jaime caruana : words of welcome - ecb governing council dinner speech by mr jaime caruana, governor of the bank of spain and chairman of the basel committee on banking supervision, at the governing council dinner on the occasion of the meeting of the european central bank governing council, madrid, 7 june 2006. * * * it is a source of great satisfaction for me to welcome you to this dinner on the occasion of the meeting of the ecb governing council in madrid. we are particularly honoured by the presence of the president of the government and by that of the other authorities and personalities accompanying us today. as many of you are aware, this is the second time the governing council of the european central bank has met here. the first was in march 2000, a little more than one year after the start of monetary union, unquestionably the most visible feature of european construction. on that occasion, the euro area economy appeared set on a notably dynamic path with year - on - year growth exceeding 3 % and the spanish economy, in turn, was maintaining a sustained pace of expansion, benefiting from the favourable monetary and financial conditions and strong job creation. against this backdrop, spanish citizens could already perceive the favourable effects of our participation in the euro area and, therefore, the success of the economic policies applied during the convergence process. it is thus no exaggeration to say that those present at a similar dinner six years ago felt quite optimistic about the prospects for the european economy, within monetary union, although the union had only just taken its very first steps and euro banknotes and coins had not even begun to circulate. we now have the benefit of the experience built up in the intervening period. the euro has meant tangible benefits in terms of savings on transaction costs for citizens, eliminating exchange rate risks within the area, facilitating market integration and it has provided an environment of economic and monetary stability. the ecb has attained high credibility in a short period of time which is undoubtedly a result of the clarity of its objectives, the effectiveness of its strategy and the soundness of its decisions. nevertheless, it is a fact that the european economy has not managed to repeat growth figures close to those seen in 2000. it has been prone to bouts of notable sluggishness, highlighting - in addition to the effect of an unusual series of adverse shocks - the structural shortcomings holding back activity and employment. we have therefore seen that, despite the favourable effects a monetary policy unequivocal

recent december meeting was set at three years, a horizon that clearly goes beyond what, in normal times, should act as a reference for the pursuit of monetary policy. the securities market programme for the purchase of assets on secondary markets is also playing a significant role in restoring the normal functioning of the sovereign debt markets. that said, the ultimate causes of the tensions in place are due to underlying problems over whose resolution the monetary authority can exert little or no influence. these policies respond to the need to ensure the correct functioning of the monetary policy transmission mechanism, without which the eurosystem could not meet its objective of maintaining price stability in the euro area. but it should nonetheless be acknowledged that such conduct gives those responsible for the other areas of economic policy valuable time in which to pursue the design and implementation of the measures needed in those areas. the ecb ’ s conjunctural measures are of no use, however, in resolving the central problem revealed by the crisis : the need for mechanisms that help counter the risks arising from the fact that countries with heterogeneous structural features share a common currency and that, therefore, they can no longer resort to their own monetary and exchange rate policies as macroeconomic stabilisation instruments. at the various summit meetings held in recent years, the euro area heads of state or government have reaffirmed their unequivocal political commitment to keeping the emu project on track and to completing monetary union and moving towards greater economic integration. evidently, though, in this process it will be necessary to share substantial sovereignty in sensitive areas such as fiscal policy or banking system oversight, and to set in train mechanisms allowing some degree of risk mutualisation, without this potentially discouraging economic discipline in the various countries. the steps taken so far are along the right lines. but without wishing to speak out of turn, there is notable room for improvement in the pace at which decisions are being taken. on the fiscal front, reforms to date have translated into a significant strengthening of the stability and growth pact. key factors in this reinforcement have been the greater attention to debt ceilings and the establishment of greater automaticity in the procedures to evaluate potential non - compliance and to activate the necessary corrective mechanisms, along with the requirement to revise national legal frameworks. elsewhere, the new framework for the prevention and correction of domestic and external macroeconomic imbalances has also been designed. this so - called excessive imbalance procedure uses an early - warning mechanism based on a broad set of