mr duisenberg presents the ecb ’ s annual report 1998 to the european parliament introductory statement by dr willem f duisenberg, president of the european central bank, to the european parliament in strasbourg on 26 october 1999. * * * i have great pleasure in presenting the first annual report of the european central bank to the european parliament at today ’ s plenary session. almost ten months have passed since the euro was successfully introduced and the ecb took over full operational responsibility for the single monetary policy. many of us feel that, with the launch of the single currency, the process of european integration has gained a new quality. indeed, the transfer of a core competency of the modern state, namely monetary policy, to a truly european and independent organisation such as the ecb must be regarded as a historic event which marks an unprecedented degree of economic and political integration within the european union. the smooth transition to this new era of european integration and the successful operational start of the ecb was the outcome of several years of intense and thorough preparation. the annual report of the ecb gives a detailed account both of the final preparatory work conducted by the eurosystem in the run - up to the introduction of the single currency and of the main economic and monetary developments within the european union in 1998 and in the first few weeks of 1999. to mention some of the issues addressed by the annual report, it explains the eurosystem ’ s stability - oriented monetary policy strategy, the operational framework for the implementation of the single monetary policy and the foreign exchange rate policy framework of the euro. the report also contains chapters on the other tasks conferred upon the eurosystem by the treaty establishing the european community, including the implementation of statistical requirements for stage three, the eurosystem ’ s responsibilities in the area of payment systems, the preparations for the introduction of the euro banknotes, the eurosystem ’ s tasks related to banking supervision and financial stability and the eurosystem ’ s cooperation with other international and european institutions and forums. however, since the information contained in the annual report is of a self - explanatory nature, it might be more useful if i concentrate my remarks on some of the issues addressed by the draft resolution prepared by your committee on economic and monetary affairs. i shall then be happy to answer any questions you might have. 1. accountability and transparency of the ecb i should like to start by commenting on the discharge of the ecb ’ s accountability vis - a - vis

components first at the national level and thereafter in cross - border tests. to a large extent, credit institutions have already taken part in these tests. in parallel, as announced a few weeks ago, on 29 june 1999 the ecb together with the national central banks successfully completed the bilateral testing of the escb applications that are necessary for the conduct of monetary policy operations. the testing exercise, together with the parallel remedial actions, has proved that these systems are year 2000 compliant. you may recall that on 15 july 1999 we decided to close target on 31 december 1999 in order to smooth the transition not only for the escb institutions, but also for the other financial institutions. this day can thus be kept free for end - of - year operations and for making full back - ups of the relevant systems. in the area of target, as well as in the area of monetary policy implementation and liquidity management, we are also reviewing our contingency procedures to minimise any potential year 2000 - related impact. it is worth noting that general contingency procedures had already been put in place shortly before the launch of the euro. in addition, we will use an efficient communication infrastructure between the ecb and the national central banks to monitor developments over the year 2000 transition period. the ecb will also share information with the joint year 2000 council and will thereby extend its monitoring capabilities beyond the eurosystem to a global perspective. as far as our monetary policy framework is concerned, we are convinced that it is flexible enough and has built - in mechanisms designed to deal with any level of liquidity demand that might arise in the euro markets. indeed, should any adaptation be advisable, this would be of limited importance and consistent with the overall set - up. we have analysed different scenarios and have come to the conclusion that the eurosystem will be in a position to cope with any potential increase in the demand for liquidity. the stock of banknotes held by national central banks is sufficient to allow for a considerable additional demand for banknotes in circulation and the amount of collateral available in the eurosystem will be sufficient to allow for the corresponding increase in refinancing needs of the banking system. we are therefore confident that the eurosystem will continue its operations smoothly on 3 january 2000 after the century date change. we also reviewed cross - border retail payment services which are essential for the smooth functioning of the single market. we believe that citizens and businesses can only benefit fully from the