Brussels, 19/04/2005 (Agence Europe) - Lorenzo Bini Smaghi presented the European Parliament with his vision of the role and mission of the European Central Bank on Tuesday, which is in line with the post he is getting ready to take up. Before the MEPs give their opinion in plenary in May, the committee on economic and monetary affairs approved his nomination to the board of the European Central Bank by 16 votes in favour, 2 against (Ms Wagenknecht, GUE, Germany and Ms Hassi, Greens, Finland). Mr Bini Smaghi will replace his countryman Tommaso Padoa-Schioppa in the position. The members of the parliamentary committee asked the former finance director of the Italian Treasury about the reform of the Stability Pact, requirements for the economic coordination of the euro zone and the ECB's price stability policy.
Calling for a pragmatic approach to European integration, Mr Bini Smaghi noted that the ECB is a “key institution of the EU”, and said that he was “aware of its responsibilities for the well-being of the citizens”. Mr Bini Smaghi, who is the son of a Commission official, studied in Belgium and was involved in setting up the European Monetary Institute (precursor to the ECB), and said: “Europe, currency and economic policy have been the defining elements of my professional life”. With his career set to continue in Frankfurt, he referred to the challenges the institution he is shortly to join is faced with. First of all, the ECB cannot separate its work from the political and institutional contexts in which it has developed, because it interacts with the citizens “every day (…) via the currency”. Then, against a backdrop of poor growth, the ECB has to support growth, within the limits ascribed to it by the Treaty in terms of price stability. Until now, the “ECB has fulfilled its obligations, with interest rates at a historic low, lower in fact that they would be if growth were stronger”, he said. Stressing that such a large and swift fall in rates as in the US was not possible in Europe, Mr Bini Smaghi said that the completion of a fully integrated internal market was essential to avoid “hampering our competitive capacity in the world”. He concluded that “the Parliament and the ECB must work together to give the citizen greater confidence in the EU's plans”.
This analysis was shared by Paolo Cirino Pomicino (EPP-ED, Italy), who asked about a potential “accentuation of the policy of demand, which the reform of the Pact may put one in mind of”. Mr Bini Smaghi distanced himself from this view, pointing out “difficulties of acting via budgetary and monetary leverage”. He feels that “entrepreneurs and consumers have no confidence in the future, despite healthy liquid funds and incentives to borrow to develop investment programmes or to consume”, because they are concerned that they will then have to deal with an increase in taxation “to pay for an untenable welfare system”. In answer to Antolin Sanchez Presedo (PES, Spain), he said that “a reduction and an adaptation of public expenditure in Europe” was needed, because the citizens are realising that “more debt today means saving up problems for tomorrow”.
“I do not feel my position differed materially from that of the ECB after the Ecofin Council”, Mr Bini Smaghi told CSU member Alexander Radwan, who felt that he could detect a “different line” to that of the ECB on the Stability Pact in his response to a written questionnaire from the MEPs. The application of the reform of the Pact will depend “on how the analyses are used”, said Mr Bini Smaghi, who regrets that some countries are able to believe that they will have huge amounts of leeway, which they will not. He told British Conservative John Purvis that despite uncertainty related to the interpretation of the reform, the “Pact would continue to promote budgetary discipline”. This discipline is incompatible with the implementation of the Lisbon Strategy, he told Satu Hassi (Greens/EFA, Finland), stressing that the new Pact would help to “take on board the dynamic of future debt to encourage countries to carry out structural reforms”, particularly on pension systems.
“If we had to adapt monetary policy to the perception of inflation, we would have to be far stricter, which is not necessarily a good thing”, Mr Bini Smaghi told the president of the committee on economic and monetary affairs, French Socialist Pervenche Berès. “We must not feed the fears of the citizens” over the difference between perceived and actual inflation, but instead convince them of price stability. He conceded to Sahra Wagenknecht (GUE-NGL, Germany) that there is a certain amount of leeway in the use of interest rates, but only when inflation drops. At the moment, however, “we cannot go much lower” without dragging prices down and exceeding the threshold of 2% set by the ECB for inflation. What is possible in the US is impossible in the euro zone, because “inflation is considerably lower in Europe (around 1%)”, he said.
Mr Bini Smaghi explained to German Liberal Wolf Klinz and to Hans Peter Martin (NA, Austria) that he hopes the Constitution will be adopted, although he does respect those who are tempted to vote no as they no longer want the Constitution. He considers, however, that “if the no-vote prevails (…) no-one will differentiate between the no-votes in favour of integration and the no-votes against integration”. The effect that the referendums could have on the Constitution would be “to the detriment of the most indebted countries”, he replied to Enrico Letta (ALDE, Italy), saying that the aim of price stability would be more difficult to reach and that “we should restate our determination” to maintain it.
Reminding Mr Letta that the first trade partner of the euro zone is the United Kingdom, Mr Bini Smaghi also recognised that the single currency would benefit from accession by the pound sterling, which would considerably increase the euro's capacity to become an alternative to the dollar. Without going any further, Mr Bini Smaghi said he looked forward to extension of the euro zone by the end of the decade to part of the new Member States. Asked by Christoph Konrad (EPP-ED, Germany) about how appropriate it is to maintain tax competition in Europe, Mr Bini Smaghi stressed that monetary policy cannot work without some harmonisation, and he took a stance in favour of “floor rates” rather than ceilings or complete harmonisation.