I should like to take the opportunity of this special meeting to take stock of where we stand 15 months after the start of Monetary Union. In January 1999 the euro was successfully launched as the single currency for 11 Member States of the EU. As a result of very careful conceptual and technical preparations, both the monetary policy-making process and the implementation of monetary policy have functioned efficiently right from the start.
The challenges involved in setting up a central bank for a currency area as large as the euro area have been enormous. The Eurosystem - which comprises the European Central Bank and the 11 national central banks of the countries which have adopted the euro - has met these challenges with success. This would not have been possible without a strong willingness to co-operate on the part of the actors involved. I should like to take this opportunity once again to thank all the members of the Governing Council and the staff of the Eurosystem for this.
From the start, we had extremely productive and open discussions in the Governing Council on monetary policy issues. In this respect, our monetary policy strategy has provided a very useful framework within which to organise our thinking. In our discussions there has always been a clear understanding, based on the Treaty, that the single monetary policy can only focus on maintaining price stability in the euro area as a whole. This is based on the simple fact that in a monetary union, there is only one monetary policy, and this must be directed to a single objective. As laid down in the Treaty, each member of the Governing Council is therefore well aware that he or she is not a representative of a country or central bank but acts in a personal capacity in deciding the appropriate conduct of monetary policy for the euro area as a whole.
The move to the single currency and the introduction of the euro were based on a degree of convergence towards price stability in participating countries that few observers would have predicted some years ago. In 1999 the average rate of consumer price increases in the euro area as a whole was among the lowest recorded since the Second World War and, at 1.1%, remained fully consistent with price stability. At the same time, Monetary Union does not mean perfect identity of economic conditions in all parts of the euro area. The experience of all larger currency areas shows that some differences in regional price developments and also in regional output growth may exist.
As differences in national or regional developments can not be addressed by the Eurosystem, they require, whenever necessary, country-specific responses. This means, in particular, responsible national wage settlements and appropriate national fiscal policies aimed at counteracting specific national problems. In addition, reforms addressing rigidities in labour and product markets and aiming at enhancing labour and capital mobility are the tools to ensure that market mechanisms will play an increasingly important role in limiting the scope for divergent developments in the euro area.
The single monetary policy offers a great opportunity to maintain price stability in the euro area and to create the conditions needed for sustained economic growth. Currently, the prospects for strong economic growth in the euro area are very favourable - indeed, more favourable than they have been for many years. Economic activity in the euro area strengthened markedly in the second half of 1999 and this upswing is expected to continue through 2000 and beyond. Available forecasts point to real GDP growth of slightly over 3% in 2000 and 2001, reflecting both the favourable external environment and strong domestic demand. In line with this positive outlook, employment is expected to increase further and unemployment to come down in this context.
At this juncture, it remains, indeed, important that the expected improvements in economic conditions and labour market prospects are not jeopardised by inappropriate wage settlements. In fact, wage moderation, combined with structural reforms in the labour markets, would help both to contain inflation in the euro area and to lead to further progress with employment creation.
The contribution of monetary policy to strong and sustained economic growth is to ensure that price stability in the euro area will be maintained in the years to come. The Governing Council has, over recent months, raised ECB interest rates in three steps, in total by 1 percentage point, as a response to signals from both pillars of the Eurosystem 's monetary policy strategy that upward risks to price stability were increasing.
Since the last meeting of the Governing Council, which was held on 16 March 2000, the main new data released relate to monetary developments and HICP inflation in the euro area. With regard to monetary developments, the annual growth rate of M3 in February 2000 was 6.2%, implying a small increase in the three-month moving average of annual M3 growth, to 5.9% for the period from December 1999 to February 2000. The annual rate of change in the HICP in the euro area rose from 1.9% in January 2000 to 2.0% in February 2000, reflecting the anticipated upward pressure on consumer prices stemming from oil price and exchange rate developments.
In its review of the economic and monetary situation, the Governing Council also considered the recent developments in the exchange rate of the euro. Such developments need to be carefully assessed in the framework of the Eurosystem 's monetary policy strategy. The Governing Council regards the present level of the euro as not reflecting the significant recent improvements in the outlook for the euro area economy.
At today 's meeting the Governing Council decided to leave ECB interest rates unchanged. We shall, however, continue to be vigilant in order to be in a position, if needed, to counter inflationary pressure in a timely manner.
