend the rapporteur on his work.
An annual report can speak volumes about achievements and also about policy intricacies and trade-offs. The current inflation rates in Europe are tormenting policymakers and citizens. The European Central Bank has built up its credibility through consistent policies. This performance has been enhanced by this inflation import on the wave of globalisation and the Asian economic rise.
Unfortunately, a reverse situation is under way nowadays because of huge energy and food price rises which reflect the increasing scarcity of available resources. The cost-push pressure is straining markets worldwide. The inflation rate in the euro area is at its highest level for 10 years. This is very worrying, and stagflation also seems to be around the corner.
Moreover, the financial crisis has complicated the European Central Bank's task enormously. The ECB has to fight inflation tenaciously, and anchoring inflation expectations is key in this regard. But the risks are high. It is not clear how long the exogenous cost-push will last. It is critical that a wage price spiral be averted. As we used to talk about inflation moderation in the past decade, so we should strive to achieve moderation of price and wage dynamics in the period to come.
More economic divergence in the euro area, which would not foster a good climate for the European Central Bank's moves. In addition, when markets are increasingly global, what the European Central Bank does has to be examined in relation to what other major counterparts do. Here it is about interest-rate differentials and overall policy stances.
A final note. The grave systemic risks financial markets carry nowadays demand better supervision frameworks, better coordination among the ECB, the Fed and other major central banks. The dangers of too-easy-money policies are to be underlined in this regard.
Othmar Karas
(DE) Madam President, ladies and gentlemen, I very much hope that the main messages of this debate will reach the citizens of Europe. The first main message of this debate, for me, is that the ECB and the euro are not the causes of the concerns and problems, but part of the solution. The second main message is that the euro provides benefits and protection. It benefits the citizens of the whole of the European Union, not just the euro zone, the political project of the European Union and the European Union growth and employment policy.
Apart from the internal market, the euro is the most effective answer to globalisation. The euro and the European Central Bank do not, it is true, make us independent of global influences, but they make us much more able to deal with them.
I should therefore like to thank the European Central Bank for the steady and level-headed policy, because at a time when trust is being lost it is undoubtedly one of those that are gaining trust.
However, I should also like to say to all the Heads of State and Government on this occasion, hands off the Stability and Growth Pact, hands off the European Central Bank. If you have internal problems and do not do your homework, it is too easy to say others are to blame. For that reason we have to do everything possible to improve awareness and do away with the information deficit. There is no general awareness of the connection between inflation, interest rates and price stability. I am grateful to Mr Juncker for pointing out that indirect taxation should not be increased but reduced whenever possible.
We have to communicate the message that the euro is not responsible for higher energy and raw materials prices. I also welcome the fact that the cooperation between the European Central Bank, the Commission and the financial services sector has contributed to the successful launch of SEPA, cross-border payments. Let us use the sensitivity and the justified concerns and fears of the public to enter into a dialogue with them, provide answers and explain, and let us not just make complimentary speeches here.
Benoît Hamon
(FR) Madam President, ladies and gentlemen, the euro is an increasingly expensive currency by comparison with those of our main partners and competitors. That is particularly true compared with the dollar. Of course, the policy of systematically increasing European Central Bank reference rates, coupled with the reverse policy of the Fed, is merely accentuating the problem. This exchange trend that is damaging the competitiveness of the European economy has been the subject of much comment, particularly by highly prominent European leaders.
The predominant view, in this House in particular, is that the ECB has sole and absolute competence for exchange rate trends. The ECB itself refuses, through its President, to express any views on the subject, apart from a few vague international declarations. Not only is this situation untransparent and undemocratic, it is, above all, contrary to the Treaty. Article 111 of the Treaty reads, and I quote: 'In the absence of an exchange rate system in relation to one or more non-Community currencies as referred to in paragraph 1, the Council, acting by a qualified majority either on a recommendation from the Commission and after consulting the ECB or on a recommendation from the ECB, may formulate general orientations for exchange rate policy in relation to these currencies'. I repeat: 'may formulate general orientations for exchange rate policy'.
In other words, the euro zone has indeed equipped itself with the means to decide democratically on its exchange policy. My question is simple and it is addressed to the Heads of State and Government: instead of moaning, what are the governments of the Union waiting for before they act?
Cornelis Visser
(NL) Firstly, I must congratulate Mr Schmidt on his report. As someone representing Sweden, which is not a member of the euro area, he has produced a very good, very clear report. To my mind he has met the criteria for membership on Sweden's behalf.
