Jean-Claude Trichet: The ECB's response to the crisis
Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the WDR
Europa-Forum, Berlin, 26 May 2011.
* * *
Sehr geehrte Damen und Herren,
ich freue mich sehr, heute hier zu sein. Vielen herzlichen Dank für die Einladung.
Ich freue mich besonders, zu einem so wichtigen Thema - der europäischen Antwort auf die
Wirtschafts- und Finanzkrise - zu sprechen.
* * *
Wie Sie wissen, ist das primäre Mandat der EZB, für Preisstabilität im Eurogebiet zu sorgen.
So ist es von den Europäischen Staats- und Regierungschefs in den Verträgen zur
Europäischen Union 1992 festgeschrieben worden. Und dementsprechend strebt der
EZBRat eine mittelfristige Inflationsrate von unter, aber nahe bei 2% an.
Die EZB ist diesem Mandat in den vergangenen zwölf Jahren gerecht geworden. Die
jährliche Teuerungsrate betrug über diesen Zeitraum im Eurogebiet 1.97%. In Deutschland
lag sie mit 1.5% seit 1999 sogar noch deutlich darunter. Für Deutschland ist dies das beste
Ergebnis über einen vergleichbaren Zeitraum seit 50 Jahren mit der D-Mark. „Stark wie die
Mark" sollte der Euro sein - und stark wie die Mark ist er geworden.
It is important to understand the significance of this achievement. Over the past 12 years, the
ECB has faced many challenges in the pursuit of our goal of price stability. They include the
bursting of the internet bubble, the aftermath of 11 September 2001, sharp volatility in
commodity prices and of course the worst financial crisis since World War II.
Today I would like to focus specifically on our response to the crisis - and on the
programmes of reform of financial regulation and economic governance on which the euro
area and the European Union as a whole are engaged.
While there is no doubt of the scale of the challenge that the crisis has posed for all
advanced economies, including the US and Japan, there is also no doubt that we have taken
significant measures in responding to that challenge. But much more needs to be done.
I. Financial and economic reform prompted by the crisis
Let me begin with financial regulation. The crisis calls for a comprehensive agenda of reform
of virtually every aspect of the global financial system. We must control the forces that led
the system to become absorbed with itself and ensure instead that it serves the real
economy. And we must be assured that the financial system provides a sustainable
contribution to economic growth.
At this point, we have achieved a blueprint of more stringent bank regulations, which includes
more loss-absorbing capital, better risk coverage and limitations on undue leverage.
Countercyclical capital buffers are intended to lower pro-cyclicality.
The oversight of financial institutions, financial markets and market infrastructure are being
strengthened, and the organisational structure of financial supervision is being overhauled.
But much remains to be done. The most important aspect is implementation of these
reforms. Moreover, the issue of systemically important financial institutions still requires
decisions, and oversight of financial markets must be strengthened. We cannot afford the
consequences of limited transparency and excessive influence of dominant players and
oligopolistic market structures.
The new European System of Financial Supervision is an important step forward. The three
new European Authorities - for banking, for insurance and occupational pensions, and for
securities and markets - are strengthening our focus on interlinkages and spillovers within
the EU's financial system. And the European Systemic Risk Board is developing the tools it
needs to issue warnings and make recommendations for action on potential future sources of
systemic risk.
Inattention to financial risk was the prime cause of the crisis. Inattention to macroeconomic
risk - and the many ways in which such risk interacts with fragile fiscal structures - prepared
the ground for the budgetary troubles that some euro area countries are facing today. This
brings me to reform of economic governance.
The EU is about to introduce surveillance focused on imbalances and divergences in
competitiveness across the euro area. This is long overdue. Since 2005 within the Eurogroup
and - shortly thereafter - publicly, the ECB has warned that such divergences create
considerable risks and must be corrected.
If fully implemented, macroeconomic surveillance will make a strong contribution to the
smooth functioning of EMU. It will compel Member States to take measures to counter
emerging macroeconomic imbalances at an early stage, before they become a drag on their
macroeconomic prospects and potentially escalate to systemic proportions.
Governments had agreed on the Stability and Growth Pact to prevent a debt crisis. But in
2005 the Member States agreed on a reform of the Pact. At the request of Germany and
France, more discretion and flexibility was added to the surveillance procedures. This turned
out to be to the detriment of the Pact. It weakened the Pact considerably.
