Jean-Claude Trichet: Hearing before the Economic and Monetary Affairs
Committee of the European Parliament
Introductory statement by Mr Jean-Claude Trichet, President of the European Central Bank,
at a hearing before the Economic and Monetary Affairs Committee of the European
Parliament, Brussels, 4 October 2011.
* * *
Dear Madam Chair,
Dear Honourable Members,
It is always a great pleasure to be here as President of the European Central Bank (ECB),
before the directly elected representatives of the European people. This interaction is a
cornerstone of our Economic and Monetary Union.
Today, I appear before your committee with particular emotion. This is the last of my
35 immensely fruitful dialogues with you.
Members of the European Parliament, you are the heart of the living democracy in Europe.
We at the ECB are the guardians of the currency of our fellow citizens. And we are fully
independent in our actions to protect the currency whilst you ask us to report to you.
Indépendance et responsabilité sont indissociables. Afin de conserver sa légitimité, une
banque centrale indépendante doit être prête à rendre des comptes au Parlement et au
public. Tout au long de mon mandat, j'ai attaché autant d'importance à l'une qu'à l'autre. La
BCE est farouchement indépendante. En même temps, elle ne peut pas se passer d'une
interaction régulière et étroite avec le Parlement européen: c'est cela même qui lui permet
d'accomplir ses missions en toute transparence et responsabilité. C'est pourquoi j'ai toujours
répondu présent lorsque vous m'avez convié à venir échanger ici, que ce soit en session
plénière ou en Commission, et plus fréquemment que d'habitude lorsque des circonstances
exceptionnelles l'exigeaient.
Ich möchte in meiner Einleitung mit dem vereinbarten Thema beginnen, nämlich den
Prinzipien der Geldpolitik der EZB seit ihrer Gründung. Danach werde ich eingehen auf die
Beziehungen zwischen der EZB und dem Europäischen Parlament in den letzten acht
Jahren, und den Beitrag unserer beiden Institutionen zur europäischen Integration. Mit
einigen Überlegungen zur Zukunft der EU, und insbesondere der Wirtschafts- und
Währungsunion, werde ich dann schließen.
1) The ECB's actions since its creation: permanent alertness, resolute action and
fierce independence
Let me first reflect on the ECB's actions since its creation. With current discussions sharply
focused on how to deal with the financial and sovereign debt crisis, it is sometimes forgotten
that our primary objective is to maintain price stability in the euro area.
More precisely, we aim to maintain inflation rates in the euro area below, but close to, 2%
over the medium term.
This is what the Treaty demands from us. This is what the citizens of the euro area expect
from us. And this is what we have delivered.
Price stability is a necessary condition to foster sustainable economic growth, job creation
and to ensure the well-being of Europe's citizens.
One fundamental indicator is medium and long term inflation expectations. Inflation
expectations that are in line with our definition of price stability help employers and
employees in the euro area to agree fair wages. They help businesses small and large to
make longer-term investments. They ensure, all things being equal, a more favourable
financial environment because market medium and long term interest rates incorporate
stable price expectations. And they help governments to play their role in macroeconomic
stabilisation.
Preserving inflation expectations in line with price stability has been far from easy. Let me
remind you of a few of the many shocks to the economy since 1999.
The early 2000s saw the bursting of the "dot-com" bubble. Medium and long term inflation
expectations remained stable. Then came the terrorist attacks of 9/11. Inflation expectations
remained stable. We saw dramatic surges in oil prices. Once again, medium and long term
inflation expectations remained stable.
Then, in 2007, there were the first signs of an unprecedented financial crisis, the
repercussions of which continue to this day. What happened in late 2008 in particular could
have resulted in an economic catastrophe not seen since 1929. Authorities across the world
took action to avoid another Great Depression. We at the ECB responded by lowering
interest rates and introducing our non-standard measures. We experienced a very short
period of negative inflation, with some commentators expecting a long period of deflation. Yet
medium and long term inflation expectations remained stable.
As you know, 2010 and 2011 have been extraordinary years for the economy, with parts of
the euro area confronting serious problems in sovereign debt markets. But I can say once
again: inflation expectations remain stable.
Dealing with these diverse shocks has required constant alertness, resolute action and fierce
independence.
Permanent and credible alertness in 2004, when the ECB kept interest rates at 2% while
governments and international institutions were calling for more cuts.
