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Preserving price stability

June 2008 | Issue 10
Preserving price stability

In his regular dialogue with the Economic and Monetary Affairs Committee (ECON) of the European Parliament on 26 March, ECB President Jean-Claude Trichet predicted that the current period of relatively high inflation rates will be more protracted than previously thought. He emphasised the need to prevent excessive price- and wage- setting stemming from current inflation rates. “This is key to preserving price stability in the medium term and thereby the purchasing power of all euro-area citizens,” he said. In discussing financial stability and money market supervision more generally, the ECB President called for a significant change of culture at national, European and global level to bring more transparency to markets, thus reducing ‘contagious behaviour’ and more ‘anticyclicality’ to avoid amplifying booms and busts. For more information see the speeches and publications sections of the ECB website.

Eurogroup President Jean-Claude Juncker

June 2008 | Issue 10
Juncker: euro area needs to address fairer wealth distribution

On 7 April the ECON Committee met the Eurogroup President Jean-Claude Juncker for their first exchange of views this year. Juncker noted that the economic fundamentals of the euro area remained solid and had proved resilient thanks to past structural reforms. The Eurogroup agreed that there was no need for recovery programmes in the euro-area Member States, he said. Past experience showed that such programmes were fruitless in the long term. Juncker said current statistics indicated that all euro-area Member States had fiscal deficits below 3% of GDP in 2007 and that the average fiscal deficit was at its lowest level since 1970s. The data still had to be validated by Eurostat at the time. Juncker opined that, at 7.1% in the euro area, unemployment was still too high and there were 15 million people living below the poverty threshold. He said some governments needed to address a growing feeling in the euro area that there was a socially unfair distribution of wealth with a growing group of “working poor”.

 

European Central Bank - The first ten years logo

June 2008 | Issue 10
The ECB celebrates

The European Central Bank celebrated its tenth anniversary on 1 June, when guided tours for the public were conducted at the Eurotower. The anniversary was marked the next day with a celebration involving the Eurogroup, music from the Chamber Orchestra of Europe, and speeches by European Parliament President Hans-Gert Pöttering, European Council President Janez Janša, and European Commission President José Manuel Barroso, topped off by an address from Angela Merkel, Chancellor of the Federal Republic of Germany. To mark the occasion – and achievements over the decade – the ECB is making a retrospective of central banking in Europe over the past ten years available on the ECB website.
A single voice for Europe

June 2008 | Issue 10
A single voice for Europe 

Commissioner Joaquín Almunia attended the G7 meeting as well as the spring meetings of the IMF and the World Bank, which took place in Washington, DC on 12-13 April. The overarching topic was the impact of the financial turbulence on the economic outlook and the policy responses to it. At the IMFC, ministers agreed to a compromise on quota and voice reform (see statement by the Commissioner to the IMFC). To ensure the legitimacy of Europe in these institutions, further reforms are needed and should include a consolidation of the European chairs, in primis at the IMF, as the Commissioner stressed in a speech he delivered at the Peterson Institute for International Economics in the US.

Turbulent times call for reforms

June 2008 | Issue 10
Turbulent times call for reforms

This was the message Commissioner Joaquín Almunia gave to the OECD conference on ‘structural reform in Europe’, on 17 March in Paris. “In the current deteriorating climate, we urgently need to increase the reform momentum to limit the effects of a temporary slowdown,” he told the audience, and called for more coordinated reform efforts that could help public acceptance. “Reforms work”, he continued. “They have helped support the economic recovery of the last two years and they are now helping us weather the more turbulent times”. So stepping up reforms just as they are beginning to deliver results would be the best possible response to the storm clouds gathered over the global economy” was his conclusion.

Public Finances in EMU

June 2008 | Issue 10
EESC: a time for assessment

The European Economic and Social Committee’s Conference on ‘Advantages and benefits of the euro: time for assessment’ took place in Brussels on 14-15 April. EESC President Dimitris Dimitriadis welcomed the successes of the euro and added that the single currency’s path should lead to further economic and social integration. Commissioner Joaquín Almunia and Deputy Director-General Marco Buti took stock of the first ten years of the euro and put into perspective the numerous challenges the euro area would face in the future. Commissioner Almunia invited the EESC to take an active role in the debate that would follow the release of the EMU@10 Communication. Speaking on the same day, Eurogroup President Jean-Claude Juncker deplored the lack of progress towards a unified representation of the euro area in international financial institutions, while ECB Board Member Jürgen Stark stressed that the ECB’s clear mandate and full independence had been crucial to ensure price stability in the euro area. More on the EESC website.
The ECB celebrates

June 2008 | Issue 10
ECB annual report

The ECB presented its 2007 annual report to the EP’s ECON Committee on 21 April. ECB Vice- President Lucas Papademos also reported on the different activities of the European System of Central Banks and on monetary policy in 2007, and presented the ECB’s response so far to the financial market turmoil. Papademos called for the EU to further increase the co-operation and exchange of information between central banks and financial market supervisors. He warned of the risk that “current temporarily high annual inflation rates, which may persist for a rather protracted period of time, could have second round effects on wage- and price-setting”.
Food for thought

June 2008 | Issue 10
Food for thought

In a Communication published on 20 May, the Commission put forward proposals for tackling the challenge of rising food prices. With input from several DGs, including DG ECFIN, the Communication notes that food price inflation reached 7% in March of this year, at a time when consumers are also facing rising energy prices. Analysis suggests that high food prices are likely to persist for the medium term, hitting hard not only net food importers in the developing world, but also poorer European households. The Communication recommends actions such as price monitoring and suspending import duties, to mitigate short- and medium-term impacts. For the longer term, the sustainability of biofuel production should be addressed and more work encouraged on the improvement of crop yields. At a global level, an open trade policy and maintaining the EU’s humanitarian commitments while seeking structural solutions through development policy are highlighted. The ECOFIN Council on 3 June further discussed the issue in preparation for the EU summit later in the month.
 
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