At that time, the ECB expressed serious concerns about the negative effect of these reforms
on the functioning of EMU.
It is important that Member States have acknowledged this mistake and intend to strengthen
the Pact again. The new focus on fiscal sustainability and reducing government debt levels,
backed by more effective sanctions, certainly goes in the right direction.
The euro is unique among international currencies. It is the only major currency that is issued
not by a single sovereign state but by a union of states. Fiscal policies remain largely the
competence of national governments and reflect national political preferences. Monetary
policy is inherently indivisible in a monetary union, and in the euro area it is thus conducted
at the European level.
The current crisis is not a crisis of the euro. Neither is it a crisis of monetary union. Rather, it
is a crisis of the economic policies in some Member States and a crisis of mutual
surveillance. If we recall that EMU stands for Economic and Monetary Union, it is not the
monetary pillar of EMU that is under scrutiny at present, but the economic pillar. Speaking in
terms of letters, the "E" and not the "M" in EMU is giving cause for concern.
Our economic governance framework has not been sufficient to ensure sound policies are
conducted in all Member States. The Treaty clearly specifies that Member States have
committed to economic policies geared to contributing to the objectives of the Union, one of
which is a stable single currency. They have yet to live up to this commitment fully.
The Governing Council of the ECB is concerned that the reforms to economic governance
currently under discussion are a step in the right direction but do not go far enough to
address the structural weaknesses of fiscal and broader macroeconomic governance in the
euro area. At the very least, we require more automaticity in the sanctioning mechanisms.
Euro area countries that are breaching our common rules should be called to account, with
as little room for discretion and flexibility as possible. This implies less room for halting or
suspending procedures and stricter deadlines.
Behind this we argue in favour of stronger sanctions to encourage compliance. This would
require, on the one hand, a wider range of financial and non-financial measures, and on the
other hand, less discretion to reduce or suspend them. Such a strengthening would improve
effectiveness and set the right incentives.
At the same time, more ambitious policy requirements would better match the current reality
of the euro area. This means having ambitious benchmarks when establishing an excessive
deficit and when setting the adjustment path towards a "safe" budgetary position. It is very
important for macroeconomic surveillance to have a clear focus on the countries with the
greatest vulnerabilities.
Anchoring these new rules at the national level would forcefully anchor them in national
legislation. Binding commitments by Member States to implement strong national budgetary
frameworks are key to ensuring national ownership. Finally, further improvements in the
production of fiscal statistics are in our view warranted.
These are all areas in which the ECB is presenting arguments. In the end, these matters are
decided by the Council and the Parliament, and they have therefore the key responsibility in
shaping the new framework.
II. The ECB's response to the crisis
Let me now turn to my final topic - the "M" in EMU, which is the direct responsibility of the
ECB. During the crisis, along with central banks around the world, the ECB has had to
operate in uncharted waters.
The ECB demonstrated its alertness from the very first day. When the problems in financial
markets first became apparent on 9 August 2007, we were the first central bank to respond,
acting within hours.
While the crisis required fast and unprecedented action we have never lost sight of our
primary objective: to maintain price stability over the medium term for the 331 million citizens
of the euro area. All - and I emphasise all - our monetary policy decisions during the past
twelve and a half years have aimed at delivering on that commitment.
As you know, in normal times central banks mainly influence the economy and inflation
through the setting of short-term interest rates.
In practice, identifying risks to price stability at an early stage is far from trivial. To accomplish
this task the ECB relies on a robust monetary policy strategy that draws on several sources
of information. Economic analysis allows us to synthesise information on short-term
inflationary pressures from a multitude of economic indicators. Monetary analysis allows us
to cross-check this information with information on medium-term inflationary pressures
extracted from monetary and financial indicators. It is on this basis that we decide on the
appropriate monetary policy stance and adjust interest rates accordingly.
Our positive track record has endorsed our approach. Over the past twelve and a half years
we have built a strong reputation for setting interest rates as appropriate to maintain price
stability.
Our decisions in the face of political pressure have demonstrated our fierce independence.
We refused to decrease rates at the beginning of 2004 when Germany, France and Italy, in
particular, asked us to do so. We did not hesitate to raise interest rates in December 2005. At
that point, ten euro area governments out of 12 and many international observers pressured
us to keep rates on hold.
