President Europese Centrale Bank: risico's voor prijsstabiliteit (en)

Jean-Claude Trichet told MEPs on Wednesday that risks to price stability remained on the upside. In the final `monetary dialogue' of 2006 with the Economic and Monetary Affairs Committee, he said the ECB would "monitor very closely all developments" so that those risks did not materialise. He strongly defended the use of monetary analysis to inform interest rate policy and highlighted the good job creation record of the euro area over eight years.

Mr Trichet said that for 2007 "conditions remain in place for the euro area to grow solidly at rates around potential," though there were risks from further oil price rises, protectionist policies or "disorderly developments owing to global imbalances." Inflation rates "are projected to hover around 2 per cent in the coming to years," with oil prices, increases in indirect taxes and, in particular, stronger than expected wage increases being risk factors. Together with "strong monetary and credit growth in an environment of ample liquidity" these indicated that "upside risks to price stability prevail over the medium term." Acting in a "firm and timely manner to ensure price stability" was warranted, he said.

Mr Trichet noted that "over the last eight years, employment has risen by 9.2 percentage points and the unemployment rate has declined by 1.9 percentage points". He stressed that comparing the eight years of the euro's existence with the previous eight years, "we created 11.73 million jobs after the euro and only 2.65 million jobs before the euro." 

Monetary analysis as a pillar of policy making

Speaking of the "necessary and very useful role" played by monetary analysis in the Bank's policy making, he said that "the strong long-term relationship between monetary growth and inflation is one of the best documented empirical findings in economic literature." Asked by Ieke van den Burg (PES, NL) whether having used this monetary analysis in the past to help establish is anti-inflationary credibility, the ECB could now attach less importance to it, Mr Trichet stressed that monetary analysis had also been a feature of the policy making of the most successful national central banks before the euro, and the ECB did not take mechanical approach, but rather worked hard to analyse the real meaning of monetary changes, alongside its analysis of economic data.

ECB independence, exchange rate volatility

Asked by Alexander Radwan (EPP-ED, DE) about the blame apparently being attached to the ECB by many French politicians for their country's "poor economic results", Mr Trichet stressed that opinion polls in France showed the population was supportive of the Bank's efforts, with 75 per cent backing its independence. Central bank independence was "a decision taken four times" in three parliamentary votes and the referendum on the Maastricht treaty, he added.

Cristobal Montoro Romero (EPP-ED, ES) said the current danger was the euro-dollar exchange rate, and asked for a comment on this "potential brake on growth." Mr Trichet limited himself to repeating the G7 central bankers' joint statement that "excess volatility and disorderly moves in exchanges rates undermine economic growth." In response to Udo Bullmann (PES, DE) he indicated that the euro-dollar rate was one of factor among the many the Bank considered in its forecasts and decisions.

Stability Pact, labour productivity

Wolf Klinz (ALDE, DE) asked about adherence by Member States to the reformed Stability and Growth Pact. Mr Trichet warned that "a number of countries have to work much more on optimising public spending - their present levels of spending indicate they are not optimising."

Improving long term growth potential was almost "entirely related to progress on labour productivity. If we could get to the US average output per hour, we could improve very substantially the growth potential in Europe," he told Mr Bullmann. Though, in reaction to John Purvis (EPP-ED, UK) he also stressed that some European countries had higher productivity even than the United States, and "if we benchmark on them we would make enormous progress."

20/12/2006

Committee on Economic and Monetary Affairs

Chair : Pervenche Berès (PES, FR)

Monetary Dialogue with the European Central Bank