Brussels, 21/02/2006 (Agence Europe) - There were two main themes during Monday evening's meeting between the European Parliament's Economic and Monetary Affairs Committee and Jean-Claude Trichet: latest forecasts on inflation rate and how the European Central bank (ECB) integrates these data on the one hand and the enlargement of the euro-zone on the other. The President of the ECB immediately noted the accuracy of the analysis which led to an increase in interest rates last December (see EUROPE 9080). Given the unexpected rise in the price of oil and the announcement of increases in administered prices and indirect taxes in some countries, risks to stability increased, he said, indicating that the decision was “warranted”. The treaty, nothing but the treaty but the whole treaty he said when talking about the criteria to be met by new Member States for entry into the euro-zone.
Inflation expectations and interest rate policy: The external environment remains favourable, investment is expected to remain strong, consumption is expected to rise and the situation on the labour market will improve, said Mr Trichet. But risks remained due to high and volatile oil prices and global imbalances, so that over the coming months the inflation rate could rise very slightly (2.4% in January, compared with 2.2% in December). Mr Trichet anticipated a stronger pass-through of oil prices into consumer prices than currently envisaged and potential second-round effects. While “wage dynamics have remained moderate”, it is “essential that the social partners continue to meet their responsibilities also in the context of a more favourable economic environment'” he insisted. Second-round effects could have an influence on the European economy's competitiveness in the medium- and long-term, Mr Trichet told Alexander Radwan (CSU). These effects were very negative and would be really dramatic for some economies. Mr Trichet told several MEPs who wanted to know if inflation in the real estate sector would cause the ECB to increase its interest rates that they had to look at the overall picture and gave assurances that they were doing this very attentively. Robert Goebbels (PES, Luxemburg) asked if there was a possibility of another rate rise (which many are predicting for March: editor's note) and Mr Trichet replied that, as he had previously said, he considered market forecasts on future bank changes “reasonable” and he continued that, in the bank's analysis and according to the general feeling, risks to stability had increased. Saying that wage dynamics had remained moderate was, according to Sarah Wagenknecht (GUE-NGL, Germany) a delicate way of putting it. She was aware of greater wage restrictions in several countries and worried about demand. Rather than increasing wages, action for employment had to be taken, and this, it seemed to Mr Trichet, was the best way to proceed to increase internal demand. He said that he could see serious dangers at euro-zone level, but without giving any examples, despite being asked to by Udo Bulman (PES, Germany), to show how energy process led to second-round effects in the euro-zone. “We are totally, fiercely independent”, insisted Mr Trichet to German Liberal Wolf Klinz who asked him to shout loud and long the bank's right to autonomy.
Enlargement of the euro-zone: Entering the ERM II (European Exchange Rate Mechanism) was a crucial test to see if conditions which obtain within the euro-zone can be adhered to, said Mr Trichet. There were no further criteria for entry into the euro-zone, but neither was there any relaxation of conditions, he said ahead of the publication, in the Autumn, of convergence reports on which the Parliament's role is purely consultative. Without anticipating the contents of these reports, he said that once an economy fulfiled all the criteria its participation in the euro-zone would be beneficial for all parties.
Ieke van en Burg (PES, Netherlands) spoke of the Parliament's growing frustration with the procedure for the replacement of ECB Board members, complaining that, in the case of the replacement of German Otmar Issing with his fellow countryman Jürgen Starck, once again a large country had claimed the position, and Parliament could not influence the selection criteria. Mr Trichet noted only that the decision was unanimous and that the small countries had also voted for Mr Starck (see EUROPE 9131). Mr Trichet pointed out that the changes of portfolio after the reorganisation (Mr Issing is currently Chief Economist at the ECB) would be decided by the six members of the Executive Board to put in place the best possible arrangement. The Economic and Monetary Affairs Committee will hear Jürgen Starck on 18 April.