Европейская денежная система
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Let me begin by discussing the over-riding priority we attach to the maintenance of price stability.
2. The priority of price stability
The Treaty on European Union - the Maastricht Treaty - stipulates
that the "primary objective of the ESCB shall be to maintain price
stability". It was left to the ESCB to provide a quantitative definition of
this primary objective. At the ECB's precursor, the European Monetary
Institute (EMI), it was agreed that, in the interests of transparency and accountability, the ESCB's chosen operational definition of price stability should be announced publicly. This announcement would form an important element of the overall monetary policy strategy. Simply defining price stability leaves open the question of why price stability is desirable. As a central banker, the benefits of price stability appear self-evident. Any single argument in favour of price stability cannot comprehensively describe the benefits that it brings.
For instance, concerning the United States, Martin Feldstein has
recently shown that, in combination with taxes and social contributions, even quite modest rates of inflation can cause considerable real economic
losses. Research at the Bundesbank has produced similar results for
But elimination of the losses caused by this channel is only one
illustrative example among the many benefits of price stability. The
greatest contribution that the ESCB can make to the euro area's output and
employment performance is to achieve and maintain the stability of prices.
Stable prices are at the core of the 'stability culture' we are trying to create in Europe, a culture that is the foundation of sustainable and strong growth in the standard of living for Europe's citizens.
At the same time, the ESCB does not operate in a vacuum. Monetary policy needs to be supported by an appropriate fiscal policy and necessary structural reforms implemented at the national level if this 'stability culture' is to be built on solid and sustainable foundations. The private sector also has its part to play, notably by exercising wage moderation, given the high levels of structural unemployment in the euro area. Progress on all these dimensions is not only desirable, but also absolutely necessary. Monetary policy alone cannot ensure strong, non-inflationary growth and improved employment prospects throughout the euro area. However, only a monetary policy focussed closely on the achievement of price stability can lay the basis for these conditions.
Of course, that is not to say that the ESCB can, or should, ignore broader macroeconomic considerations. For instance, the threats posed by deflation in combination with nominal rigidities to the real economy have to be taken into account. In order to prevent any misunderstanding, let me be very clear: my discussion of deflation has to be seen in the context of the formulation of an optimal definition of price stability for the ESCB that takes into account deflationary dangers. These dangers certainly cannot be ruled out and our definition of price stability should reflect them. However, simply recalling the current rate of inflation in the euro area - 1.2% - shows that deflation is not an immediate concern for policy- makers.
While periodic and transitory falls in the price level may be normal, and should not give rise to major concerns, a prolonged deflation is
clearly inconsistent with any meaningful definition of price stability.
Moreover, since nominal interest rates cannot fall below zero, a prolonged deflation may render the interest rate policy of the central bank rather ineffective. What remains is out-right purchases of assets - both foreign and domestic.
Similarly, the ESCB cannot ignore the implications of nominal rigidities in wages and prices for the transmission mechanism of monetary policy. If we were to live long enough under a regime of stable prices, I would not exclude the possibility that wage and price setting behaviour would adapt, and nominal rigidities would finally disappear. This would reduce some of the potential output costs of fighting inflation, and thus increase the net long-run benefits of price stability. However, for the time being we may have to live with these rigidities and take their effects into account when deciding on our monetary policy strategy.
In this respect, the present situation is not easy for the ESCB.
Unemployment in the euro area is currently very high.
However, in contrast to these persistently high levels of unemployment - which are largely structural in origin - the prospects for maintaining price stability are currently very encouraging. Inflation expectations and long-term interest rates in the euro area are at close to historical lows. Actual area-wide inflation is also very subdued.
The current low 'headline' rate of inflation has been moderated somewhat by recent falls in oil and commodity prices, themselves stemming, in part, from the economic and financial crises in Asia and, more recently, in Russia. However, this effect on inflation has been largely off-set by the impact of indirect tax rises in a number of participating countries, which have raised consumer prices for certain goods. All in all, the changed external environment contributes to an overall outlook of very subdued inflationary pressures.
In defining price stability, one might ideally refer to a conceptual measure of 'core' inflation that tries to isolate monetary effects on the price level - for which the ESCB is properly responsible - from such terms of trade or indirect tax shocks, over which it has little immediate control.
In our month-to-month communication with the public, 'core' measures
of inflation may prove useful. But, in its preparatory work for Monetary
Union, the EMI recognised that any sensible definition of price stability for the euro area would have to be based on a comprehensive and harmonised price measure. 'Core' measures of inflation typically exclude some items.
They are unlikely to be comprehensive enough to satisfy the requirements of an index suitable for a sensible public definition. These considerations point to using the 'headline' measure of the harmonised index of consumer prices (or HICP) for the euro area in the definition of price stability.
Finally, the ESCB needs to build on the success of its constituent
national central banks (NCBs) in reducing inflation and achieving price
stability during the convergence process in Stage Two of EMU. Given the
current generally benign inflation outlook in the euro area that is the
product of these accomplishments, there is an understandable desire to
'lock-in' the current success in achieving price stability as well as the apparent credibility of monetary policy, and ensure continuity with existing central bank practice.
3. The importance of the monetary strategy for a successful start of
European monetary policy
When price stability is defined using the principles just outlined, how should the ESCB proceed to maintain it? In achieving and maintaining price stability - the primary objective of the Treaty - the choice of monetary policy strategy is vital.
Within the ECB, a considerable amount of work on the monetary policy strategy has already been completed, building to a large extent on the substantial earlier preparatory work of the EMI. A high degree of consensus has been reached among the NCBs and within the ECB about the main outlines of the strategy - I will address some of these areas of agreement in a moment. The final decision has not yet been made. But you should be reassured that progress is being made at a good pace. I have no doubt that we will be in a position to announce the details of the ESCB's monetary policy strategy in good time, prior to the start of Stage Three.
Being a new institution, the European Central bank must be prepared
to come under intense scrutiny right from the start. In particular, the
international financial markets will monitor its every decision like hawks.
Facing this environment in the run-up to Monetary Union, the ESCB must ensure that everything possible is done to make the launch of Stage Three as tension-free as is possible. Choosing and announcing an appropriate monetary strategy is crucial.
The monetary policy strategy is, in the first place, important for
the internal decision-making process of the ESCB - how the Governing
Council will decide on the appropriate monetary policy stance, given the economic environment. Above all, the ESCB strategy must lead to good - that is to say, timely and forward-looking - monetary policy decisions.
But the strategy is also of the utmost significance in communicating with audiences outside the ESCB. It should stabilise inflation expectations. The more the strategy helps to promote credibility and confidence in the ESCB's monetary policy at the outset of EMU, the more effective that policy will be - and the easier the ESCB's task of maintaining price stability will become.
In deciding upon the appropriate monetary policy strategy, the following aspects must be seen as essential requirements. The strategy must:
* reinforce the ESCB's commitment to price stability, the primary and over-riding task stipulated by the Treaty;
* it must clearly signal the anti-inflationary objectives of the ESCB, and serve as a consistent benchmark for the monetary policy stance; and,
* it must be transparent and explained clearly to the general public - only then can the strategy serve as a basis for the
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