Local view for "http://purl.org/linkedpolitics/eu/plenary/2007-07-11-Speech-3-262"
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"en.20070711.25.3-262"2
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Mr President, ladies and gentlemen, I have the honour of presenting to you today the annual report of the European Central Bank for 2006. This is an important tool for giving an account to the people of Europe, to their elected representatives, to Parliament, of monetary policy and of our activities in our areas of responsibility.
We also consider that free and undistorted competition fosters long-term economic growth and job creation and facilitates the maintenance of price stability in the euro area.
Let me say a word now on financial stability, which I know is a very important issue for Parliament. We would acknowledge the positive role that hedge funds play by contributing to enhancing the efficiency and liquidity of financial markets. We should also be aware, however, that hedge funds can represent also a source of risk to the stability of the financial system. Against this background, the report which was issued in May 2007 by the Financial Stability Forum at the request of the G8 on highly-leveraged institutions is welcome. The report contains a number of recommendations addressed to supervisors, hedge-fund counterparties and investors, and the hedge-fund industry itself, which I fully share. As for the role to be played by the industry, more than ever we will support the proposal that the hedge-fund sector would strive for best practices and that industry-led benchmarks would be a suitable tool to pursue this objective. In this vein, the recent initiative that has been undertaken by the industry to set up a working group to review best practices is a very welcome development and I look forward to the result of such work.
My final remarks perhaps concern the integration of payment systems in Europe. I have noted with satisfaction that the approach of the Single Euro Payments Area and the Target 2 project is very positive and we will continue in the Eurosystem to play our role in this regard.
As far as T2S is concerned, we have put into place a governance model for the development phase which seeks to involve all stakeholders through the creation of an Advisory Group on T2S where market players are well represented. In April 2007 we launched an official public consultation on the principles and proposals underlying the T2S Project. The first preliminary assessment of these comments shows that their feedback is generally positive. Out of 67 proposals, we have obtained a total of 3200 remarks from 56 institutions and we have noted that 60% of these 3200 remarks indicated full agreement to the proposals, while only 6% indicated full disagreement. All the feedback received has been published and is being very carefully considered.
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I would like to start by giving a short review of economic and monetary developments in 2006 and explaining the monetary policy decisions taken by the ECB. I would then like to say a few words on financial stability and on the issue of payment systems.
I will start with the economic and monetary issues. In 2006, the ECB’s monetary policy continued to anchor medium- and long-term inflation expectations at levels consistent with price stability, reflecting the credibility of the ECB in conducting its monetary policy. As has been said by the rapporteur very eloquently, in 2006 the euro area economy expanded at the highest growth rate since 2000. Notwithstanding the impact of high and volatile oil prices, real GDP rose by 2.9% compared with 1.5% in 2005. The economic recovery gradually broadened in the course of 2006, and the nature of economic expansion became increasingly self-sustaining, with domestic demand acting as the main driver. The latest data and survey releases have remained broadly positive, supporting the view that economic activity in the euro area in the second quarter of 2007 continued to expand at solid rates. Looking ahead, the medium-term outlook for economic activity remains favourable and the conditions are in place for the euro area economy to continue to grow at a sustained rate.
Regarding price developments, average annual HICP inflation in 2006 was 2.2%, unchanged compared with the previous year. This was above the ECB’s aim to keep inflation over the medium term below, but close to, 2%. Although this outcome mainly reflects the increases in oil and commodity prices and although inflation has been slightly below 2% in the first half of 2007, there is no room for complacency.
The outlook for price stability over the medium term remains subject to upside risks. As capacity utilisation in the euro area economy is high and labour markets are gradually improving, constraints are emerging which could lead in particular to stronger than expected wage developments. In addition, pricing power in market segments with low competition may increase in such an environment. Our assessment that upside risks to price stability prevailed has been confirmed throughout the period from the start of 2006 to mid-2007 by cross-checking with the monetary analysis. The marked dynamism of monetary and credit growth in 2006 and 2007 reflected a continued persistent upward trend in the underlying rate of monetary expansion, adding further to liquidity accumulation.
To address the upside risks to price stability identified by the ECB’s economic and monetary analyses, the Governing Council has, as you know, adjusted the monetary policy stance gradually in eight steps since the end of 2005. As I said last Thursday in explaining the assessment of the Governing Council, after the adjustments in the key interest rates, the ECB’s monetary policy remains still on the accommodative side, with overall financing conditions favourable, money and credit growth vigorous, and liquidity in the euro area ample. Firm and timely action continues to be warranted to ensure price stability over the medium term. The Governing Council will continue to monitor closely all developments in order to ensure that risks over the medium term do not materialise.
As regards fiscal policies, the ECB shares the view expressed in the draft resolution that fiscal consolidation is key and all the more necessary in good times in order to achieve long-term growth. For the Governing Council as was very eloquently said I have to say by both the rapporteur and by the President of the Eurogroup, it is important that all governments comply with the provisions of the Stability and Growth Pact on fiscal consolidation and that all the countries concerned honour the commitments made at the Eurogroup meeting in Berlin on 20 April 2007. As agreed in Berlin, taking advantage of the favourable cyclical conditions would enable most euro area countries to achieve their medium-term objectives in 2008 or 2009, and all of them should aim for 2010 at the latest.
I have to say that we also very much welcome the emphasis which has been placed by the ECOFIN Council on measures to improve the quality and efficiency of public finances.
Turning to structural policies, the motion for a resolution adopted by the ECON Committee refers several times to economic divergences in the euro area. Let me stress first that, overall, inflation differences among euro area countries have fallen and are currently relatively limited by historical standards. The magnitude of current inflation and output differentials at the moment I am speaking is similar to those that are observed across regions or states within the United States of America, a vast continental economy which has an order of magnitude, a dimension, which is of the order of magnitude of ours. That being said, a single currency means a single monetary policy and a single exchange rate vis-à-vis other currencies. It is therefore all the more important to ensure that all the national shock adjustment mechanisms function perfectly. The efficient and smooth functioning of economic adjustments within the euro area requires the removal of institutional barriers to flexible wage- and price-setting mechanisms as well as the completion of the Single Market and thus greater cross-border competition. Indeed, well-designed structural reforms implemented by national governments are crucial to improve the functioning of product, labour and financial markets and to reinforce competitiveness."@en1
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"Thank you very much for your attention."1
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