Brussels, 29/05/2001 (Agence Europe) - The President of the European Central Bank (ECB) Wim Duisenberg has clarified the ECU's recent decision to lower its main interest rate by 25 points. At a meeting of the European Parliament's Economic and Monetary Affairs Committee on Tuesday, he made reassuring noises about the introduction of Euro notes and coins on 1 January 2002 but did not manage to head off the scepticism of a large number of MEPs on the ECB's refusal to provide citizens with Euro notes before the 1 January. To justify the 10 May 25 point rate cut which took the markets by surprise, Wim Duisenberg explained that "the slowdown in M3 over the past few months was more pronounced than expected" - the M3 aggregate gives a warning of inflationary trends, and inflation is the ECB's fetish. The ECB mentioned "distortions" in M3 due to the inclusion of short-term negotiable instruments held by non-Euro-zone residents which artificially inflated M3 by 1%, a figure announced for the first time on Tuesday. The corrected M3 is back below the 4.5% ceiling set by the ECB for deciding to cut interest rates. Wim Duisenberg recalled the context in which the Frankfurt bank had taken its decision - deteriorating global outlook in 2001, with an "outlook for a continuation of solid growth in the Euro area accompanied by expectations for inflation to remain in line with the ECB's definition of price stability in the medium term". He argues that the factors "which have caused HICP inflation to remain above 2% since mid-2000, should, however, gradually diminish, making it likely that annual HICP inflation will start to fall in the course of this year and be below 2% in 2002". This medium-term prediction, along with the temporary nature of various factors (BSE and foot and mouth disease) were key, as far as Wim Duisenberg was concerned. He encouraged a continuous of wage restraint, adding that the ECB would continue to monitor inflationary trends and any risk of price instability caused by after-effects of the oil crisis stimulating pay rises.
MEPs expressed doubt about the impact of the cut in interest rates. Robert Goebbels (PES, Luxembourg) said that 25 points was only going part way and that it was not part of the ECB's role to surprise the markets. Mr Duisenberg replied that it was not the ECB's policy to take anyone by surprise and that he preferred to give warning of a rate cut, but this had not been possible for the last rate cut. Christopher Huhne (British Conservative) called on the ECB to review the way it published its decisions. Questioned about the need to publish the outcome of the votes on the ECB's Governing Council, Mr Duisenberg said that he did not think that would be useful and that transparency was ensured by regular information at press conferences.
Wim Duisenberg wanted to reassure his audience about the introduction of Euro notes and coins. He said that the challenges of changing over to the Euro should not be underestimated but he had no indication of any reason to doubt the effectiveness of the meticulous logistical preparations that should ensure a smooth transition. He said that more than half of the Euro banknotes to be put in circulation from 1 January 2002 onwards had already been produced by the end of April 2001, which amounts to as much as 70% of initial launch requirements. He repeated that the ECB would not "go back on our decision not to frontload Euro banknotes to the general public". "The reasons for this decision are still valid and there are, according to our assessment, no new elements which would justify a renewed reflection on this issue at this late stage of preparations", explained the ECB President. He explained that a series of measures would be taken to ensure that the changeover would run smoothly for retailers and to discourage counterfeiting. The security features of the Euro notes will not be made public until 30 August, just before they are frontloaded to banks. Various members of the Committee, such as the President Christa Randzio-Plath (German Social Democrat) and Pervenche Beres (PES, France), criticised the ECB's inflexibility with respect to frontloading the Euro to the public, but to no avail. In terms of Robert Goebbels' doubts about the ability of ATMs to dispense enough small denomination Euro notes, Wim Duisenberg said that in some countries, 100% of the notes would be distributed in the first few days (Belgium, Germany, Luxembourg, Austria), between 90 and 100% in others (Spain, Greece, the Netherlands and Italy) and "just" 62% in France. To a question by Theresa Villiers (British Conservative) on the cost of the changeover, he explained that this would cost "between 0.3% and 0.8% of GDP" for Member States (between EUR 20 and 50 billion). During the meeting, Mr Duisenberg queried the representability of the President of Eurogroup when he was asked whether he accepted to meet with the Presidents of the European Commission, the Parliament and Eurogroup. He agreed in principle but bluntly said that "it remained to be seen how the President of Eurogroup can speak for the eleven Euro-zone Member States".