There remain, however, also challenges for other economic policies in the euro area.
As regards fiscal policies, the current upswing provides, for many countries, a good opportunity to comply more quickly with the objectives of the Stability and Growth Pact. This will free up resources for private initiatives and will, over time, contribute to increasing the growth potential of the euro area.
At this juncture, probably the greatest challenge for the euro area lies in speeding up structural reform in order to reduce the high level of structural unemployment. In this respect, the Eurosystem strongly supports the conclusions of the European Council in Lisbon and calls for their timely implementation. Furthering structural reform is the key to a lasting process of job creation and a sustained period of strong economic expansion.
Let me now give the floor to the Vice-President to present some of the additional topics discussed today by the Governing Council.
I should like to draw your attention to the following two items: first, the international financial architecture, an issue which was discussed in preparation for the forthcoming IMF Spring Meetings in Washington, D.C., and, second, the ECB 's information campaign for the introduction of the euro banknotes and coins.
Let me start with the Governing Council 's deliberations in relation to the current discussion on the international financial architecture, for which the President was mandated to convey the Governing Council 's views to the President of the ECOFIN Council. Through its representation in all-relevant international institutions and fora, the Eurosystem has been able to participate actively in ongoing discussions over the past year.
The Eurosystem actively supports those efforts made by various institutions and fora - such as the IMF, the World Bank, the Financial Stability Forum and the Basel Committee for Banking Supervision - to enhance transparency and to improve the soundness both of financial systems and of regulatory and supervisory frameworks.
Owing to the fact that unsustainable exchange rate regimes were a factor behind financial crises of previous years, recent discussions have focused in particular on the choice of appropriate exchange rate arrangements. The Governing Council is of the view that such a choice should not be confined to alternative solutions of either a hard peg or free floating. Intermediate regimes, such as adjustable pegs, may suit the needs of emerging market economies, depending on their specific domestic and external conditions.
Refocusing the role of the IMF has been central to most recent reform proposals. The Governing Council is of the view that strengthening the key responsibilities of the IMF, namely further enhancing its credibility as a policy adviser and provider of financial assistance to members facing a loss of market confidence, will make an important contribution to international monetary stability. As regards crisis management, the Eurosystem is looking forward to seeing further progress in the complex but crucial area of ensuring private sector involvement in crisis prevention and resolution.
Second, the Governing Council approved the overall framework for the EURO 2002 information campaign - a Europe-wide campaign intended to familiarise citizens with the euro banknotes and coins.
The main objectives of the campaign are to help citizens:
to recognise the euro banknotes and coins and, in particular, their security features,
to familiarise themselves with the different -LRB- and, in many cases, new -RRB- denominations of the euro banknotes and coins, and
to inform themselves about the means by which the euro banknotes and coins will be introduced on 1 January 2002.
The strategy behind the ECB 's campaign is based on the concept of co-operation with" multipliers '', such as banks, retailers and their associations, as well as educational institutions and governmental authorities, at both a European and a national level. The campaign will be conducted in two main phases. In the first phase, which is about to start, the" multipliers '' will be approached in order to prepare their own activities with regard to training and the provision of information. In the second phase, scheduled for the second half of 2001, the general public will actively be informed by means of a centralised mass media campaign to ensure the smooth changeover to the euro banknotes and coins. The main communication tools will be television spots and widely distributed printed matter supported by radio spots and both billboard and press advertisements. I should like to stress that due account will be taken of the specific needs of the various groups of vulnerable citizens in the conduct of the campaign. Close co-ordination with the EU institutions and the Member States will ensure the provision of consistent information.
Question: Two questions, please. First, one on your communications policy - not with regard to financial markets, which has already been criticised, and I do not wish to come back to that - but with regard to public opinion. Do you think that two meetings a year in two different capitals will be enough for the public to feel that Frankfurt, and the ECB, is closer to them? The second on your monetary policy: on 16 March you raised your interest rates and, since then, we have seen oil prices falling again and wage moderation being respected, at least in Germany. Do you think you panicked too early?