Last week the European Central Bank put up the interest rate. Clearly the European Central Bank and its President, Mr Trichet, take the Bank's mandate and the Maastricht criteria seriously. I am glad that the ECB is independent. The ECB must be protected against political meddling, by national authorities, for example, and I am glad too to hear Mr Juncker confirming this on behalf of the Eurogroup.
And the European Central Bank has responded well to the financial crisis. It moved in a timely fashion to guarantee liquidity for the markets. This has stabilised interest rates for the time being. The crisis in the banking sector has been a wake-up call. The lack of transparency in the financial risks to which institutions are exposed is producing losses which may be considerable. A debate is currently under way in the European Parliament on financial scrutiny. The European Central Bank can play a crucial role here, because it is well briefed by the central banks of the Member States.
But the Treaty says nothing about this. I believe we need closer cooperation between the central banks and the European Central Bank, financial markets and regulatory authorities. The European Central Bank should play a greater part in scrutiny and oversight. It is in a position to organise the cross-border exchange of information, certainly when it comes to financial stability. The ECB has proved its worth. We must make use of its power in order to strengthen financial scrutiny.
Christoph Konrad
(DE) Madam President, ladies and gentlemen, in the light of this debate it can be said that the ECB is a kind of rock in the waves. That is to be welcomed. Obviously price stability is the top priority in the economy, If that continues to be so in the future, that can only be positive.
We have noted that the average inflation rate in the euro zone is 4%. In some euro zone countries it is even higher, for instance 5.8% in Belgium and 5.1% in Spain. That is bad news. Therefore the signal - the European Central Bank decision - sent out this week is important. We just have to note, here in Parliament too, that the ECB obviously cannot do anything to combat inflationary oil prices. However, the secondary effects that will be felt in the euro zone, for instance higher wages, which the unions are demanding, and at the same time higher prices, which then affect businesses, hold a risk and ultimately lead to a vicious circle.
I should like to make two further comments on the politicisation of the European Central Bank. We are constantly coming across that in the Committee on Economic and Monetary Affairs and it has also been made clear in this debate. For instance, the question of transparency of the decision-making process is a signal in that direction, an attempt to find out more and more, and also to step up influence on the decision-making process. Greater transparency - I am wary of that. I think the Bank has to decide for itself and, of course, in consultation with Parliament and euro zone representatives. Justification of decisions, though - that is going too far.
We should - and this will undoubtedly play a part in the next round - reconsider very carefully when extending the euro zone whether we can continue with this policy. Slovakia was a warning sign for me. We should be less concerned with politics in the future and pay more attention to the criteria.
Zuzana Roithová
(CS) Ladies and gentlemen, the impact of the American financial crisis on the world economy has been an unexpected and unwanted present on the occasion of the 10th anniversary of Economic and Monetary Union. Rising inflation is another current problem. The ECB has perfectly managed the turmoil in world financial markets, provided liquidity in the amount of EUR 95 billion and carried out further fine-tuning operations to stabilise the very short-term interest rates. Once again this has shown the benefits of the European Union's common monetary policy for both the European economy and individual citizens in periods of instability. According to Article 105 of the EC Treaty, the ECB shall also support the general economic policies in the Community. Now the ECB has to meet the challenges of rising inflation on the one hand and an economic slowdown on the other hand. This is not only a challenge but also a real test of the independence of the ECB and the European System of Central Banks.
By means of the Treaty of Lisbon, the ECB will become an institution with legal personality and a clearly established independent status. On the other hand, the continuous integration of financial systems calls for closer cooperation with central banks of individual Member States. There are voices warning that the independence of the ECB is in danger, one of the reasons being that the informal meetings of the Finance Ministers of the Eurozone will receive, under the Treaty of Lisbon, an official status. We can already hear arguments as to the Ministers' ability to debate whether or not the inflation target is set correctly.
I think that it is very important to distinguish between professional and political arguments that have their place in a democratic society and actual interference with the European Central Bank's fiscal policy. Considering the painful birth of the Treaty of Lisbon, making such a distinction will be an extremely important task both for us in this House and, of course, for the media. To conclude, I should like to thank the rapporteurs for the balanced and highly professional report assessing the ECB annual report.
Ioannis Varvitsiotis
(EL) Madam President, I listened very carefully to the speeches by the President of the Central Bank and by Jean-Claude Juncker, for whom I have considerable respect.
We are undoubtedly facing a major economic crisis, unparalleled in recent decades. The frightening increase in the price of oil and of many other products, the high unemployment rate, the widespread poverty and the low rates of growth all contribute to this stark image.