Fierce independence in 2005 when the ECB started increasing its policy rates despite, again,
the strong opposition of many governments and against the advice of international financial
organisations. The ECB was criticised for that decision; with hindsight, that criticism turned
into respect.
Alertness in August 2007, at the very start of global money market turbulences, when the
ECB was the first central bank to take non standard measures to ensure the smooth
transmission of monetary policy.
At the very beginning of the financial crisis the ECB decided to stick to a strict separation
principle between the "standard measures" and the "non-standard measures". The "standard
measures" are designed to deliver price stability in the medium term: they are the interest
rate decisions. The "non-standard measures" are designed to help restore a better
transmission of our "standard" monetary policy decisions at times when the crisis is
disrupting markets or segments of markets: the "non-standard measures" include the supply
of liquidity at full allotment and fixed rates and the interventions in private and public
securities markets.
This separation principle permits us to preserve, including in the present deep crisis, a strong
sense of our direction in the medium term - price stability - whilst taking into account the
reality of the disruption of markets due to the crisis.
Like actions, numbers speak louder than words. Let me mention one number: 2.01%, the
average inflation rate in the euro area since 1999 until today, over a period of almost
13 years during which oil prices have soared.
This number has become so deeply embedded in our society that people have almost
forgotten it.
But this number reflects the lowest annual average change in prices that any large euro area
country has experienced since the beginning of the European project, over 50 years ago.
Price stability is now so self-evident to the citizens of Europe, and so much expected from
their central bank, that achieving it is taken for granted.
Even our regular exchanges of views have sometimes dealt less with the "M" than with the
"E" of EMU!
2) Economic and monetary developments
Achieving price stability through alertness and fierce independence sets the framework for
our day-to-day actions. In this context, let me report on recent economic and monetary
developments. Note that as we have entered the Purdah-period, nothing I say has any
bearing on upcoming monetary policy decisions.
We expect real GDP growth in the euro area to be very moderate in the second half of this
year. Growth is dampened by a slowing pace of global growth, by declines in equity prices
and business confidence, and by continuing tensions in segments of financial markets as
well as in some sovereign debt markets. The more moderate economic outlook is confirmed
in the ECB's September projections. The risks to the economic outlook, which previously
were balanced, are now on the downside, mainly relating to tensions in some financial
markets.
Turning to prices, inflation was 2.5% in August, and rose to 3% in September according to
the Eurostat flash estimate, almost exclusively as a result of oil price developments. We
expect inflation to stay above 2% over the coming months. Next year, it should fall below that
level, depending on commodity price and wage developments. This pattern is also reflected
in the latest ECB projections of inflation ranging between 1.2% and 2.2% next year. The risks
to the medium-term outlook for inflation were broadly balanced in the eyes of the Governing
Council in its last meeting, whereas before they were seen as being on the upside.
Our monetary analysis indicates that the underlying pace of monetary expansion remains
moderate. Liquidity accumulated prior to the period of financial market tensions continues to
be ample but recent data indicate that part of it may be held more for precautionary reasons
than for spending.
Finally, in the context of our continuing analysis of the euro area economy, let me draw your
attention to today's release of the 2011 Structural Issues Report. This deals with structural
features of distributive wholesale and retail trade and their impact on prices in the euro area.
The distributive trade sectors are not only economically important in their own right, but also
relevant to monetary policy. Ultimately, it is retailers who set the prices of most consumer
goods and they are a key interface between producers and consumers. I very much ask you
to take note of the report. It suggests ample scope for further improving effective competition
and removal of unwarranted barriers to cross-border trade.
3) The European Parliament and the ECB - a constructive relationship to the
benefit of Europe
Let me turn to the relationship between our two institutions. The ECB's fierce independence
and its accountability to the Parliament are two sides of the same coin. In this endeavour,
and especially throughout the recent turbulent times, our two institutions have interacted very
constructively. The quality of our relations has been instrumental to the exercise of our tasks
and, I believe, more generally to the process of European integration.
The hearings in your Committee are naturally the cornerstone of the ECB's Treaty-based
accountability obligations. But they are more than that: beyond monetary policy stricto sensu,
they have allowed two genuine European institutions - two institutions that only have the
whole in mind and not just the parts - to have a continuous dialogue on a number of issues
of great relevance for the smooth functioning of the single market of the European Union and
of EMU.
This holds in particular for legislative dossiers on which you decide, together with the
Council, and to which the ECB has contributed. I feel reassured when I see the numerous
occasions when you have used your powers to bring Europe forward rather than settling for
the lowest common denominator. I am confident that this will continue.