Duisenberg: We do think that, for the time being, two meetings per year are enough. We also want to avoid European citizens feeling that nobody knows where the European Central Bank is. So we should not be away from our headquarters too often. Indeed, since our last meeting in March, oil prices have not increased further. It is too early to judge what the near future will bring. It is not too early to judge what past developments still have to bring. The increases in oil prices are still working their way through, and will continue to work their way through in the price developments for some months to come. And the same holds true of the exchange rate. It has hardly moved since our last interest rate decision in March. But it is also true to say that it has not yet moved upwards. So, it remains at a level which increases the upward pressure on prices. So, we do not by any means think that we have been premature. On the contrary, as I said in my introductory statement, we remain vigilant as to future developments in an environment of robust economic growth, which we expect to continue throughout this year and next year. And thereafter? It is too early to say what will happen. So, coming back to your question, we think that the latest figures, which have been released since we took our last interest rate step, more or less justify ex post the action we took on 16 March.
Question: If you were to bring it into your former picture of the snail 's pace, will it be creeping or will it be jogging, will it be running or sprinting? And will it be moving up a gentle hill or will it be going up a mountain?
Duisenberg: I am not that much of an expert in snails, except in eating them. But that is not relevant at this point. So I can not tell you anything about the speed, or the scope, with which the snail is creeping or moving. But I think the fact that I said that the Governing Council will remain vigilant in the light of both the euro area 's robust economic growth and the developments that still have to work their way through should be enough for an indication of the direction in which the snail is creeping.
Question: Sir, could you please tell us, what you have been analysing with regard to the OPEC decision on price evolution in the euro area? On 20 March you spoke to the EU Parliament and you said that the weakness of the euro was another element for inflation in this area. Why do you not do something about the weakness of the euro?
Duisenberg: With regard to the recent OPEC decision, as I said earlier, it is still too early to judge what the effect will be in the longer term. Normally, increases in oil prices work their way through to the consumer price index with a lag of between four and six months. So, with a view to the decision taken only a few days ago, the effects of which on the market price are not yet quite clear, it is far too early to say anything about its impact in the longer term. This is true especially for us, since we take a medium-term perspective of at least one and a half or two years on inflationary developments. With regard to the exchange rate: as I have said, the exchange rate has not moved very much since our last meeting, but it has stayed around the level already reached two or four or even six weeks ago, which is a level that the Governing Council firmly believes does not adequately reflects the potential for growth and the current situation of robust economic growth with unemployment slowly falling in the euro area. So, it is still too early to judge - again, at that moment - how the impact of these developments will be reflected in the exchange rate.
Question: Stock prices have been falling by 3 or 4% on the European stock exchanges - in Helsinki even by 8%. Some investment banks forecast that, because of rising interest rates, stock prices will fall by between 15 and 20% in the first half of this year. Should we count this as a corrective move and does it, if it happens, change the interest rate-setting atmosphere?
Duisenberg: Well, first of all, we are not joining investment banks in speculating on what either stock prices or interest rates will be doing in the near future. And I would like to point out - point to the fact - that, if you look at the United States, for example, substantially higher interest rates did not prevent stock prices from increasing last year.
Question: You spoke about the role the national governments have to play in the strategy of keeping inflation down. The Irish Finance Minister maintains that Ireland 's level of inflation gives no cause for concern and that his Government is doing all that is necessary for it not to become a problem. What do you think?
Duisenberg: I think the Irish Finance Minister can not say anything but what he said. A fact is, of course, that differentials in price increases across a large currency area are not abnormal. In a study we have recently published in our ECB Monthly Bulletin, we came to the conclusion that differentials in the euro area were, to our own surprise, even smaller than the differentials you see between some 25 cities in the United States. Still, I do maintain that the problem Ireland faces in having a substantially higher rate of inflation than the euro area-wide rate of inflation is a problem that has to be addressed. It will be addressed, I am sure, by the Irish Government, and by the Irish Government alone.
Question: This is another question for you, sir - more or less along the lines of the last one. You said in your introductory remarks that the countries with a higher inflation rate within the euro area should have their own special monetary policies as well as structural reforms. Now, since in Spain we have a high rate of inflation of 3%, do you think that the current policies are the right ones for Spain?
Duisenberg: Sorry, I did not say that they should have their own monetary policy. You see, we have only one monetary policy in the euro area. But they have their own fiscal policies and wage policies as well as structural reform policies, and those are policy areas which have to be addressed by the national governments, and by the social partners, I am inclined to say. But the European Central Bank and all of the Eurosystem can and will do nothing about that.
Question: Concerning the Summit in Lisbon: do you think the national governments do enough, are sufficiently committed to the project of modernising their economies?