There has been extended discussion of the criticism that has been voiced. I believe that this criticism, which also came from official sources, has all had the same goal of highlighting the gravity of the situation. Besides, as politicians, we must seek criticism, because it is only through criticism that we can improve, see the issues more clearly and thus reach solutions that benefit the community.
Finally, I wish to congratulate the rapporteur on his truly exceptional report.
Ilda Figueiredo
(PT) Madam President, it is clear from this debate that the alleged fight against inflation is limited to restricting pay rises. In order to justify the ninth increase in the European Central Bank base rate in two and a half years, European Union monetary policy managers only talk about the need for pay restraint and ignore the scandalous increase in the profits made by big companies and economic and financial groups, which are about 30% per year, while pay rises in some countries do not even cover the rate of inflation. This is the case in Portugal, where most workers and pensioners have suffered serious losses in their purchasing power and where pay and pensions are among the lowest in the European Union.
The complete lack of social sensitivity of these monetary policies, with high interest rates and an over-valued euro, is exacerbating social and territorial inequalities, contributing to an increase in poverty and creating more and more problems for micro and small companies, especially in the countries with the weakest economies. This policy should therefore be changed to do exactly the contrary and to prioritise economic growth and employment, eradicate poverty and promote social progress and development.
Theodor Dumitru Stolojan
(RO) The European Central Bank carries out its activity to maintain price stability under conditions of great uncertainties and inflationist pressures.
We do not know yet if the current level of energy and food prices is the one upon which the entire price structure will rely; we also do not know what public policy actions the Member States will take to facilitate the adjustment of the population's businesses and savings and households to the new price structure. Also, the financial crisis is still far from having said its last word.
As a member of the European Parliament, I appreciate the competence and integrity of the European Central Bank's monetary policies and its President's determination to stay on the inflation target characterising the measure of price stability.
I express my confidence in the good judgment of the European Central Bank, in the integrity and independence of the European Central Bank and the politicians' reserve to interfere with this bank's decisions.
Margaritis Schinas
(EL) Madam President, the Eurogroup formulates economic policy, the European Central Bank formulates monetary policy and we, here in the European Parliament, just do politics, without any other additional definitions, and this obliges us to be accountable for the full range of decisions made in the euro area.
As a newcomer to politics, while I fully respect the independence of the Central Bank, I believe I am able to offer some advice. Imported inflation, however, which is our biggest problem, cannot, in my opinion, be fully countered if the only weapon we use is interest rates.
We need to take action on the causes of inflation. We need to battle with the oil cartels, we need to battle with the raw material profiteers, we need more food on the market and, if we do not take action on the root of evil, I am afraid that we will continue to have debates similar to this, which have a logic that is understood in Brussels and Strasbourg but lack political justification in the eyes of the public.
Piia-Noora Kauppi
Madam President, I think it is absolutely amazing how the ECB has delivered the main point of the mandate: price stability. If we look at the D-mark period of 1948 to 1998, the price stability track record of the ECB is actually better than that of the D-mark, which used to be the global benchmark. I think you have delivered a very good result on that front. But I am also equally happy that you, President Trichet, referred to financial stability. This is also in the Treaty mandate of the ECB, and I think that the ECB's role in financial supervision should be strengthened.
Tommaso Padoa-Schioppa's 'twin peaks' model is very enchanting, and I think that it is now up to the Member States and the Council to take this model, to have more of a role in the ECB for financial stability supervision. In the European Parliament the Van den Burg-Dăianu report about this is currently being drawn up. It has a lot of good points which you can also use in your work when we try to deliver better financial stability supervision in Europe.
Czesław Adam Siekierski
(PL) Mr President, the economic and financial functioning of the EU creates real stability for growth. A fundamental role here is played by the European Central Bank, which has, as its fundamental objective, the creation of monetary policy. Member States and their governments are responsible for economic policy and for creating new jobs.
However, questions do come up about whether the ECB is functioning properly and about its impact on economic processes. Should the Central Bank be more proactive, as in the USA, or not? Also, in the light of the global food crisis and the increases in the prices of energy and fuel, a number of questions present themselves. First of all, what action should be taken to prevent the crisis deepening? Secondly, how to support growth in poor countries? Thirdly, how to monitor financial markets in order to avoid a repetition of the crisis in mortgage lending?
Finally, at this point it should also be clearly stated that compliance with the criteria of the Stability and Growth Pact must be equally binding on all Member States.
