Willem F Duisenberg: Presentation of the
European Central Bank's Annual Report 1999 to the European Parliament
Introductory statement by Dr Willem F Duisenberg, President of the European Central Bank, in
Strasbourg, on 5 July 2000.
* * *
One and a half years have passed since the euro came into existence and the ECB took over
responsibility for the conduct of monetary policy. During this period, the Eurosystem, i.e. the ECB and
the 11 national central banks participating in the euro area, has had to prove its ability to implement
the conceptual framework that was thoroughly prepared during the previous years. It has also had to
prove its ability to achieve the goals conferred upon it by the Treaty establishing the European
Community (EC Treaty). Looking back, I believe that these challenges, from both a policy and an
operational point of view, have been met.
Therefore, I have great pleasure in presenting to you today the second Annual Report of the ECB. It
gives account of the activities of the Eurosystem during 1999 and at the beginning of this year. I
consider today's presentation as an important demonstration of the ECB's accountability vis-à-vis the
European Parliament, supplementing the exchanges of views held in your Committee on Economic
and Monetary Affairs, in which I participate on a quarterly basis. In addition to this regular dialogue,
other Members of the Executive Board of the ECB have attended Committee meetings, on several
occasions, in order to present reports drawn up under the responsibility of the ECB and to participate
in exchanges of views on various issues.
In view of the large range of topics included in the Annual Report it will clearly be impossible to
address all of them at our meeting today. Therefore, I shall concentrate on some of the most pertinent
issues, which have also been raised in the draft resolution prepared by your Committee on Economic
and Monetary Affairs.
1. Monetary policy issues
Reviewing the first year of the existence of the single currency, I should like to start by reporting that
the primary objective of the ECB, the maintenance of price stability, has been achieved. Indeed, with
consumer prices in the euro area increasing by just 1.1% in 1999, inflation has reached one of the
lowest levels in the past 50 years.
In line with its mandate, the ECB remains vigilant regarding risks to price stability, as evidenced by its
monetary policy decisions in order to nip inflationary pressures in the bud before they materialise,
rather than to react once price stability is already in jeopardy. The Eurosystem will continue to pursue
this forward-looking strategy in order to maintain an environment of stable prices, which is also
conducive to sustained economic growth and job creation in the euro area.
I share the analysis of your draft resolution that governments should take advantage of the favourable
economic environment in order to step up the efforts directed towards consolidating budgets and
reducing public debt and go beyond the objectives laid down in the stability programmes. At the same
time, structural reforms in the labour, product and capital markets should be pursued vigorously. The
comprehensive implementation of this policy agenda will contribute to subduing inflationary pressures
and thereby support the ECB in accomplishing its tasks.
In your draft resolution you also briefly address the potential implications of a "new economy". Thus,
I should like to comment on the possible emergence of a new economy in the euro area. Let me start
by noting that various definitions of the new economy exist. In my view, the most useful definition is
that which characterises the new economy as a phenomenon which increases the growth rate of
productivity over an extended period of time.
There is some evidence - although not uncontroversial itself - of the emergence of a new economy in
the United States. By contrast, it is difficult as yet to find clear evidence of a new economy in the euro
area. Of course there is a need to monitor developments further, with the emphasis on identifying new
economic trends and potential structural breaks in traditional economic relationships as early as
possible. In any case, it is important to stress that for the euro area the achievement of more flexible
markets is a prerequisite if the potential gains from new technologies are to be realised in the form of
substantially higher productivity growth.
We recognise that a crucial feature of the potential emergence of a new economy is increased
uncertainty. This concerns, in particular, the evolution of the production potential and the reliability of
indicators which are derived from it, such as estimates of the output gap. In this respect, the
Eurosystem's monetary policy framework is well equipped to cope with such uncertainties. It provides
the flexibility necessary to address changes in the economic structure with the aim of maintaining
price stability over the medium term. By relying on two pillars, the ECB's strategy explicitly
acknowledges uncertainty regarding the structure of the economy and the transmission of monetary
policy within it.
In the context of this discussion, some observers have urged the ECB to keep interest rates low in view
of the new economy. In response, let me emphasise the following point. The new economy is
primarily a supply-side story. An inappropriately lax monetary policy would not create better
conditions for the emergence of a new economy. On the contrary - by jeopardising the maintenance of
price stability - such a policy could seriously endanger the credibility of the ECB. It would thereby
undermine confidence, raise risk premia in interest rates and damage the prospects for economic
growth and job creation. It is for precisely this reason that the ECB will, in line with its mandate,
continue to preserve price stability in the euro area. This ensures that monetary policy makes its full
contribution to overall economic welfare, while also providing an environment in which the new
economy - should one emerge - will be able to flourish.
2. Transparency and communication policy
I should now like to turn to another issue which has been frequently discussed within the framework
of our regular dialogue, namely the issue of transparency. I have already referred to the regular
dialogue between the European Parliament and the ECB, the transcripts of which are published on the
websites of our institutions. Moreover, at the press conferences held after the first meeting of the
Governing Council every month I present the ECB's assessment of the economic environment
underpinning our monetary policy decisions. You will also be aware of the broad variety of ECB
publications, in particular the Monthly Bulletin, and of the numerous press releases issued and
speeches held by the members of the Executive Board of the ECB. These, as a rule, are also made
available to the public via the ECB's website.
