Jean-Claude Trichet: Hearing at the Committee on Economic and
Monetary Affairs of the European Parliament
Introductory statement by Mr Jean-Claude Trichet, President of the European Central Bank,
at a hearing at the Committee on Economic and Monetary Affairs of the European
Parliament, Brussels, 29 August 2011.
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Dear Madam Chair,
Dear Honourable Members,
Thank you very much for the invitation to the exchange of views today. You asked me to
begin with a brief overview of the main recent economic and monetary developments in the
euro area and recent monetary policy decisions.
I. Economic and monetary developments
Incoming information since our last regular hearing in June continue to point towards ongoing
growth in the euro area, although - as expected - at a slower pace. After a strong increase
of 0.8% quarter-on-quarter in the first quarter of 2011, partly due to special factors, real GDP
growth decelerated to 0.2% quarter-on-quarter in the second quarter. Looking ahead, we
continue to see the euro area economy growing at a modest pace in a context of overall
relatively sound economic fundamentals for the euro area as a whole. At the same time, not
least because of the recently re-emerged tensions in financial markets, uncertainty remains
particularly high. This mainly relates to ongoing fiscal and economic adjustment in a number
of euro area countries and most other advanced economies, as well as the overall outlook for
the global economy. In particular, the United States has been facing both fiscal and structural
headwinds amidst weakened economic prospects.
Inflation in the euro area has remained elevated for some months, mainly driven by
commodity prices. We expect to see inflation still above 2% over the months ahead. Risks to
the medium-term outlook for price developments are under study in the context of the
ECB staff projections that will be released early September.
Our monetary analysis indicates that the underlying pace of monetary expansion remains
moderate but monetary liquidity remains ample, with the potential to accommodate price
pressures. At the same time, monetary liquidity is likely to be held more for precautionary
reasons rather than for spending purposes.
The Governing Council of the ECB is determined to ensure that inflation expectations
continue to be firmly anchored in line with our aim of keeping inflation rates below, but close
to, 2% over the medium term.
II. Recent measures taken in response to the intensification of the crisis early
August
Let me turn to our response to the deterioration in financial markets in the second half of July
and early August in the euro area and elsewhere. Notably, in the euro area the renewed
intensification of financial market turbulence led to very high interest rates, potentially
damaging volatility and very low trading volumes in some government bond markets that at
times ceased to function appropriately. The tensions to some extent resembled those
observed in May 2010, but in some aspects they were more broad-based than what we had
seen at that time.
In view of these developments, the ECB decided earlier this month to continue conducting its
refinancing operations as fixed-rate tender procedures with full allotment, at least until
mid-January 2012. "Full allotment" means that the Eurosystem fulfils, against collateral, in full
the liquidity demands by any participating bank in our refinancing operations. Currently, the
outstanding Eurosystem credit in our refinancing operations amounts to about € 530 billion,
which is provided in operations ranging from 1 week to 6 months. We decided in early
August to conduct one refinancing operation with a maturity of approximately six months to
help banks in their liquidity planning, and enhance support for their lending to households
and corporations. Currently about 470 banks participate as counterparts in our refinancing
operations; and over 6,000 banks are potentially eligible. The total value of marketable
securities eligible for Eurosystem credit operations is about € 14,000 billion (as of
31 December 2010; source: ECB Annual Report). Therefore, there is no liquidity or collateral
shortage for the European banking system.
The ECB resumed government bond market interventions within its Securities Markets
Programme (SMP) in August. Via its securities interventions, the ECB Governing Council
aims at helping to restore a more appropriate transmission of its monetary policy stance in an
environment in which some market segments are dysfunctional. The interventions do not
influence our monetary policy stance. In order to sterilise the impact of these interventions on
the liquidity conditions in the banking system, we re-absorb the liquidity injected.
On the broader context of this programme, let me quote what I said in May 20101: "Our
actions are in full compliance with the prohibition of monetary financing and thus with our
financial independence. The Treaty prohibits the direct purchase by the ECB of debt
instruments from governments. We are buying bonds on the secondary market only, and we
stick to the principles of the Treaty, which are price stability, our primary mandate, and
central bank independence. We expect from governments strict respect for the principle of
budgetary discipline and effective mutual surveillance.
The purchases made on the secondary market cannot be used to circumvent the
fundamental principle of budgetary discipline. The Securities Markets Programme strictly
aims at correcting malfunctioning of markets.
The prohibition of monetary financing underlines precisely the fact that budgetary discipline is
of the utmost importance. We have taken note of the precise additional commitments taken
by some euro area governments to accelerate fiscal consolidation and to ensure the
sustainability of their public finances." I have nothing to withdraw from these remarks of May
2010. They remain fully valid.
We expect from governments strict respect for the principle of budgetary discipline and
effective mutual surveillance. It is of utmost importance that these commitments are now
implemented strictly and timely. They need to be backed by concrete measures. This applies
to both the IMF/EU adjustment programmes and the renewed commitment of all euro area
governments to the agreed fiscal targets. The full and timely implementation of the 21 July
agreement between Heads of State or Government is of essence in this respect.
While a special arrangement for Greece has been launched, the inflexible determination of
all other euro area governments to fully honour their own individual sovereign signature is
key in returning to sustainable and healthy public finances and contribute to stable market
conditions.
Thank you for your attention.