Jean-Claude Trichet
President of the European Central Bank. - Madam President, I appreciate enormously the remarks that have been made both in the remarkable report of the rapporteur and in the very large number of interventions which echo the independence of the Central Bank, as mentioned very clearly by Mr Jean-Claude Juncker himself. I think it is extremely important and I have to say that it is not questioned anywhere. It is an essential part of the credibility of the institution and it is because we have this very visible independence and this primary mandate - which is clear on price stability - that we have been successful up until now in anchoring inflation expectations.
I strongly emphasised the point that anchoring inflation expectations is absolutely decisive, because it permits us to continue to have, in the medium- and long-term market rates, the incorporation of these inflation expectations over the medium and long run. Some governments in Europe are borrowing on a 50-year basis. They are borrowing on a 50-year basis at rates which incorporate the credibility of the Central Bank to deliver price stability, not only over two, or five or ten or twenty years, but even much longer. It is because we are entirely aiming at anchoring, preserving the solid anchoring of inflation expectations, that we have taken the decision which has been mentioned.
In the understanding of the ECB Governing Council - and I take it, in the decision which has been taken by the European democracies in creating the ECB, the euro system and the euro area - there is no contradiction between price stability, and solid anchoring of expectations of price stability, and growth and job creation.
I have to say that it is very much considered now at global level that the appropriate way of looking at things is that through price stability and credible price stability over time you are paving the way for sustainable growth and job creation. The mention of the almost 16 million jobs which were created since the setting-up of the euro is an illustration of what I just said.
Having said that, I would also echo what was said by a large number of Members on the fact that in order to get price stability we had to get some cooperation from other decision-makers, authorities and the private sector. That is the reason why we are so clear in our own messages, fully recognising that we are independent and that those who are taking those decisions are independent. But we always insist on the Stability and Growth Pact because over-burdening of monetary policies through a lax fiscal policy is always a danger.
We are also calling on the price-setters in general - corporate businesses, the production sector, retail businesses - to incorporate the fact that we will deliver price stability over the medium term so that we do not have second-round effects in this domain.
I mentioned price-setters. I also mention of course social partners and that is the reason why we are calling strongly not only on price-setters, but also on social partners to incorporate in their decisions the fact that we will deliver price stability in line with our definition in the medium run.
The situation is obviously difficult because of the price of oil, the price of commodities or the scarcity of raw materials, which are pushing up prices. We should recall what happened in 1973-1974. It is absolutely clear that those economies which let the second-round effects gallop and had inflation on a lasting basis had both inflation and very low growth, and it was the start, in a large number of economies in Europe, of mass unemployment that we are still fighting and on our way to eliminating. Therefore, there is much at stake here in this domain and that is important.
I would also like to mention here, because it seems to me an extremely important element, that it is the most vulnerable and the poorest of our fellow citizens who suffer the most in times of lasting high-level inflation. Therefore, when we are aiming at delivering price stability in the medium run, not only do we respect the Treaty, not only do we respect the mandate - which we did not create ourselves but which was given to us by the democracies of Europe - but we are doing what is best for the most vulnerable of our fellow citizens.
On the question of the price of oil, commodities and energy and the price of food and more generally all those prices that are rising, I think that there is a triangle. As was very eloquently said by a number of Members, we certainly have the demand-driven phenomenon; the big emerging economies are introducing at global level a new element of buoyant demand and that has to be fully recognised.
We have, undoubtedly, a second side to the triangle, which is certainly the supply, and on the supply side we have a lot of responsibilities. Cartels are not good, and it is clear that we have cartels operating in a number of domains. Apart from the cartels, a number of countries and economies are also creating scarcity by preventing drilling, preventing exploration, preventing the construction of refineries. So I draw your attention to that point too. We have to see, on the supply side, whether we are doing all that we can.
As for the demand side, all economy, all energy savings are absolutely essential and are part of the mastering of the demand side; as well as recognising the real price and not having artificial prices for oil and energy, which would continue to permit the demand to be buoyant.
There is the case of the third side of the triangle, which is the reallocation of capital at a global level in the direction of commodities. That is not exactly the same in the case of oil, other energies or raw materials of all kinds. But there is such a phenomenon and that phenomenon obviously plays a role, and we have to recognise that. We have to call for markets to be as transparent as possible, to function in a fully transparent way. That is the way I will present that phenomenon and I would say that, as is the case with certain diseases where you have to treat the disease on a multidimensional basis, you have to make all possible efforts on the three sides of the triangle.
