Brussels, 09/07/2008 (Agence Europe) - On Wednesday 9 July, the European Parliament adopted the own-initiative report of Olle Schmidt (ALDE, Sweden) on the activities of the European Central Bank (ECB) in 2007. This decision effectively endorses support for the Frankfurt institution but certain adjustments to the way the ECB works were proposed.
501 votes were in favour of approving the report, 83 votes against, with 78 abstentions. The report highlights the “excellent work” of the ECB in managing the financial turmoil, which has enhanced its “credibility and international recognition”. MEPs point out that financial stability requires an EU level framework for financial monitoring in which the ECB would be “closely involved”. They also underscore the need for increased cooperation between the central banks and supervisory authorities and explain that with eurozone expansion, the ECB should “pay particular attention…to the risks of asymmetric economic developments within the Euro area” and convey them to member states. The EP warns that “against the background of the recent correction of growth expectation, any further raising of interest rates should be undertaken with caution in order not to endanger economic growth”. Given the appreciation of the euro, MEPs “invite the Eurogroup, Commission and ECB to step up their coordination on exchange rate policy”.
At a level of governance, the report puts forward several proposals: in an effort to obtain greater transparency, the EP is calling for the ECB to provide it (and the public) with an annual summary of the measures it has taken to improve its performances in compliance with the points identified by the EP in its annual report. It is also asking for the ECB to “elaborate clearly” whether consensus was easily reached within the Council or if divergent views persisted. Reform of Governing Council structures (which has been planned the moment the latter exceeds 15 members - 1 January 2009) is mainly aimed at taking into account the economic weight of member state participants and determining the rotation of voting rights. The number of decision makers “should be kept low in order to ensure efficiency”. With regard to the appointment of the Executive Board of the ECB, the EP should like the Council to evaluate “several potential candidates” and the proposed candidate would then be subject to a “vote of approval” by MEPs. Given the euro's appreciation as an international currency, its external dimension should be improved. MEPs call for “concrete steps to be taken towards a unified euro area representation with international financial institutions such as the IMF”.
How the ECB works. Welcoming the work of the ECB in managing the financial crisis and fighting inflation the rapporteur appealed for “new provisions for more efficient decision making”. During the debate before the voting, the rapporteur insisted that publication of the Governing Council's minutes was perhaps not the best way to proceed, but he did say that they at least needed to know whether decisions were made easily or not.
Jean-Claude Trichet said that this was “not advisable when what counts is the decision of college as a whole”. Mr Trichet also pointed out to MEPs that the relations between the ECB he presided over and the EP go much further than the obligations mentioned in the treaty. He said that mechanisms for improving how the ECB worked could certainly be improved and explained that they wanted closer relations between the central banks and market supervisors. Mr Trichet said that they did not necessarily need a supervisory authority but stated that, “central banks have a role in identifying weaknesses in the system” and highlighted the necessity of improving the flow of information between the central banks and supervisors.
Thomas Mann (EPP-ED, Germany) said that the ECB had demonstrated it ability to take action in a crisis and that the ECB's decisions were “transparent”. He said that publication of the minutes as requested by many MEPs was a waste of time and could possibly increase national influence on the ECB. Manuel António dos Santos (PES, Portugal) said that they expected competence, transparency and flexibility from the ECB. He said that he was not sure whether existing instruments would enable them to resolve current problems.
Inflation. According to Mr Trichet, oil and food price hikes are due to three reasons: demand from the big emerging economies, supply (focus on how “we can certainly do more to” tackle the many cartels and monopolies that are still so harmful, as well as the redistribution of capital globally (an area where markets have to be as transparent as possible). The fight against inflation is the main concern of our citizens, explained Jean-Claude Juncker, who also said there was an obligation on governments in the eurozone to support monetary policy and put best practices in place that underpin price stability. Hence the commitment from Eurogroup members not to give way on public sector wages and to do all in their power to avoid unnecessary increases in taxation (VAT and excise) and prices.
Complimenting the ECB, “which responded very well to the crisis”, Wolf Klinz (ALDE, Germany said he feared that the most difficult time still lay ahead. “The next 18 months will be a testing time” and he hoped the bank would retain its credibility. The risk of inflation was a very real one and last week's decision on rates had shown its commitment to price stability, he added. “Mr Trichet is a good seaman, it is important to maintain course,” because everyone, including speculators, had some responsibility for inflation, said José Manuel Garcia-Margallo (EPP-ED, Portugal).
Independence of the ECB. “The independence of the ECB is a founding principle of the EMU” and “one day we must put an end to this sterile debate, which in no way reflects reality,” Juncker said. There was nothing to stop people criticising the ECB, but “responsibility hasn't to be loaded on to it” nor should it be given multiple economic objectives.
Exchange rate. In the face of the pressing call from several MEPs that arrangements contained in the Treaty allowing the ECB and the Council to share competence on exchange rates to be applied, Trichet pointed out that “The Governing Council supports the full application of all the arrangements of the Treaty, as they currently stand” (under Article 111 of the Treaty, the Council can draw up general exchange rate policy guidelines).
Highlighting the Council's role on this, the chair of the EP economic and monetary affairs committee Pervenche Berès (PES, France) said she thought it was about time the Finance Ministers contributed to “an articulated and responsible dialogue between the world's different currencies”. Her Socialist colleague and fellow Frenchman Benoît Hamon urged, “Rather than complaining, what are heads of government waiting for?” (A.B./transl.rh/rt)