On Monday 25 September, Christine Lagarde, President of the European Central Bank (ECB), met the members of the European Parliament’s Committee on Economic and Monetary Affairs (ECON) for the September monetary policy dialogue. The President indicated that she was hoping for an agreement from the Member States on the new rules for European economic governance before the end of 2023, so that the Member States’ budgetary work could begin in 2024, before the important electoral deadlines, within this new framework (see EUROPE 13060/1).
In its opinion on the Commission’s proposal, the ECB set out four priorities: reducing sovereign debt and the heterogeneity of debt levels between Member States, higher growth and greater countercyclicality of fiscal policy.
Responding to Eva-Maria Poptcheva (Renew Europe, Spanish), the President also said that with the fall in the prices of the combined energy mix, although there have been movements in the price of oil, the ECB considers that it would be desirable for Member States to withdraw the support measures put in place after the energy crisis, if they were not targeted, temporary and tailored.
Christine Lagarde told Rasmus Andresen (Greens/EFA, German), who was concerned about the impact of the rise in key rates on the ability to finance the green transition, that most of these investments were long-term and that, to ensure that investors would invest in the transition, it was necessary to anchor expectations on inflation and limit uncertainty.
Finally, the President reiterated to Othmar Karas (EPP, Austrian) that it would be useful to explore the possibility of a European fiscal capacity to deal with common challenges.
Excess liquidity
President Lagarde pointed out that the amount of excess liquidity in the eurozone had already fallen by more than €1 trillion over the past twelve months and now stands at almost €3.6 trillion, in particular for two reasons: redemptions from the third round of targeted longer-term refinancing operations (TLTRO III) and the reduction in securities held under the asset purchase programme (APP), particularly after the decision to end APP reinvestments from July 2023 (see EUROPE 13202/6).
Ms Lagarde pointed out that the ECB was the central bank that had reduced the size of its balance sheet relative to the gross domestic product of the eurozone at the fastest rate.
The President stated that, initially, it had been decided that it would be appropriate and proportionate to set the remuneration of minimum reserves at 0% (see EUROPE 13231/2), but that Eurosystem staff were analysing the optimal long-term size and composition of the balance sheet and, therefore, the appropriate level of excess liquidity. For these purposes, Eurosystem staff are conducting “a comprehensive review of the operational framework for steering short-term interest rates, assessing the costs and benefits of alternative regimes”, Christine Lagarde said. She hopes that this comprehensive review will be completed by spring 2024.
Inflation
The President also expressed her confidence that the eurozone would move closer to its medium-term inflation target in the third quarter of 2025.
She acknowledged that the slowdown in headline inflation was largely due to the fall in energy and food prices, but estimated that the ECB’s monetary policy would contribute 2% to the reduction in inflation over the period 2022 to 2024.
Digital Euro and ECB report
The President said that the user-friendliness of a potential digital euro, the fact that it would be free and become a universal method of payment in all Member States would make it a success, with the addition of the protection of privacy (not anonymity).
Following the hearing, the rapporteur, Johan Van Overtveldt (ECR, Belgian), presented his draft annual report on the activities of the ECB. In particular, the MEP believes that the ECB has misobserved inflation and calls on the ECB to analyse its models, look at the role they play in its policy decision-making processes and adapt them if necessary.
The deadline for tabling amendments to its draft report is 4 October.
Link to the draft report: https://aeur.eu/f/8qg (Original version in French by Émilie Vanderhulst)