The IMF, for example, was emphasising the risks that tightening - after a prolonged period of
policy accommodation - could pose for the recovery. We tightened policy despite these
warnings, and we were vindicated - by the IMF's own admission.
We also did not hesitate to raise interest rates in July 2008. Then, our analysis indicated that
past oil price increases threatened to create second-round effects on wages and prices.
After the intensification of the crisis in mid-September 2008, as inflationary pressures
receded, in full consistency with our mandate, we decided to reduce our policy interest rate
rapidly between October 2008 and May 2009, from 4.25% to 1%.
We reduced the interest rate to a level and at a pace that has not been experienced in the
countries of the euro area at any time in recent history.
With the benefit of hindsight, the interest rate decisions we took during the crisis have proved
successful. Over the past four years we have maintained a very solid anchoring of inflation
expectations. Our determination to preserve price stability in the medium term has allowed
us to avoid the materialisation of the risk of inflation as well as of the risk of deflation.
In most recent months, with the overall recovery more firmly established, we have witnessed
the emergence of upside risks to the medium-term outlook for price stability. Once more,
strong increases in oil and other commodity prices have had a strong impact on headline
inflation. Once more, we have to avoid commodity price increases becoming entrenched in
longer-term inflation expectations, which could have second-round effects on wages and
prices.
It is against this background that the Governing Council decided to raise interest rates in
April. And I would like to emphasise that this decision was unanimous. The Governing
Council is united by a common purpose.
We are carefully monitoring the situation and we stand ready to do whatever is necessary to
fulfil our mandate - just as we have done over the past twelve and a half years.
This logic applies not only to our policy interest rate but also to the other measures we have
adopted in response to the crisis. When the crisis hit, dysfunctional financial markets
threatened our ability to steer the outlook for price stability with our standard interest rate
instrument. In response, we adopted a number of non-standard measures to ensure that our
interest rate decisions were transmitted to the broader economy, despite the problems in the
financial sector and financial markets. In particular, the aim has been to enable banks - at
any level of the monetary policy interest rate - to continue lending to household and firms.
Let me emphasise that our non-standard measures do not in any way impinge on our
capacity to tighten our monetary policy stance in response to inflationary pressures.
There is a clear separation principle between our non-standard measures and our interest
rate policy. Interest rate policy depends on the outlook for price stability. The use of
nonstandard measures depends on the functioning of the monetary policy transmission and must
be commensurate with the level of malfunctioning or disruption of money and financial
markets and segments of markets.
This separation principle is strictly applied. To give you a recent example, the Governing
Council decided in March and April both that it was now time to increase interest rates and,
at the same time, that it was appropriate to maintain in the second quarter the full allotment
at fixed price refinancing on a 3 month duration.
III. Conclusion
Damit komme ich zum Schluss. Die Krise hat den Euroraum vor große Herausforderungen
gestellt. Aber wir haben diese Herausforderungen angenommen. Der Euro hat sich als
Stabilitätsanker in stürmischer See erwiesen. Davon haben alle - ich betone, alle - Länder
des Euroraums profitiert.
Bei alledem sollten wir nicht übersehen, dass der Euroraum als Ganzes in den vergangenen
zwölf Jahren erhebliche Fortschritte gemacht hat. Die wirtschaftliche Dynamik im Euroraum
hat derjenigen in den Vereinigten Staaten in nichts nachgestanden. In beiden Regionen ist
das Pro-Kopf-Einkommen im Jahresdurchschnitt um etwa 1% gestiegen. Dabei hat der
Euroraum deutlich mehr Beschäftigung geschaffen als die Vereinigten Staaten. Im Euroraum
als Ganzes ist die Beschäftigung in den vergangenen zwölf Jahren um mehr als 14 Millionen
gestiegen. In den Vereinigten Staaten betrug der Anstieg 8 Millionen. Und all das haben wir
erreicht vor dem Hintergrund von Inflationserwartungen im Eurogebiet, die auf einem
niedrigen Niveau verankert sind. Dies ist eine mehr als beachtliche Bilanz.
Ich kann Ihnen versichern, dass die Europäische Zentralbank auch in Zukunft ihren Teil zum
reibungslosen Funktionieren der Wirtschafts- und Währungsunion beitragen wird: wir werden
ohne Wenn und Aber die Preisstabilität sichern.
Ich danke Ihnen für Ihre Aufmerksamkeit.