The latest example is of course the economic governance package. Long before the crisis,
our two institutions had sent similar messages to governments, in our own ways and through
different fora.
In November 2003, three weeks into my mandate, the ECB lambasted the fateful decision of
the Council that effectively watered down the Stability and Growth Pact. Let me quote what I
said eight years ago during my first regular hearing before your Committee: "The failure to
respect the rules and procedures foreseen in the Stability and Growth Pact risks, in our view,
undermining the credibility of the institutional framework and confidence in the sustainability
of public finances across the euro area."
In 2005, six years ago, in the name of the Governing Council I both expressed our "grave
concerns" as regards the conclusion of the negotiations on the new text of the Stability and
Growth Pact, and I raised alarm bells as regards the evolution of the competitive indicators of
the various countries member of the Euro area.
Well before some sovereigns run into trouble in 2008, the Parliament also "requested that
Member States in the euro area strengthen the effective coordination of economic and
financial policy" 1.
When the time came to transform these messages into ambitious legislation, the Parliament
immediately seized the opportunity. You were fully supported by the ECB.
A second telling example of the fruitful interaction of our institutions is the new architecture of
financial supervision. Throughout the 2000s, the Parliament regularly called for the
reinforcement of a true level playing field at the European level, while pointing out significant
failures in the supervision of ever more integrated financial markets.2 When the Commission
put forward the financial supervisory package, the Parliament did its utmost to strengthen the
powers of the new supervisory authorities. Here again, you could also count on the support
of the ECB.
4) Visions for Europe from 2011
Honourable Members,
In the middle of the deepest financial crisis since World War II, it is important to remind
ourselves that Europeans can take pride in what our continent has achieved over the last
66 years. The unprecedented level of prosperity, peace and stability that the European Union
and the Economic and Monetary Union have provided for their citizens is something we need
to cherish.
An important debate is underway on how to ensure that Europe continues to deliver well into
the future. Important and much needed reforms have been adopted over the past few
months. But this is not the end of the road. On the contrary: further steps must be taken on
our way to an ever closer economic union. In the short to medium term, it is essential to
implement and enhance the newly agreed legislation as far as possible. Here, this
Parliament has a pivotal role.
On economic governance, there is no doubt that you will make extensive use of tools such
as the "economic dialogue" to support economic integration with the required legitimacy. This
will open up the process of fiscal and macroeconomic surveillance and, by enhancing
transparency, it should encourage Member States to abide by the new rules as strictly as
possible.
I am also confident that, both in the financial supervisory and governance package, you will
seize the opportunity of the review clause to go one step further. In 2013 and 2014, you will
have a rendez-vous with the Council to take stock and explore possible improvements. This
will once again be an occasion to bring forward European integration in key policy areas.
You have always pushed the frontiers of what is impossible by putting forward new ideas
which have eventually become political reality. As a citizen of Europe, I very much hope that
the Parliament will maintain this track record.
When I received the Karlspreis a few months ago, I was reflecting on the future of the
European Union and of the Economic and Monetary Union "tomorrow" and the "day after
tomorrow". As a citizen of Europe I see the necessity of deepening the institutional
framework of the European Union. In my personal view, Europe will need to make significant
progress towards political unity with an executive branch and a Parliament, both with
extended responsibilities as in any democracy. Part of this executive branch would be a
European finance ministry which will be responsible, not necessarily for a large federal
budget, but certainly for a strong economic and fiscal surveillance and governance, for the
handling of the financial sector and for the external representation of the Economic and
Monetary Union.
Such a strengthening of the EU executive will not be possible without one absolutely
necessary condition: democratic legitimacy. This Parliament is the only institution that can
ensure this for Europe as a whole. Collective responsibility for the destiny of EU and EMU
and strong democratic control by the Parliament are two complementary and necessary
dimensions. The future belongs largely to this Chamber; the future depends very much on
this Chamber.
Mrs Chair, honourable members of the Economic and Monetary Affairs Committee of the
European Parliament: let me convey to all of you my most sincere thanks for our very fruitful
cooperation over the past eight years. I have very much enjoyed working with you in such a
constructive spirit. I wish you, as well as my successor, Mario Draghi, the Executive Board
and the Governing Council of the ECB great success with the challenges, as well as the
opportunities, that lie ahead.
I can assure you that from its side, the ECB will continue to guard our currency, the euro, and
deliver price stability to Europe's citizens.