Duisenberg: Well, I can only repeat what I said in my Introductory Statement. We certainly welcome the intentions implied in the Conclusions of the Lisbon Summit. What we have said, in addition, today, as the Governing Council, is that we hope that these Conclusions will be implemented in practice, sooner rather than later. And that they will not be words only.
Question: I would really like to talk about the stock markets. Not that I expect you to give me a forecast, nor to talk about the latest stock market developments. Rather, as seen in the last ECB Monthly Bulletin, on page 41, I would like to know whether the Governing Council has anything to say about the high volatility on the stock markets and, in particular, the high volatility of technology assets and utilities?
Duisenberg: The Council has not considered specific sectors of the stock market. The Council has briefly discussed the phenomenon of asset price volatility and the fact that we are extremely hesitant, or reluctant, to pass any judgement or normative judgement on these developments. And I will refrain from doing so here.
Question: I have three questions, but, of course, they are interrelated. The first question is this: Spain, Italy and so on used to have major reserves in foreign currency in their national central banks, especially as far as Deutsche Mark and Dutch guilder were concerned. But obviously, it does not make any sense to keep these anymore. When were they changed and how were they changed? Can you tell us? The other question is: the other national central banks around the world currently hold a certain percentage of their foreign exchange reserves in euro. To what extent do you think this percentage will increase in the next five years? And what do you say about profits? The Federal Republic of Germany used to receive profits from the Deutsche Bundesbank. How do you think this will increase, for example, for Germany or for the Spanish central bank in the next, say, five years?
Duisenberg: Where have the banknotes gone which used to be held by other euro area central banks? I suppose they have gone back to their home country in the meantime. And what will happen to the profits? I can not say. We do not know how profits will develop. What we do know is that in the Eurosystem we have agreed on accounting rules which, over time, will substantially change annual developments in profits, and that, for example, we now include unrealised valuation losses in foreign exchange reserves directly in the profit and loss account, whereas in the past it was usually written off against some valuation reserve in the balance sheet of the banks. As far as the euro 's share in foreign exchange reserves in the world outside the euro area is concerned, I expect it to develop over time. But, of course, you have to realise that we have been exposed to a certain shock as a result of the creation of the euro area itself. Before the introduction of the euro, the distribution of world reserves over various currencies was - and I am giving very rough figures now - about 60% US dollars, about something like 25% Deutsche Mark and around 5% Japanese yen, with the remaining 10% being shared by a variety of currencies, including Swiss francs, French francs, Dutch guilders and special drawing rights of the IMF. With the transition to the euro, the reserves of the euro area countries were, in some instances, held in US dollars and Deutsche Mark - in my own country, the Netherlands, for example, we held 50% of the foreign reserves in US dollars, 50% in Deutsche Mark. And overnight, the 50% Deutsche Mark had become domestic assets rather than foreign assets. So that phenomenon caused an immediate change in the world currency distribution of reserves. Because of the falling-out of the intra-euro area holdings of European currency reserves, it caused the euro share of international reserves to fall immediately. And now it is growing again. So, we are now in a situation where between 70 and 80% of the world reserves are held in US dollars and around 15 to 20% in euro. I expect the same trend to develop that we have observed over the past 25 years, namely a gradual decline in the share of the US dollar and a gradual increase in the share of the euro. I expect that trend to continue. But it is a long-term process.
Question: For the first time this year, the major economic blocs may grow strongly. We have remarkable economic developments in the United States, in the euro area, and also in South-East Asia as well as in the United Kingdom. Do you think the increase in interest rates will undermine this positive development?
Duisenberg: I do not think anything of the sort. We have a situation where, in Europe, growth is now expected to be over 3% this year and next year. For the United Kingdom, expectations are similar. It is true to say - amazingly, I must say, basically, also for the US authorities - that the US economy seems to be continuing to grow at a pace which - we thought earlier - might be similar to that in Europe. We now think it may even continue to be somewhat higher than in Europe. In Japan, we still do not know. We see a hesitant, shaky recovery. Now, all these developments, with the exception of the shakiness of Japan, present a very favourable picture, underpinning the chances for Europe, indeed, to experience robust economic growth and a fall in unemployment over the years to come. That fall in unemployment will only be of a significant nature if, at the same time, this period of increasing wealth and output growth is used also to execute the badly needed reforms in the various markets, in the labour markets, in particular, but also in the goods and services markets.
