Brussels, 18/11/2009 (Agence Europe) - For the euro area, 2008 has been characterised by low growth (0.7%) and steep inflation (4% in the summer and 3.3% on average) in a year marked by the outbreak of the economic and financial crisis. This exceptional situation shaped European Central Bank (ECB) policy, pushing it to extraordinary measures in reaction to new economic conditions. Thus says the draft European Parliament report by Edward Scicluna (S&D, Malta), responding to the ECB annual report published in April. The report will be put to the vote in the economic and monetary affairs committee at the end of January before going to the plenary session for adoption, probably in March.
After keeping its interest levels unchanged in the first six months of 2008, and increasing them by 25 base points (to 4.25%) in July 2008, the ECB gradually brought them down to 2.5% in the second half of last year (and to 1% in 2009). At the same time it considerably increased bank liquidity, including by non-standard measures that allowed it to adjust its operating framework (fixed rate tender procedures with full allotment in its open market operations, temporarily narrowed the corridor formed by the rates on its standing facilities, broadened its list of assets eligible as collateral, and provided liquidity in foreign currencies in cooperation with other central banks).
Scicluna says that “2008 was the year in which the ECB had to take some of the toughest decisions it has faced since its inception”. He notes, however, that “interest rate cuts were less radical than those taken by other central banks”, such as the US Federal Reserve and the Bank of England in the UK and regrets that “the extra liquidity injected by the ECB did not sufficiently ease the credit crunch faced by industry, particularly small and medium sized businesses, and was instead used by banks to improve their margins and cover losses”.
On the exit strategy, whether fiscal deficits or on monetary issues, the rapporteur recommends coordinated planning and implementation once sustainable economic recovery has gained ground. With regard to the measures envisaged by the ECB, the report recommends “that any moves to increase interest rates should be taken with the utmost caution so as not to endanger future economic growth”. It states that member states should continue with their current fiscal stimulus measures to “protect jobs, encourage investment and stimulate growth”.
In terms of governance, the draft report recommends that the candidates proposed by the Council for posts on the ECB Executive Board should be subject to a vote of approval by MEPs. It also welcomes the fact that the Lisbon Treaty will confer a legal personality on the Eurogroup (and the ECB will be given the status of an EU institution). The external dimension of the single currency (26.5% of global currency reserves were held in euro at the end of 2008) will bring increasing responsibilities on the world stage, the text says too. (A.B./transl.rt)