Local view for "http://purl.org/linkedpolitics/eu/plenary/2008-12-17-Speech-3-398"
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"en.20081217.24.3-398"2
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"Mr Mitchell, price stability is laid down in the Treaty as the principal mandate. The European Central Bank’s main mandate is to keep prices stable. Once this principal mandate or objective has been achieved, or in so far as it is achieved, the mandate is to ensure that monetary policy is coordinated with the rest of the economic policy objectives. That is something that the ECB itself and the other European institutions must ensure.
What does the ECB mean by price stability? I believe it defined it very clearly back in 2003, if I am not mistaken. It means inflation below 2% but very close to 2% over the medium term.
Over all these years, from 1999 until now, meeting this target of just below 2% has meant trying to keep inflation down. Next year, if the forecasts are right, price stability may be interpreted for the first time as trying to keep up to 2% without going over it, because we will probably be living in a situation in which not only month-on-month inflation but perhaps even inflation forecasts for the medium term are dropping below 2%.
The mandate will continue to be the same, however. The instruments used and the methods of achieving the objective will be different, of course, but that will continue to be the objective.
The second area of activity or set of actions of any central bank and, of course, of the European Central Bank, is to provide liquidity. This is extremely important at the present moment.
I think the ECB is doing what is has to do, but it makes no secret of the fact – it says so quite openly – that it provides liquidity in the mornings, but normally, before shutting up shop at the end of the day, it receives liquidity from those financial institutions that have not used that liquidity for their credit operations. That has now given rise to a debate: the newspapers these days are carrying statements by the ECB’s Vice-President, Mr Papademos, and by some other executives to the effect that the bank is discussing how it should use the necessary instruments to ensure that this provision of liquidity is effective and not simply a circular operation which ends up returning the money each afternoon to the place it came from that morning.
I now come to the second question, on the difference. In some EU Member States outside the euro area, inflation is higher than in the vast majority of the countries within the euro area. If you look at the note that Eurostat circulated this morning on inflation at the end of November, you will see that most EU countries outside the euro area have a higher inflation rate than the country with the highest inflation within the euro area.
Therefore, there is more inflation outside the euro area at the moment, to a large extent because there are countries outside the area that are going through a rapid convergence process, and where there is greater inflationary pressure due to a series of more intense effects of the use of energy, greater dependence on foreign energy sources that have risen in price, or the ‘Balassa-Samuelson effect’, in technical jargon.
In a sector-by-sector comparison, inflation is clearly higher in the services sector. Despite the very rapid fall in year-on-year inflation in recent months, you will see that inflation in the services sector has remained fairly constant at 2.5-2.6%. Inflation in the food products, processed foods and industrial goods sectors has fluctuated much more for the reasons that I outlined before in my reply to Mr Medina Ortega. The services sector, however, has stayed at an inflation rate that is above the price stability target, which is to remain below 2%. Even so, its rate is close to 2%."@en1
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