Question: President Duisenberg, as you have also said in your remarks, M3 growth has accelerated recently. Could you please explain how this has to be evaluated in the light of inflationary risks?
Duisenberg: The January figure, as you know, was strongly affected by base effects. The February figure was still affected to some extent. The figure of 6.2% which I mentioned was, to some extent, also still affected by base effects, i.e. by the fact that February 's figure last year fell out of the series. But it also reflected fairly strong further increases in the various components of M3, leading us to the conclusion that we can still speak of a very accommodative monetary policy stance. And this is one of the factors which keeps us saying:" we will remain vigilant ''.
Question: Mr. Duisenberg, you have now raised interest rates by four percentage points since last autumn, amid signs of increasing growth...
Duisenberg: One percentage point, you mean.
Question:... by one percentage point, yes. Amid some increasing growth and price pressures, that is at a pace that has been faster than what the Fed has done in the United States. And yet, the euro has still lost over 8% of its value. I mean, is there anything you can do at all to limit these losses? And, secondly, just on the Lisbon Summit: given the luke-warm market 's response to the Summit 's Conclusions, do you think the message from there was strong enough?
Duisenberg: With regard to the euro itself, we would only do something about it if it were to undermine our monetary policy strategy. And you, of course, are very much aware of that. I do not think that we can do very much else. And, with regard to the Lisbon Summit, I am sorry, I only can repeat that the message from Lisbon was strong enough: we, the Heads of State and Government, want unemployment to have virtually disappeared by the year 2010. We want to have full employment and we want to have ample room for information and communications technology to work its way through into our European economies. We, the Governing Council, fully endorse those Conclusions. The only thing we added was that we do hope that, sooner rather than later, words will be translated into deeds.
Question: Do you think that the European Central Bank should speak with one single voice?
Duisenberg: Well, today it looks as if it does. And I would hope that it will continue to be the case - even if it is not only my voice - it should be one sound, at least.
Question: We are in Madrid: should we see this first visit of the ECB to one of the euro area countries as a sign of encouragement or as a particular sign for the Spanish Prime Minister, a European conservative, who was recently re-elected in a rather social-democratic Europe. And a related question: could you give us your precise position regarding the latest budget measures of the French Government?
Duisenberg: On the last question: the answer is" no, not specifically ''. We pass judgement on budgetary developments in individual countries in the context of the discussion, together with the European Commission, in the Economic and Financial Committee and, openly, in the Euro-11. What we do think is that - I want to repeat what I said earlier - the period ahead of us gives all governments, and I am inclined to say the French Government is certainly included, a golden opportunity to speed ahead, faster than anticipated, towards fulfilling the requirements of the Stability and Growth Pact. Now, why do we meet in Spain? The reason why has already been explained by Governor Rojo in his introductory remarks. Why do we want to meet outside Frankfurt every now and then? The question" why did you start in Spain '' has been raised very often. The answer is very simple: we normally meet in Germany, in" Deutschland '', and we wanted to give all Member States an opportunity to have a meeting on their soil in the coming years. And back to Germany, the last one in the series. So, we started with the first country in the alphabet that comes after" Deutschland '', namely" España ''.
Question: Mr. Duisenberg, Mr. Noyer, why do you think that the international financial markets continue not to acknowledge what you call the fair value of the euro in the light of robust growth in Europe?
Duisenberg: I am very happy that the question was put both to Mr. Noyer and to me,... because I do not know.
Noyer: Could I say the same? With one voice?
Question: Are there any comments on the recent wage settlements in Germany, the chemical workers first and then the IG Metall. They seem to have gone along with your advice not to go through excessive settlements, but what do you think about it?
Duisenberg: I am certain that it was not our advice. But I can only say that we are pleased with the outcome of those wage settlements, when we compare them with the original demands posted. And they do seem to indicate that the social partners, in Germany, too, have taken their responsibility for their future, and for their country, very, very seriously.
Question: You talked about your reaction to the wage deals. I was wondering about how this affects the ECB 's outlook on inflation?
Duisenberg: We do not know yet. As I said earlier, it still all has to work its way through, and wage bargaining processes are still very much under way in many parts of the euro area. But, it certainly helps us in our fight against inflation. However, the pressures, the upward pressures, are still there. And that is the reason why I can not but repeat myself even more often than I already have: we remain vigilant. But let me say: at least, these wage settlements have not added to our concern.