Mr. Duisenberg's opening statement at the meeting of the Governing Council of the European Central  (Central Bank Articles and Speeches, 11 Sep 98)
Central bank: ecb | Type: speech | Date: 1998-09-11

Mr. Duisenberg's opening statement at the meeting of the Governing Council of the European Central Bank Introductory statement by the President of the Europe Central Bank, Dr. W.

F.

Duisenberg, at the press conference held in Frankfurt on 11/9/9Ladies and gentlemen, the Vice-President and I are here today to report no on the outcome of today's meeting of the Governing Council of the European Central Ban also - as you are already aware - on the outcome of the meetings of the Governing Cou the General Council that took place on 1 September 1998.

It was in view of the short t between the two sets of meetings that we decided that it would be more efficient to hol press conference to provide you with a summary of our deliberations.It is my intention to continue this practice for the remaining meetings of In this regard, the Governing Council will meet, not only as scheduled on 13 Oct November and 1 December 1998, but there will also be an additional meeting on Tuesday December 1998.

By this time, the bulk of nearly five years of preparatory work - incl 'EMI years' - will be behind us and I envisage that the Governing Council's final meetin the start of Stage Three of Economic and Monetary Union (EMU) will be devoted to fine-t its last-minute preparations.

You will recall that monetary policy decisions remain competence until 31 December 1998.

Looking ahead to next year, the Governing Council hold fortnightly meetings and I intend to hold a press conference, normally, once a m the first quarter of 1999, I envisage holding a press conference immediately after meeting of each month.

Further details of the meetings schedule are provided in the press release that will be issued to you this evening.Let me, however, return to the present.

The Governing Council and the Gen Council devoted part of their September meetings to an extended exchange of views on economic, monetary and financial developments.

In particular, much attention was paid global economic and financial environment of the future euro area, which has clearly w Two major factors are currently affecting capital markets.

First, the 'flight into quali and related - the tendency to switch from equities to bonds.

As evidenced once again past few days by large swings in investor sentiment, the monetary policy environme become more uncertain.One focal aspect of the discussion has been a close monitoring of the fi crisis in Russia.

As we all know, the Russian crisis has added to concerns regarding t the world economy at a time when the crisis in Asia is still ongoing and growth in negative.

These concerns have been fuelled by renewed strains in international financia as well as sharp fluctuations and downward corrections in major stock markets.

Ther doubt that these developments will have a dampening effect on the world economy.

Howe their precise impact is difficult to measure at the current juncture.On the one hand, economic and model-based analysis still suggests only mode effects on prices and output in the euro area.

This is due to the fact that, first, m regions are quite small in economic terms, i.e.

when compared with world GDP or contribution to world trade.

Second, trade links between these countries and the eur also of limited size.

Third, the euro area itself is a very large economy, which is exposed to variations in global trade to a certain degree.

However, on the other analysis should not mislead us.

We are perfectly aware that the risks associated wi global developments go beyond those effects which we can measure directly.

In this res may think of indirect influences resulting from changes in confidence, saving and expwithin the euro area.

We have to take these risks seriously and analyse the situation we should also not dramatise.Let me now turn to the latest available data.

These seem to indicate that e expansion within the euro area has remained broadly on track, despite the worsening external environment.

Domestic demand remains strong, while the contribution to growth net exports has declined.

Both private consumption and investment provided an imp stimulus to the growth rate in the first quarter of this year.

More up-to-date indi towards continued expansion in the second quarter, albeit at a possibly more moderate p in the first quarter.The outlook on consumption is supported by higher real earnings growth declining unemployment, and is reflected in consumer confidence.

The evidence fo corporate sector is perhaps more mixed.

As compared to the first quarter of 1998, i production figures show a somewhat slower rate of increase in the period from April to capacity utilisation has continued to increase and this, combined with low interest ra underpin investment.

European Commission survey data, such as confidence indicators an assessment of order books, bear witness to relatively high levels, both with respect to term averages and recent peaks.

This can also be taken as a favourable indicator for growth in the short term, although some indicators have not improved further since th Unemployment has also been declining, but at a modest pace, and from a high leve discussing the cyclical uncertainties, one should not forget that work on badly needed reforms has not so far made much progress.Considering recent price developments, HICP inflation for the euro area whole remained stable at 1.4% between May and July.

Both domestic and external factor appear to be favourable, suggesting that euro area inflation may be expected to remain in the future.

An important external factor underlying the favourable prospects for inf sharp decline in oil and commodity prices, which is partly associated with developments Moreover, domestic sources of inflation, such as those arising from the labour market and capacity utilisation, are also relatively moderate at the present juncture.

In taking a euro area wide perspective, these views are also broadly compatible with monetary and financial developments.

In this connection, please take note that we sho have new information on monetary developments on the basis of the new statistical re framework for money and banking.The environment of significant volatility in international financial particularly stock markets, appears to account for much of the recent decline in long-t rates in the euro area to historically low levels, as investors have sought to protec against heightened global risk.

