European Central Bank: Press Conference - introductory statements
Introductory statements by Mr Willem F Duisenberg, President of the European Central Bank, and
Mr Christian Noyer, Vice-President of the European Central Bank, at the Press Conference held in
Frankfurt, on 6 July 2000.
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Ladies and gentlemen, the Vice-President and I are here to report on the outcome of today's meeting
of the Governing Council of the ECB, which was also attended by Mr. Papademos, Governor of the
Bank of Greece, to whom the Governing Council has extended a standing invitation following the EU
Council's decision on Greece's adoption of the euro on 1 January 2001.
The Governing Council conducted its regular examination of recent monetary and economic
developments and their implications for the risks to future price stability in the euro area.
Subsequently, it decided to keep the interest rates on the Eurosystem's monetary policy instruments
unchanged. Thus the minimum bid rate in the main refinancing operations of the Eurosystem was left
at 4.25%, and the interest rates on the marginal lending facility and the deposit facility were kept
unchanged at 5.25% and 3.25% respectively.
Allow me to give you an overview of the main elements of our assessment of the latest information on
monetary, financial market and other economic developments.
In the context of the first pillar of our monetary policy strategy, let me start with the latest monetary
developments in the euro area. The three-month average of the annual growth rates of M3, covering
the period from March to May 2000, stood at 6.3%, which was unchanged from the period from
February to April 2000. At 6.3%, M3 growth was substantially above the reference value of 4 1/2%.
This deviation of M3 growth from the reference value, combined with the strong growth of both M1
and credit to the private sector, indicates that liquidity conditions continued to be ample in the euro
area through May. The increase in ECB interest rates on 8 June - in conjunction with the interest rate
increases made since November 1999 - exerts a moderating influence on both money and credit
growth.
Turning to the second pillar of our strategy, considering real economic developments, recent data
indicate that the euro area economy has continued to grow at a robust pace. The first estimate of real
GDP growth in the first quarter of this year was 0.7%. Although this was slightly below the average
observed in the second half of last year, other indicators all point towards strong growth of the
domestic economy. The rate of growth of industrial production, for example, not only increased in
April, but also incorporated an upward revision for the first quarter. Industrial and consumer
confidence both remain at, or close to, record high levels. At the same time, external developments are
continuing to provide a positive stimulus to economic growth in the euro area. Reflecting favourable
domestic and external conditions for growth, the outlook for euro area growth continues to be positive.
There have not been any major changes in bond and foreign exchange markets since the decision of
the Governing Council on 8 June to raise the ECB interest rates. Current bond market yields continue
to show market expectations of a period of sustained economic growth in the euro area. At the same
time, the accumulated depreciation of the exchange rate of the euro remains a cause for concern and
has to be taken into account in the assessment of the risks to price stability.
As regards consumer price developments, inflation in May 2000, as measured by the Harmonised
Index of Consumer Prices (HICP), remained at 1.9%. A lower year-on-year change in services prices
offset relatively strong rises in other prices, in particular energy and unprocessed food prices. Over the
coming months the rate of increase in consumer prices could continue to be affected by lagged effects
of the increase in import prices. For the outlook for price stability in the medium term, it is essential
that these short-term movements of inflation do not become protracted and translate into second round
effects.
Overall, the outlook for price stability will be affected by several factors, which will need to be
monitored carefully. First, strong monetary growth and ample liquidity conditions call for continuous
monitoring. In addition, it will be important, in the current phase of strengthening economic growth,
for wages to continue, on average, to grow at rates compatible with the objective of price stability.
This, together with structural reform in the labour market, will be important to sustain the process of
non-inflationary growth and to reduce unemployment in the euro area. Developments in import prices,
which are influenced by the evolution of the exchange rate of the euro and the price of raw materials,
may affect the outlook for prices in the period ahead. Finally, I should like to stress that a pro-cyclical
loosening of the fiscal policy stance could also add to upward risks to price stability. In this respect,
when looking at the euro area as a whole on a consolidated basis, current fiscal budget plans are not
sufficiently ambitious in view of the favourable economic prospects.
Let me now give the floor to the Vice-President to say a few words about other issues discussed by the
Governing Council.
First, I should like to address the euro banknote-related issue concerning the determination of the
number of banknotes to be printed before the launch date of 1 January 2002. The latest forecast shows
that there will be a need to put 14 billion euro banknotes into circulation, compared with last year's
estimate of 13 billion. The increase can be attributed to three main factors: a higher than expected
figure for national banknotes in circulation, which forms the basis of estimates of the launch stocks; a
higher forecast for the use of low-denomination banknotes; and a somewhat slower than previously
expected development in the use of electronic money.
Second, the Governing Council also had an exchange of views on recent developments in the EU
banking industry. The discussion was based on preparatory work by the Banking Supervision
Committee. The Governing Council is well aware that the current process of consolidation is no longer
confined to small and medium-sized banks - as it was in the past - but that now it also covers the larger
banks at the national level and cross-border mergers and alliances are on the increase. The role of the
euro as a factor encouraging this process of consolidation via further integration of money and capital
markets is important. The consolidation process is welcome in general since it allows efficiency gains
to be achieved in the banking sector. On the other hand, it affects the competitive environment in
which banks operate, as well as their risk profile. Therefore, a careful monitoring on the part of the
public authorities responsible for prudential supervision and financial stability is required. The
Governing Council decided that a report on mergers and acquisitions involving the EU banking
industry be prepared for publication in the autumn.