Local view for "http://purl.org/linkedpolitics/eu/plenary/2007-07-11-Speech-3-260"
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"en.20070711.25.3-260"2
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"Mr President, I am happy for this report to be debated jointly with the report on the eurozone. I would add that the report I am presenting was adopted unanimously by the Committee on Economic and Monetary Affairs.
Starting with the economic situation, in 2006 the economic recovery in the eurozone became a self-sustaining process with domestic demand acting as the main driver. Two million jobs were created in 2006 and unemployment fell from 8.4% to 7.6%. In the context of this recovery, I would like to stress the main points of the report. Against the background of the recent recovery, any further raising of interest rates should be undertaken with caution in order not to endanger economic growth. It is crucial that wages increase in line with productivity in order to preserve competitiveness in Member States and to allow for job creation in a non-inflationary environment. Fiscal consolidation is key and all the more necessary in good times in order to achieve long-term growth.
The report observes that small economies have performed better than large economies since the creation of the eurozone in terms of growth, with notably Ireland, Finland, Greece, Luxembourg and Spain achieving a higher average growth rate than the eurozone average and we say that lessons might be drawn from such developments. The report expresses concern about the ongoing appreciation of the euro against most major European currencies. Article 111 of the Treaty assigns responsibility for exchange rate policy to the Council but without specifying how this responsibility should be exercised.
The report calls on the Eurogroup, the Council and the ECB to exercise their respective powers and responsibilities in full coordination. The report also calls on the ECB to monitor closely developments in the use of the euro as a reserve currency for central banks and, in the context of its annual report on the international role of the euro, to quantify and analyse the effects of this, particularly as regards exchange rates. Mr Trichet will be aware that every time he has appeared at Parliament’s Economic and Monetary Affairs Committee during the last two years I have raised with him the issue of house prices. This remains a concern of mine. Therefore, the report calls for the ECB to monitor closely these developments, which have the potential to have consequences for the real economy. The report contains a request that the ECB present ways forward with their respective advantages, such as including real estate in the harmonised index of consumer prices or devising a specific type of indicator or suggesting specific measures to be taken at national level due to heterogeneities among the national markets.
I refer later on to the Fed formula. Perhaps it is time to develop an ECB formula to help forecast the likely effect of interest rate increases on house prices. My report also raises the issue of sub-prime lending and suggests that lessons can be learned in the EU from the potential difficulties for the US economy of sub-prime lending.
I would like to take a moment to address an issue of particular concern to Ireland but which has potential interest for other eurozone members. Last year in Ireland house prices were forecast to increase by 9% by estate agents Hook and McDonald, by between 8% and 10% by Sherry Fitzgerald and by 7% by Friends First and IIB, while Allied Irish Banks forecast an increase of between 3% and 6%. The recent Irish Permanent tsb/ESRI index shows in fact that house prices fell by 2.1% between January and May 2007 and a further decline in Ireland is expected. Sub-prime lending – that is lending to poorer people, those with an irregular income stream or difficult history of meeting loans – is projected to grow to EUR 4 billion in Ireland this year. If the average loan was between EUR 200 000 and EUR 400 000, then between 10 000 and 20 000 such loans exist in Ireland alone. Sub-prime lenders are relatively new to the Irish market and generally charge about twice the going mortgage rate to ‘compensate’ – as they put it – lenders for higher risk. In one case a mortgage company operating in Ireland since 2005 has already repossessed 30 homes.
There are also signs of concern in Britain about sub-prime lending. It has been known for some time that there is a Fed formula in the United States. The Fed formula devised by the US Federal Reserve, according to one of its former economists, shows that typically, when house prices have been driven up for several years by low interest rates, when interest rates increase, prices begin to decline roughly 18 months to 2 years later. I believe that the ECB should follow this formula and develop an ECB formula because, at present, we are leaving it to people who are involved in the industry to make the forecasts, and they are the people – the financial institutions and others – who have most to gain.
The report urges the Commission to assess the quality of supervision and offshore location of hedge funds. It reiterates points made in the past about democratic scrutiny and the need to publish summary minutes. It draws attention to the fact that overdraft rates in the euro area vary from 7% to 13.5% and asks that the ECB evaluate this.
It ends by saying that the number of banknotes in circulation stood at 11.3 billion with a value of EUR 628.2 billion last year, but that it is concerned about the growth in the number of 50 euro, 100 euro and 500 euro banknotes. 500 euro banknotes alone have increased by 13.2%. My report, with the support of the Economic and Monetary Affairs Committee, raises the possibility of criminal activities in the use of these large banknotes and says that it requires further examination by the ECB. I hope Mr Trichet will be in a position to respond to this report and, in particular – not today, but perhaps over a certain period – to consider my suggestion about an ECB formula to equate with the Fed formula so that there can be a true and accurate measure of the likely knock-on effect of interest rate increases on house prices in the Member States of the eurozone."@en1
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