willem f duisenberg : testimony before the committee on economic and monetary affairs of the european parliament introductory statement by dr willem f duisenberg, president of the european central bank, brussels, 3 december 2002. * * * it is my pleasure to continue today our regular dialogue. i will start my opening remarks with an explanation of the european central bank's assessment of economic and monetary developments. subsequently, i will address some issues related to the eu arrangements for financial regulation, supervision and stability. economic and monetary developments already at the time of our last meeting in october, the expectation had faded that economic activity in the euro area would reach growth rates in line with trend potential by the end of 2002. in the course of the summer, the downside risks to economic growth had become evident, reducing the likelihood that upward risks to price stability would materialise. this development was mainly related to the episodes of turbulence in financial markets and to the persistence of geopolitical tensions, which created uncertainty and affected the outlook for economic activity in the euro area and at the global level. starting with the first pillar of our monetary policy strategy, since our last meeting monetary growth has remained rather strong in the euro area. however, recent monetary data need to be interpreted with caution, as the dynamics in m3 over recent months have been considerably boosted by high uncertainty in financial markets, which has favoured portfolio shifts to the more liquid instruments included in m3. at the same time, the persisting strong monetary growth and the resulting ample liquidity have also been driven by the low level of short - term interest rates, which stimulates demand for the most liquid assets which are included in the narrow aggregate m1. loans to the private sector have stabilised at growth rates between 5 and 5 ½ % in the most recent past. these are levels which, in real terms, are not low given the cyclical situation. overall, more liquidity is available than would be needed to finance sustainable, non - inflationary growth. at the same time, in the current economic environment, we do not see the risks of this excess liquidity translating into inflationary pressures in the near future. turning to the second pillar of the ecb's monetary policy strategy, and starting with economic activity, the available evidence indicates that economic activity has most likely continued to grow only moderately in the third quarter of this year. as already noted, the hesitant pace of economic activity, as compared with our expectations in early 2002, together with lacklustre confidence,

the euro area. … a number of central and eastern european transition countries have already achieved a high degree of trade and financial integration with the european union and have reached quite close convergence with these countries. as a next step, this economic integration has to be deepened and complemented by institutional integration. finally, the efforts of these countries to become members of the european union will further enhance their integration into the world economy. personally, i am convinced that both the economic preparations during the preaccession period as well as the accession itself will boost structural reforms and developments, thus reinforcing the dynamic structural adjustments that we have witnessed as a consequence of transformation in general and trade liberalization under the europe agreements ( ie the eu association agreements ) in particular. companies seem to have started already to take into account the perspective of eu enlargement for their investment decisions. moreover, the adoption of the acquis communautaire and the process of institution - building for an effective implementation of this acquis will harmonize and improve the institutional and legal setup in these countries. … before concluding, let me come back to an important issue i already touched briefly - central bank independence. what does the european union mean by “ central bank independence ”? basically, it is independence from other authorities, in particular political authorities, in the conduct of monetary policy and, more broadly, in the performance of all the tasks that are related to the escb, the european system of central banks, in which the central banks of all eu member states participate. central bank independence is essential for the credibility of the european system of central banks and for the effective conduct of a stability - oriented monetary policy. independence has three main dimensions - the institutional, the personal and the financial dimension. • institutional independence primarily means that central banks are prohibited from seeking or taking instructions from community institutions or bodies, from any government of a member state or from any other body. likewise, rights of third parties to approve, suspend, annul or defer central bank decisions on escb - related tasks are incompatible with the eu treaty. the same is true of any rights to censor such decisions on legal grounds. • personal independence is about ensuring tenure for members of the escb ’ s decisionmaking bodies by minimum terms of office and giving protection against arbitrary dismissal. to make this latter aspect more concrete, a central bank governor may be relieved from office only if he or she no longer fulfills the conditions required for the performance of his or her