Therefore, I can only confirm my conviction that this wide range of communication tools, in which not
only the considerations in favour, but also the arguments that were raised against a decision are
presented, resemble in substance "summary minutes". It should also be borne in mind that, by virtue
of the regular press conferences and the rapid publication of the transcripts of the questions and
answers on the ECB website, detailed information about the Governing Council's reasoning is made
available very shortly after the meetings. We thereby avoid the delays that are inherent in the
publication of all forms of official minutes.
Let me also seize this opportunity to recall that we always take our decisions from a euro area-wide
perspective. This is fundamental to the conduct of a truly single monetary policy. The publication of
ECB reports on the economic developments of individual euro area Member States, as suggested in
your draft resolution, has to be considered against this background. We clearly do not want to blur the
ECB's focus on the euro area as a whole.
The draft resolution also calls for the publication of macroeconomic forecasts by the ECB. In this
context, let me reassure you that preparations for publication continue in earnest. I still envisage that
publication of forecasts will commence towards the end of 2000, in line with the statement I made last
September at the European Parliament's plenary session on the previous ECB Annual Report.
I should like, however, to sound a note of caution. Forecasts are only one input into the decisions of
the Governing Council. Forecast publication by the ECB should not be viewed as a panacea which
will meet all the communication challenges faced by the ECB as a new institution in a testing
multilingual and multinational environment. Forecasts themselves have important shortcomings - for
example, they are surrounded by considerable uncertainty and may quickly become outdated if the
external environment changes.
We are aware of these shortcomings. Therefore, as is made clear in the ECB's monetary policy
strategy, monetary policy decisions cannot be made only on the basis of a central inflation forecast.
Rather, it is the comprehensive analysis of the monetary and macroeconomic situation and of the
economic disturbances affecting the euro area economy which is the relevant input to forward-looking
policy decisions.
The ECB's approach to communication has always placed a premium on honesty. To continue in this
vein, it is my view that we must publish forecasts in a manner which accurately reflects their limited
role in policy decisions and the uncertainties inherent in them. Any other approach would not be
transparent and would therefore be potentially misleading.
Let me now turn to a related issue, namely the publication of the ECB's economic and econometric
models. I should make clear that the ECB does not rely on a single econometric model, but rather uses
an extensive set of models. The results obtained from the models are critically evaluated using expert
judgement. Policy-makers use analysis undertaken using models developed by the ECB staff, in some
cases with input from staff of national central banks, as one input, among others, into their policy
assessments and decisions.
The ECB has established a working paper series where technical economic research produced, inter
alia, under the responsibility of ECB staff can be reviewed and assessed by the public and external
professional experts. The respective authors are responsible for the content of these papers. Therefore,
they do not necessarily reflect the view of the ECB or the Eurosystem. Through this and other
channels, there is a professional dialogue and exchange of views between ECB staff and many outside
experts, which is of mutual benefit.
Several econometric models have already been published in the working paper series of the ECB. For
example, an econometric study of the demand for M3 in the euro area conducted by ECB staff
members was published in September 1999. Other models will be published in the near future. An
"area-wide model" used at the ECB, which models the aggregate behaviour of the euro area economy,
will be published in this working paper series by ECB staff, probably at the end of this year or in the
course of next year.
3. Issues related to banking supervision and payment systems
I should now like to turn to the contribution of the ESCB to the maintenance of financial stability and
to prudential supervision. In this regard I should like to mention the Banking Supervision Committee
(BSC), which is promoting cooperation between the ECB, the national central banks and the
supervisory authorities of the 15 Member States. The main focus of activity of the BSC is the analysis
of structural developments and the monitoring of potential vulnerabilities in the banking sector. The
BSC also provides the forum for the exchange of relevant information between the Eurosystem and
the supervisory authorities. Finally, the BSC may also act as a forum for supervisory cooperation not
related to the tasks of the Eurosystem. In the latter respect, I should like to stress that the need for
multilateral cooperation among banking supervisors has increased since the establishment of
Economic and Monetary Union (EMU) for two reasons. First, EMU has introduced an unprecedented
geographical separation between the area of jurisdiction of monetary policy and that of prudential
supervision. Second, the introduction of the euro has fostered further integration of the banking and
financial sector. Against this background, I perceive the BSC as the main forum in which multilateral
cooperation among banking supervisors can be enhanced.
Regarding the issue of cross-border retail payments, which has been raised by the European
Parliament on various occasions, I should like to recall that, in September 1999, the ECB published a
report entitled "Improving retail cross-border payment systems - the Eurosystem's view". The report
called on the banking sector to provide substantially improved services by 2002. Since the publication
of the report, the banking sector has subscribed to the Eurosystem's objectives in principle. It has
begun to cooperate closely with the Eurosystem in order to identify the practical impediments to the
achievement of these objectives, and in order to investigate and, where possible, agree on effective
solutions.
I fully share the European Parliament's concern that very little progress has been visible to customers.
However, there are rather strong indications that banks are making considerable efforts to prepare the
ground for a more efficient handling of cross-border credit transfers. In particular, progress is under
way in the areas of standardisation and simplification of the balance of payments reporting
requirements.
The ECB will prepare a progress report by autumn 2000 in which it will update its assessment. The
Eurosystem would prefer to maintain its present stance of cooperation but, if necessary, will step up
the pressure on the banking sector. However, it would be unrealistic to expect the service level for
cross-border payments to reach that of domestic payments in all respects by 2002.
Let me close by emphasising again that the introduction of the euro has indeed been a milestone in the
ongoing process of European integration. The ECB, as the guardian of the single currency, shall
continue to pursue its stability-oriented monetary policy in order to fulfil its mandate and to deliver the
policy results that European citizens rightly expect.