willem f duisenberg : current economic developments and prospects in europe, as well as other activities of the eurosystem introductory statement delivered by dr willem f duisenberg, president of the european central bank, at the hearing before the committee on economic and monetary affairs of the european parliament, brussels, on 20 june 2000. * * * once more it is my pleasure to appear before your committee in order to report on the recent monetary policy decisions taken by the ecb and on the reasoning underlying these decisions. to this end, i shall also present the ecb ’ s analysis of current economic developments and comment briefly on the outlook for the euro area. i should also like to add a few words on the change in the procedures for the allotment of liquidity in the main refinancing operations of the eurosystem, beginning with the operation to be settled on 28 june 2000. moreover, i should like to inform you of other important decisions taken by the ecb, particularly in the area of transparency, which is an issue that has frequently been raised in the framework of our regular dialogue, and to which the ecb attaches great importance. 1. current economic developments and prospects over the past few months both pillars of the monetary policy strategy of the eurosystem have indicated that upward risks to price stability have increased. the developments in monetary and credit aggregates over the first few months of 2000 clearly indicated that liquidity conditions in the euro area were generous. the three - month average of the annual growth rates of m3 ( covering the period from february to april 2000 ) was 6. 3 %. this followed an increase of 5. 9 % in the period from january to march 2000. there has, therefore, been a further deviation of m3 growth from the reference value of 4½ %. annual m3 growth, as measured by the three - month moving average, has been almost 1½ percentage points above the reference value since the end of the summer of 1999. it was almost two percentage points above the reference value in april 2000. growth of credit to the private sector, which was already high throughout 1999, increased during the first four months of 2000, reaching, on an annual basis, 11. 4 % in april 2000. developments in the first pillar thus indicated that upward risks to price stability had increased over the past few months. they needed to be counteracted in time. looking at the information provided under the second pillar, the outlook for growth in the euro area has

by 50 basis points on 8 june. the rate on the main refinancing operations has thus reached 4. 25 %. the rates on the marginal lending facility and on the deposit facilities have now been set at 5. 25 % and 3. 25 % respectively. the governing council also decided on 8 june to switch to a new tender procedure for the allotment of liquidity in the main refinancing operations of the eurosystem. i will discuss this issue later. the decisions taken by the governing council of the ecb reflected the forward - looking character of the monetary policy of the eurosystem. i should like to stress that the decisions of the eurosystem should be interpreted as responses to risks to price stability in the medium term before they materialise, rather than as reactions to a situation whereby price stability has already been jeopardised. in this respect, the recent increases in ecb rates have been motivated by a desire to avoid being compelled to take stronger measures at a later stage. i believe this is the best way to fulfil our mandate, as it is defined by the treaty, and thereby to contribute to sustained economic growth in the euro area. the sounder the growth process is, the longer will it normally last. the sounder the growth process is, the more permanent and sustained will the creation of new jobs tend to be. an important question in this context relates to the sustainability of the expansion of economic activity at current growth rates. the answer to this question has important implications for our assessment of the monetary policy stance, as it potentially affects the interpretation of some of the analysis conducted under both pillars of the monetary policy strategy of the eurosystem. at our last meeting in march, i already addressed the issue of the reference value for monetary growth. this reference value is compiled from the estimated trend growth of real gdp, the estimated trend decline in the velocity of circulation of m3 and the quantitative definition of price stability. in the light of the prospects for strong economic growth and upside risks to price stability which i have already mentioned, the question has been raised as to whether these developments would require a revision of the reference value for monetary growth. in this context, i should like to recall the governing council ’ s decision to review the reference value on an annual basis, and that the next review will take place in december 2000. i should also like to emphasise that the reference value is a medium - term concept and does not constitute a monetary target