Brussels, 29/08/2011 (Agence Europe) - On Monday 29 August, MEPs on the European Parliament's (EP)economic and monetary affairs committee praised the decision by the European Central Bank (ECB) to start buying up eurozone sovereign debt earlier this month as a counterbalance to the turbulence on the money markets. The president of the ECB, Jean-Claude Trichet, joined forces with the EP in its battle of wills with the Council of Ministers over reform of the Stability and Growth Pact (see EUROPE 10437).
German MEP Werner Langen, speaking on behalf of the EPP, said it was essential for the ECB to intervene on the markets despite the criticism of high-ranking figures, and this had boosted the bank's independence, in fact. Sylvie Goulard (ALDE, France) praised the ECB's action in the general European interest, although she pointed out that the bank was not there to continually act as a backstop due to lack of economic governance in the eurozone caused by failings in the intergovernmental mechanisms. Sven Giegold (Greens/EFA, Germany) said it beggared belief that the ECB had been the only institution capable of taking action and that it had been criticised for it, even. Will the euro still be with us in 10 years' time?, asked Robert Goebbels (S&D, Luxembourg). Like Langen, he recommended a speed limit to hold back the devil-may-care drivers on the financial markets and criticised the way the market is dominated by computer-generated transactions.
Addressing the committee later that afternoon, Polish Finance Minister Jacek Rostowski said that the ECB's action had saved Europe, no less, and people should realise how important the bank's role had been and the fact that it had acted strictly within its powers.
In response to turbulence on the markets, the ECB decided to take action while respecting the European Treaties, explained Trichet, not buying bonds directly from member states, but on the secondary markets instead. In total, the ECB has spent €115 billion on this since the start of the bond buy-up in 2010 (when the Greek crisis erupted). Trichet said that the ECB had been urging member states to speed up consolidation of their budgets. Some MEPs asked him to shed light on measures demanded in an open letter by countries like Italy and Spain, whose bonds have been bought by the ECB.
On economic governance, the ECB president again joined forces with the EP in the negotiations over reform of the Stability and Growth Pact (SGP), which wants more automatic decision-making for the preventative measures. This is opposed by the member states, and is preventing the passing of six items of legislation. Trichet said the ECB was on the side of the EP and called for a very speedy conclusion to the talks, saying that the Franco-German views expressed a week ago, calling for a highly preventative approach, was a sign of the two biggest eurozone economies taking a similar line to the European Parliament. Trichet added that the question had to be settled as a matter of urgency.
The ECB president pointed out that after s hike at the start of the year, economic growth would slow in the second half of the year, although inflation would remain below 2%. In reaction to comments by the director general of the International Monetary Fund, Christine Lagarde, that European banks urgently needed to increase their capital (see separate article), he swept aside any idea of cash flow problems in the banking industry. (M.B./transl.fl)