A4-0185/97

Resolution on the European Monetary Institute's report on the Single Monetary Policy in Stage Three - Specification of the operational framework (C4-0043/97)

The European Parliament,

- having regard to the report of the European Monetary Institute (EMI) (C4- 0043/97),

- having regard to the motion for a resolution tabled by Mr Garriga Polledo, Mr Fabra Vallés and Mrs Bennasar Tous on the failure to include certain island regions in the design for the euro banknote (B4-1234/96),

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy (A4-0185/97),

A. whereas realizing the potential benefits of Economic and Monetary Union (EMU) requires the differing national traditions and structures concerning the conception and implementation of monetary policy to evolve into a single whole,

B. whereas the EMI report on the single monetary policy presents inter alia, the issues, difficulties and options available in specifying the operational framework relating to:

(a) the need for harmonized monetary statistics,

(b) the introduction of a real time gross settlement system (TARGET),

(c) the relative advantages and disadvantages of monetary strategies,

(d) the possible policy instruments,

C. whereas the EMI report describes the five possible strategies (exchange rate targeting, interest rate pegging, nominal income targeting, monetary targeting and direct inflation targeting) which the European Central Bank (ECB) may develop for its monetary policy,

D. whereas the EMI, while taking account of the guiding principles of effectiveness, transparency, continuity, consistency, etc, recommends two strategies: monetary targeting as an intermediate target and direct inflation targeting,

E. whereas implementation of the single monetary policy implies firm control of instruments in a regulatory context that promotes efficiency, transparency and continuity; whereas the set of monetary instruments: open market operations, standing facilities and minimum reserve requirements should be assessed in a changed environment in which the ECB will operate,

F. stressing that the monetary policy objective of the ESCB must be transparent and comprehensible to the public,

G. whereas global financial markets have not only defined the new environment in which monetary policies operate but also perform a monitoring function in the sense that they scrutinize the sustainability of public finance and the gearing of monetary policy to price stability, and they also penalize, via the mobility of capital, countries with a lax budgetary policy by imposing high capital market rates,

H. whereas globalization of financial markets has led to market transparency, great diversification of investment and better allocation of capital, and risk management has become more efficient, but it has also led to financial innovations which represent a constant threat to monetary policy strategies and to higher volatility of asset prices,

I. whereas due to financial innovations and erosion of the traditional function of intermediation of banks, the transmission mechanism of a change in money supply and its effects on interest rates and prices as well as the chain of causality have been changed,

J. whereas efficient open market operations supported by standing facilities require reliable and experienced counterparties which will be called upon to operate in an environment defined by a set of eligibility criteria and by the principle of decentralization in the execution of monetary policy operations,

K. whereas marketable assets eligible for use in the ESCB's liquidity providing operations will be based on a two-tier system, the first will be approved by the ECB while the second will be established by national central banks (NCBs),

L. whereas the intention of the EMI to elaborate an exchange rate mechanism which will define exchange rate policy cooperation between Member States participating in the euro area and the other EU Member States is commendable, yet preparatory work on the type of foreign exchange intervention operations by the ECB presupposes knowledge of the international monetary setting following the introduction of the euro as a reserve currency,

M. whereas the singleness of the ECB's monetary policy presupposes an efficient interbank funds transfer system and securities settlement system which should aim both at minimizing systemic risk and at preserving stable financial markets which to a large extent determine the effectiveness of monetary policy,

N. whereas monetary policy should be regarded as an integral part of the tool kit to ensure a balanced economic development,

1. Welcomes the EMI report on the Single Monetary Policy in Stage Three, which contains useful information on the options of monetary strategy and of monetary instruments as well as a description of payment and settlement systems and presents orientations as what the minimum reserve instruments should be and how the imposition of sanctions by the ECB should be exercised;

2. Recalls, however, the serious developments that have taken place in recent years, which have changed the environment in which central banks are operating; these developments are:

(a) globalization of financial markets,

(b) deregulation of domestic markets,

(c) liberalization of capital movements,

(d) technological break-throughs in information and communications technology;

3. Stresses that stage 3 of EMU is of vital importance for the finalization of the single monetary policy, particularly from the point of view of ensuring its credibility. In this context all monetary policy instruments used for the specification of the operational framework should be assessed in terms of their effectiveness and transparency;

4. Emphasizes that Article 105(1) of the EC Treaty on price stability and Article 2 on the promotion of growth, prosperity, employment and stability in Europe must constitute the framework for future monetary policy;

5. Calls for a politically viable structure to be developed from the five strategies familiar hitherto (exchange rate, interest rate, income, money supply and inflation targeting);

6. Takes the view that of these five familiar objectives an approach combining the advantages of the strategies that have been tested (the inflation target and the money supply target) are most likely to secure stability, transparency and credibility but this method must be kept under constant review, especially regarding the effectiveness and relevance of the control of money supply as an intermediary target;

7. Calls for optimum alignment of exchange rate policy, for which the finance ministers are responsible, with the monetary policy of the ECB through permanent consultation mechanisms such as those provided e.g. by the future Economic and Financial Committee;

8. Considers it essential that the ECB contribute to a stable external value of the euro through a credible monetary policy, so ensuring a stabilization of international currency relationships, assisting the containment of speculation through a reduction in volatility and thus bringing about more favourable accompanying measures for the real economy;

9. Underlines its conviction that the euro - in view of its anticipated major significance when compared with the German mark and of the great importance of EU internal trade - will not need to resort to competitive devaluations;

10. Emphasizes that the available monetary policy instruments of open market operations, standing facilities and the stability-orientated minimum reserve policy constitute essential prerequisites for the efficient control of money supply;

11. Takes the view that the interlinking settlement system - TARGET - constitutes an essential infrastructural requirement for the single monetary policy but that it should permit the decentralized use of the monetary policy instrument;

12. Stresses that the principles of effectiveness, transparency, subsidiarity and continuity on the basis of the previous experience of the national central banks presuppose the decentralized implementation of monetary policy; this is also essential on competition grounds in respect of the financial centres in the EU and in the light of the differing banking structures in the EU Member States;

13. Calls, however, in view of what is generally perceived to be the desirable principle of transparency as far as the monetary policy strategy of the European Central Bank is concerned, for the latter to be required to give an account of its policy to the other institutions of the European Community, and in particular to the European Parliament as the institution with direct democratic legitimacy;

14. Expresses the view that better economic results and stability will be achieved in Europe if Europe's economic operators cooperate and hold dialogue with one another;

15. Urges that the European Central Bank contribute through monetary policy to a balanced and appropriate policy mix in the interests of growth, investment and employment, and therefore supports the Commission's proposal that an economic dialogue with the European Central Bank should be institutionalized as part of the macro-economic Social Dialogue, with this exchange of information occurring as early as possible; given the institutionalization of this dialogue, it must be ensured that the principle of the operational efficiency of the European System of Central Banks is retained in order to enable the latter to perform its short-term tasks;

16. Instructs its President to forward this resolution to the Council, the Commission, the European Monetary Institute and the parliaments of the Member States.