European Central Bank: Press Conference - introductory statements
Introductory statements given 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 13 April 2000.
* * *
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.
The Governing Council today conducted its regular examination of the outlook for price developments
and the risks to price stability in the euro area. Following this review, the Governing Council decided
to maintain the interest rate on the main refinancing operations of the Eurosystem at 3.5% and to keep
the interest rates on the marginal lending facility and on the deposit facility at 4.5% and 2.5%
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.
Let me start with information in relation to the first pillar of our monetary policy strategy. No new
monetary data have been released since the last meeting of the Governing Council, which was held in
Madrid on 30 March 2000. The annual growth rate of M3 in February 2000 was 6.2%. This implied a
small increase in the three-month moving average of annual M3 growth, to 5.9%, from 5.8% recorded
for the three-month period from November 1999 to January 2000. M3 growth thus remained around
11⁄2 percentage points above the reference value of 41⁄2%. The picture of generous liquidity conditions
in the euro area is also confirmed by the continued strong annual rate of growth of loans to the private
sector, which stood at 10.5% in February.
With regard to economic developments in the euro area, following strong growth of real GDP in the
second half of 1999, most recent production and survey data suggest that the economic expansion also
remained strong in early 2000. In particular, both consumer and industrial confidence have now
reached levels which are close to the highest observed since the mid-1980s. This picture of strong
growth of domestic demand supports the favourable outlook for economic growth in the euro area as
depicted in recent forecasts. The positive prospects for euro area activity also benefit from the strong
cyclical upswing in the world economy, which has become more broadly based across industrial and
emerging economies and which is expected to continue in the years to come.
The exchange rate of the euro does not reflect the ongoing improvement in domestic fundamentals in
the euro area economy. In nominal effective terms, the euro was around 4% lower in mid-April than at
the beginning of the year and approximately 14% below its level in the first quarter of last year. Until
reversed, this development will put upward pressure on import prices and will continue to affect the
risks for price stability in the euro area.
As I have already noted on previous occasions, the rise in the Harmonised Index of Consumer Prices
(HICP) which we have observed over recent months stems, to a large extent, from the combined
effects of both oil price and exchange rate developments. The annual rate of change in the HICP rose
to 2.0% in February 2000, from 1.9% in the previous month. The rate of inflation on producer prices
also rose further in February 2000, mainly in connection with rising prices for intermediate goods.
In the course of the past few weeks oil prices have declined. This has been in line with the assumption
underlying currently available economic forecasts, namely that the oil price increases which we
observed until March will partially unwind in the course of the year. At the same time, it is most likely
that the complete upward impact on consumer prices via import and producer prices of the oil price
and exchange rate developments in recent months has not yet materialised. Against this background,
the possibility cannot be ruled out that the figure for annual HICP inflation will slightly exceed 2% in
the spring of this year, before falling back to lower levels.
What matters for monetary policy, however, are the trends underlying the outlook for price stability in
the medium term. In this context, the Governing Council again stressed the need for the continuation
of wage moderation in the euro area. As noted earlier, monetary and credit developments confirm that
liquidity in the euro area is ample. Developments in the exchange rate of the euro also remain a cause
for concern with regard to future price stability. In the light of the favourable prospects for strong
economic growth, the impact of these developments on inflationary pressures will need to be
monitored closely.
The Eurosystem will remain vigilant in assessing upside risks to price stability and will take
appropriate action if and when required. A forward-looking monetary policy which responds to risks
to price stability before they materialise will avoid the need for a costly stabilisation of inflation at a
later stage. Such a forward-looking approach is clearly also the best contribution monetary policy can
make to ensuring the sustainability of the process of economic growth.
This phase of economic growth in the euro area will offer a great opportunity to make further progress
in bringing down the high level of unemployment in the euro area. An important means of achieving
this will be continued wage moderation, which, in turn, will also help to contain inflationary pressure.
This notwithstanding, as I have stressed repeatedly in the past, the key to achieving a sustainable
reduction in the level of unemployment will be structural reforms in the euro area, including a
lowering of the tax burden and an improvement in the fiscal expenditure structure. Only when labour
markets are more flexible and competitive pressures are high will it be possible to prevent bottlenecks
from triggering upward pressures on prices at a relatively early stage of an economic recovery.
Fiscal policy has to play its part in this context. The favourable economic prospects will lead to higher
tax revenues. In line with the Stability and Growth Pact, it is not opportune to use these extra revenues
for higher spending. Now is the time to speed up fiscal consolidation in order to help to reduce further
the debt-to-GDP ratios in the Community and to approach more quickly fiscal budgetary positions in
surplus or balance.
Let me now give the floor to the Vice-President to present some of the additional topics discussed
today by the Governing Council.
I should like to draw your attention to two items: the first reflects the Eurosystem's growing
involvement in the EU accession process and relates to the Governing Council's position with regard
to the appropriateness of euro-based currency board arrangements (CBAs) as a strategy to be used by
accession countries with regard to adopting the euro; the second relates to a further enhancement of
the ECB's transparency policy.
Let me start with the Governing Council's deliberations on CBAs. We concluded that the
appropriateness of CBAs will be assessed on a case-by-case basis. Therefore, the Governing Council
neither encourages nor discourages the adoption of euro-based CBAs. In any event, such arrangements
cannot be regarded as a substitute for two years' participation in ERM II. Accession countries which
have operated a euro-based CBA deemed to be sustainable might not be required to go through a
double regime shift in their strategies to adopt the euro. Thus such countries may participate in ERM II
with a CBA as a unilateral commitment augmenting the discipline within ERM II. However, it should
be clearly understood that a common accord would have to be reached on the central parity against the
euro.
With a view to further enhancing the ECB's transparency policy, the Governing Council has today
decided to publish all non-confidential legal instruments governing the relationship between the ECB
and the euro area national central banks in the Official Journal of the European Communities. The
release of these legal instruments in all 11 official Community languages will give interested members
of the public an opportunity to gain first-hand knowledge about the internal operation of the
Eurosystem. The members of the Governing Council regard the transparency of the decision-making
process as an appropriate means by which to strengthen the democratic nature of the institution and to
increase the public's confidence in its administration. This decision is in line with the general policy
towards increased transparency in the decision-making process currently being pursued at the
Community level.