Mr President, ladies and gentlemen, the European Union has equipped itself with a politically independent Central Bank, responsible for safeguarding price stability. The ECB must, at the very least, be financially independent. Pursuant to the Treaty, the Bank’s initial capital is fixed at EUR 5 billion while foreign exchange reserves are fixed at EUR 50 billion. As the European System of Central Banks is currently composed of only 11 national central banks, the capital released is only EUR 3.9 billion, while currently transferred reserves come to only EUR 39.46 billion. Of that, 15% are in gold, while the remaining 85% consist of US dollars and yen. It should be noted that interest on its own capital is the European Central Bank’s only reliable source of income. In the short term, this income varies with interest rates. The ECB’s other source of income is the interest on its official reserves. However, from that income the ECB has to deduct the interest it pays on its liabilities in euros vis-à-vis the national central banks. The foreign exchange reserves that appear on the ECB’s balance sheet are given in national currencies, while the liabilities vis-à-vis the national central banks are given in euros. At present, given the interest rate differentials between the euro on the one hand, and the US dollar and the yen on the other, the net income from interest is positive. However, in the event that interest rates vary, and to the extent that the source of income is highly sensitive to interest rate differentials, the share of income accruing from interest could fall very quickly and even produce a loss. Since the ECB holds currencies to offset liabilities in euros, it would also run a foreign exchange risk if the euro appreciated substantially against the reserve currencies it is holding. An internal ECB calculation indicates that the foreign exchange value at risk could exceed the ECB’s current capital. A 10% depreciation of the US dollar and the yen against the euro, accompanied by a 10% fall in the price of gold, would wipe out all the ECB’s existing capital. The Treaty provides for a mechanism whereby the ECB can forearm itself against any erosion of its capital. The European Central Bank can partially or totally retain the monetary income from the Eurosystem. Nevertheless, a central bank that depended on being bailed out repeatedly would not be very credible. In fact, the European Central Bank will probably close its 1999 financial year with a deficit of more than EUR 200 million. So it is imperative to resolve this structural problem as quickly as possible. On 14 April 1999, the European Parliament endorsed an ECB recommendation on doubling its capital in the long term. The recommendation under consideration today seeks to authorise the Governing Council to effect further calls of foreign reserves, raising the ceiling to EUR 100 billion. So it is simply a question of authorisation in principle to increase reserves as needed, without being pressurised by exceptional events. The ECB might, for example, make use of this procedure to augment them on a case-by-case basis, particularly during a period of large-scale intervention, but also, possibly, because of potential portfolio losses, the portfolio being revalued every quarter according to market rates. In this context it must be noted that the total reserves of the Eurosystem come to more than EUR 350 billion. As President Duisenberg maintained at his last hearing before the European Parliament, the ECB does not intend to intervene on the foreign exchange markets to try to influence the external value of the euro. In the event of another international financial crisis, which remains possible given the irrational exuberance of the markets, there could be a need for concerted intervention by the main central banks. To enable the ECB to be a party to agreements such as those known as the Plaza or Louvre agreements, the Committee on Economic and Monetary Affairs felt it was clearly necessary to advise Parliament to vote for the recommendation. I have not proposed what might be called a political resolution to my colleagues. Personally, as I said a while ago, I feel that Parliament votes on too many resolutions and that this inflated number of resolutions reduces the value of other, politically essential resolutions. In this case it is a question of saying yes or no. A massive yes vote also sends out a political message. We want the ECB to be able to pursue its main objective of safeguarding price stability in total independence – including material independence. At the same time, and here Mr Duisenberg is being too evasive for my liking, we also want the European System of Central Banks to give its unequivocal support to the European Union’s general economic policies. We want the Central Bank to play its full part on the international scene and to make an active contribution to defining new rules that will enable the international financial system to operate without crises. We are confident that the Governing Council will make optimum use of the foreign exchange reserves in the Eurosystem in the event of tension on the markets. No one claims that the deterrent effect of the foreign exchange intervention instrument is proportional to the amount of reserves. However, credibility is enhanced by the option of being able to mobilise additional assets at any time without delay. It would be warranted, however, for such internal ECB transfers, which will not be included in detail in the Eurosystem’s weekly consolidated financial statements, to be disclosed a posteriori. The European Parliament also assumes that the ECB President will explain the decisions taken by his Council when he appears before the Committee on Economic and Monetary Affairs and, indeed, during plenary debates. The Central Bank has everything to gain from this improved transparency with regard to consolidating its credibility. Mr President, I will close my statement by emphasising, speaking for myself and addressing myself to the ECB, that the ECB is there to serve the women and men of Europe, to serve the economy as a whole. So its role is not just to satisfy the expectations of the financial markets.

Political group: PSE