Strasbourg, 25/04/2007 (Agence Europe) - Presenting to MEPs the European Central Bank (ECB)'s 2006 Annual Report on Monday 23 April, ECB Vice-President Lucas Papademos said 'firm and timely action is warranted to ensure price stability over the medium term.' He told the EP's economic and monetary affairs committee, chaired by French Socialist Pervenche Beres, that 'upside risks to price stability prevail over the medium to long term' and the ECB would continue to 'monitor very closely all developments.' This was similar message to that of ECB President Jean-Claude Trichet after the last Governing Council meeting, who forecast that inflation would fall in the next few months before rising to around 2% by the end of the year, and called for firm, timely action. Trichet said that he would not do anything to change the plans of market players (expecting a new interest rate rise in the eurozone in June 2007, see EUROPE 9405).
Asked by Benoit Hamon (PES, France) about his call for wage moderation, Papademos said the ECB's recommendation was that wage agreements should take account of productivity developments, competitiveness and the still high rates of unemployment, to ensure they supported more employment and growth, 'otherwise the result would not be positive.' Assessing vulnerabilities in financial markets, Papademos said 'low levels of long term yields and credit spreads in some markets make them vulnerable to a reappraisal of risks.' Asked by Alexander Radwan (EPP-ED, Germany) and Ieke van den Burg (PES, the Netherlands) about the ECB's view on hedge funds, Papademos stuck to the ECB's line, echoing most speakers at the ECOFIN Council (see 9412). He said the ECB favoured an indirect approach with regulated banks assuring themselves of the financial soundness of the hedge funds they were lending money to, but to work best this would require 'appropriate means and appropriate disclosures.' (ab)