Nonetheless, it is notable that the euro area yield downwards at all maturities, which to some extent would tend to indicate a further d long-term inflation expectations for the euro area as a whole.As we approach the start of Stage Three, we shall need to continue to mo closely economic, monetary and financial developments within the euro area and in the economy.

This will allow us eventually to set the interest rate for the euro area as a same time, we shall also need to monitor fiscal intentions in the euro area Member Stat will become more transparent over the autumn.

If governments merely adhere to previous targets for 1999, the structural position of budgets in quite a number of countr effectively deteriorate.

This would entail that they would move farther away from, raapproach, the requirements of the Stability and Growth Pact, which calls for the achiev budget close to balance or even in surplus.In addition to the review of economic developments, a number of organisati issues were settled.- (i) The General Council adopted its Rules of Procedure, which will be publ in the Official Journal of the European Communities.

You will recall that I informed yo Governing Council's Rules of Procedure were adopted in July.(ii) The General Council also decided that the non-euro area national centra shall pay up 5% of their subscriptions to the capital of the European Central Bank However, the four national central banks concerned will not be asked actually to pay share as the amount due is less than they can expect to receive as their share in the the liquidation of the European Monetary Institute (EMI).

Further details on the actua involved are provided in the separate handout that will be issued to you this evening.(iii) For its part, the Governing Council completed the list of committee will assist in the work of the European System of Central Banks (ESCB).

In addition eleven ESCB Committees agreed upon at the meeting in July, the Governing Council decid establish an International Relations Committee and a Budget Committee.

The latter was s order to provide transparency to the shareholders of the ECB - the national central matters relating to the budget of the ECB.(iv) Finally, the Governing Council endorsed the draft Headquarters Agree between the German Federal Government and the ECB, which will be signed here in Frank on 18 September 1998.A number of decisions were also taken with regard to various aspects o preparatory work for Stage Three.

## (a) Exchange rate policy co-operation between the euro area and other EU countriesThe General Council endorsed the text of an Agreement between the ECB and t non-euro area national central banks, laying down the operating procedures for an excha mechanism in Stage Three (the so-called ERM II).

You will recall that the European Cou Amsterdam in June last year agreed to set up an exchange rate mechanism in Stage Th replace the present European Monetary System (EMS).

For this reason, the EMI had, on b of the ECB, prepared a draft Central Bank Agreement to replace the current exchang mechanism (ERM I, if you like) by a new one in Stage Three.

It is this Agreement whi now been signed by the President of the ECB and the Governors of the four non-euro national central banks.

The signature by the latter implies their agreement to the procedures.

It does not, however, imply their participation in ERM II.Further details on the conventions and procedures for ERM II are provided separate press release that is being issued to you this evening.

The Agreement itse published in the Official Journal of the European Communities. (b) Monetary policy issuesThe Governing Council agreed on several issues relating to the monetary p framework in Stage Three.

At the centre of this framework is the report entitled 'T monetary policy in Stage Three: General documentation on ESCB monetary policy instrume and procedures', which contains a detailed description of the monetary policy instrum procedures to be applied by the ESCB in Stage Three.

The report expands on and updat material included in an earlier version of the report that was published by the EMI in 1997.

I should like to limit my remarks in this regard to the announcement that a co comprehensive report will be released very shortly, at which time a separate pres explaining the nature and purpose of the documentation will be issued.The Governing Council also agreed upon a guideline for the management of foreign exchange assets by the national central banks and for the Member States' tra with their foreign exchange working balances.

These are now being formalised in offici documentation.

## (c) StatisticsThe

Governing Council endorsed the statistical framework on the basis number of reports that had been prepared by the EMI - many of which had been published past - thereby confirming the ECB's statistical requirements for Stage Three.

I shoul point out that the reporting framework for the money and banking statistics of the appear in the 'General Documentation' that will be released next Wednesday.

## (d) Euro banknotesWith regard to the euro banknotes, the Governing Council confirmed (in line previous recommendations by the EMI) that seven banknote denominations would be issued 10,

20, 50, 100, 200 and 500.

Furthermore, it decided that there would not be any features on the euro banknotes.

As you know, the euro banknotes will be put into circu 1 January 2002.

Thus there are fewer than 800 working days to go before their launc Governing Council took note that the technical preparations for the euro bankno proceeding according to schedule.

The origination phase (i.e.

the process of conve designs into proof-prints) has now been successfully concluded and a zero-production ru conducted in the autumn before mass production starts in early 1999.

## (e) Payment systemsThe Governing Council endorsed a list of eligible securities settlement s following an assessment of such systems against standards that had previously been la for

their use in the credit operations of the ESCB.

The list, which indicates thos settlement systems that will be used by the ESCB and the conditions for their use, will in the 'General Documentation', to which I have already referred.

In addition, the G Council approved a report on the 'Assessment of EU securities settlement systems agai standards for their use in ESCB credit operations'.

It is intended to release this repo next couple of weeks.