Many Members mentioned prudential supervision and the necessity to improve the situation, I would certainly echo what many Members have said. We have a situation which must be improved - that is absolutely clear. Since the setting-up of the ECB we said that we would call on all authorities to cooperate as intimately as possible. We also said that we were in favour of a very close relationship between the central banks and the supervisory authorities. Recent events since the turbulence that started in August 2007 have proven that this doctrine was right: a very close relationship between central banks and supervisory authorities is necessary.
I would say at this stage that we fully support the orientation that has been retained by the Committee on Economic and Monetary Affairs on a consensus basis. We think that there are a lot of workshops and that we have to proceed as rapidly and expeditiously as possible in this direction. I know that Parliament is reflecting on perhaps bolder initiatives. I would say that we, ourselves, would like all that has already been decided to be implemented - for nobody to take the pretext of a second stage, not to do what has been already decided. Then, I think we have to look very carefully at the proposals before us, because we believe that the more intimately we cooperate - and more intimately than is the case today - the better, certainly, for Europe. What I say for Europe is, in our opinion, valid for all other systemic parts in the global finance.
My last point concerns the exchange rate, which a number of Members mentioned. I think that the Governing Council of the ECB is in favour of the full implementation of the Treaty as it is. It seems to me that when we are in China, as Jean-Claude Juncker said, or when we are in the G7, where Jean-Claude and I are signing the communiqué of the G7, we are doing what is appropriate and if I am myself cautious - because it was mentioned that I am very prudent and very cautious when I speak on exchange rates - it is because we are in a domain which is extraordinarily touchy and a domain where, in my opinion, one has to fully respect the orientation which we have agreed upon. That is the reason why I would say that, again, at this stage we agree with all the partners of the G7 on the message for China. There is absolutely no ambiguity there. We made that very clear in the last G7 communiqué. We also consider it important that we look very carefully at the possible adverse effects of excessive fluctuations on both financial stability and growth.
I should also mention that it is very important that the US authorities repeat that a strong dollar is in the interests of the United States of America.
Jean-Claude Juncker
President of the Eurogroup and member of the European Council - (FR) Madam President, ladies and gentlemen, I am not going to go back to the comments made by the President of the Central Bank during our debate. It is better not to repeat what he said, since it was all correct, and anything I might say on the subject might be seen as an attempt to qualify his remarks, which is not necessary.
(DE) Madam President, I am speaking in German to show Mr Trichet that I know that language too, as he now does. Yes, a Frenchman who already has more than enough to do is to be complimented on taking the time, because he is living in Frankfurt, to learn the language of the people he is living amongst. Not all French people do that.
(Applause)
I shall speak German, so that he understands me better. I should like to make two or three final comments, because sometimes the debates in this House seem to be full of nostalgia for the 1970s and 1980s. The Eurogroup is urged to coordinate the economic policy of the euro Member States better. We are all trying our best to do that and we have now introduced a code of conduct in many areas of practical economic policy, which we are endeavouring to follow. However, you cannot, on the one hand, call for coordination of economic policy and, on the other hand, regret it when the economic policy that is coordinated in that way is then enforced in practice.
Let me give you some examples. We reformed the Stability and Growth Pact in 2005. Part of the substance of the reform proposals was to strengthen the preventive arm of the Stability Pact, which was underdeveloped and weak. To strengthen the preventive part of the Stability Pact, it is essential for governments to maintain budget consolidation and redouble their consolidation efforts when the economy is going well, in order to build up reserves for less favourable years, which, in the normal cyclical pattern of our economic systems, will occur regularly.
At the moment we are going through worse times. These are no longer good times. Governments that have consolidated have sufficiently wide budgetary margins for the automatic stabilisers to be brought into effect at a time when State revenue is falling. Governments that did not consolidate enough in the good times cannot, of course, react in bad times.
When we in the Eurogroup agree that Member States that have achieved their medium-term financial target can now also act on the current economic downturn and rising oil and food prices, they can only do that because they have in the past worked out the budgetary margins that are necessary, so that they are not weakened and incapable of reacting in times of crisis.
We have not called for a wage freeze; neither the Central Bank nor the Eurogroup has ever called for a wage freeze in the euro zone. What we are saying is that wages should not automatically rise with inflation but that wage trends must take account of productivity gains, which can be achieved in the economy, and wages can also be raised accordingly without inflation.
We have made it quite clear that we absolutely cannot go on asking for wage restraint from working people in Europe, while managers and other capital owners receive extreme and excessive pay and salaries. We have stated that several times.
(Applause)
Payments to the management of European firms - also and above all in the financial sector - have absolutely nothing to do with the productivity gains achieved there. They just collect the money, and their actions are not economically sound or socially responsible.
(Applause)
Because we did not order a wage freeze, because I, more than others, am perhaps very much intent on keeping the social contract aspect of European action in mind, we have strongly urged that, instead of letting firms pay, in the light of rising raw materials and oil prices, we must consider what States can do in the field of social support for the less well-off sectors of the population, in view of the weakened purchasing power.
It is, after all, simply true that States that have consolidated their budgetary position now have the necessary resources at their disposal to be able to fund social support programmes for the less well-off sections of our population. There are States that have introduced cost of living allowances, heating and rent subsidies, and that were able to afford that because of consolidation in the past. There are also States that systematically adapt their tax systems so that less well-off sections of the population can obtain net gains from tax cuts, instead of tax cuts only benefiting those in the more prosperous population groups.
To that extent, I believe that the overall policy is, if not perfect, at least conclusive. We do not want to and we must not repeat the mistakes of the 1970s and 1980s, even if that was somewhat easier in the short term. We have to act against growing inflation. In the 1970s and 1980s we allowed runaway inflation. In the 1970s and 1980s we allowed State indebtness to keep on rising. In the 1970s and 1980s we accepted public deficits, whilst playing down their effects. The result was mass unemployment in Europe, which we have now brought down to 7.2% with - and thanks to - the euro.
The result was that we had excessive social security contributions in nearly all our countries, which many of us still consider too high, and that is not to do with a rejection of social solidarity, but with sensible financing of our social security systems. Labour was overtaxed and capital undertaxed. Those were the effects of the mistaken policy of the 1970s and 1980s.
We are against inflation, because we are against unemployment and for growth. Growth and combating inflation are not antonyms. We need inflation-free growth, so that things will be better for people tomorrow. Handing out gifts today, supposedly helping people and being feted for acting like a generous social benefactor, is the wrong policy. To be successful now, you have to think about future generations, not vice versa.
(Applause)
Olle Schmidt
rapporteur. - (SV) Madam President, thank you for an extraordinarily interesting and stimulating debate. It shows that there is broad support for the thinking and conclusions we present in the report. I also want to thank you, Mr Juncker and Mr Trichet, for the good answers you have given. You respond in a way which gives the impression that you will also take on board the views and ideas we have put forward here.
Finally, let me contribute my own experiences as a politician in the somewhat less populous country of Sweden in the north. I was a Member of the Swedish Parliament and its finance committee during the 1990s, when Sweden ran into an economic wall. Experiences in politics are salutary, my friends. Those of you who believe that inflation and an unstable monetary policy will help the people who need our support most are wrong. You are wrong! As a member of the finance committee, I witnessed how the Swedish interest rate reached levels which no one could have imagined: 500%. In the 1990s, just as Mr Juncker says, we got mass unemployment, rising inflation and stagflation. I remember those experiences vividly, and they have led me to hope that my own country, Sweden, will enter the euro zone and participate fully in European cooperation.
As our colleague, Mrs Kauppi, said and Mr Trichet repeats, no one believed that the euro would be the success that it has been. I think that proves the value of European cooperation.
Mr Juncker, you said that the ECB acts with grace and determination. I think that was a good phrase. Let me offer my thanks for a good debate. I am also grateful that, as somebody who stands outside the euro cooperation system, I was given the task of drawing up this report.
President
The debate is closed.
The vote will take place today at 12 noon.
Written statements (Rule 142)
Sebastian Valentin Bodu  
in writing. - As regards economic developments, the fundamentals of the euro-area economy remain sound due to investment growth and improved employment rates and labour-force participation. While moderating, growth in the world economy is expected to remain resilient, benefiting in particular from continued robust growth in emerging economies. With regard to price developments, annual HICP inflation has remained well above the level consistent with price stability since last autumn, reaching 3.7% in May 2008 and - according to Eurostat's flash estimate - 4.0% in June. This worrying level of inflation rates results largely from sharp increases in energy and food prices at the global level in recent months. The uncertainty surrounding this outlook for economic activity remains high and downside risks prevail. In particular, risks stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices. Moreover, downside risks continue to relate to the potential for the ongoing financial market tensions to affect the real economy more adversely than anticipated. In these circumstances the decision taken by the ECB to raise by 25 basis points to 4.25% the minimum bid rate on the main refinancing operations of the Eurosystem is welcome and should be congratulated!
