Select Committee on European Scrutiny Second Report


EUROPEAN CENTRAL BANK


(22375)
8401/01

2000 Annual Report of the European Central Bank.


Legal base:
Forwarded to the Council: 27 April 2001
Deposited in Parliament: 11 May 2001
Department: HM Treasury
Basis of consideration: EM of 19 June 2001
Previous Committee Report: None
To be discussed in Council: Not applicable
Committee's assessment: Politically important
Committee's decision: Cleared



Background

25.1 The European Central Bank (ECB) was formally established in June 1998. It took over from the European Monetary Institute responsibility for the introduction of the euro and from January 1999 has been responsible for the monetary policy of the eleven EU Member States in the euro zone. The primary objective of the ECB is the maintenance of price stability within the euro zone, defined as a "year-on-year increase in the Harmonised Index of Consumer Prices (HICP)[67] of below 2%". It works with national central banks in the so-called "Eurosystem".

25.2 The Statute of the European System of Central Banks (ESCB) requires the European Central Bank to produce "an annual report on the activities of the ESCB and on the monetary policy of both the previous and the current year."

The document

25.3 This is the second report covering a full year of Eurosystem monetary policy. Our predecessors reported on the ECB's annual report for 1999 on 24 May 2000.[68]

25.4 The 2000 Report includes chapters on:

  • economic development and monetary policy;

  • central bank operations;

  • entry of Greece to the euro area;

  • economic developments in the other countries of the EU;

  • European, international and bilateral issues;

  • payment and securities settlement systems;

  • financial stability and prudential supervision;

  • production of the euro banknotes and coins in preparation for the cash changeover; and

  • other matters.

25.5 The chapter on economic development and monetary policy notes, amongst other things, that: the monetary aggregate (M3) had grown by 5.7% (year on year), exceeding its reference value of 4½% growth; the annual average inflation rate in the euro area had increased to 2.4%, exceeding its target of 2%, mainly reflecting higher oil pries and a weak euro; the ECB had reacted to these short-term inflationary pressures by increasing interest rates on six separate occasions; and economic growth in the euro area in 2000 had reached 3.4% ("the strongest for a decade"). The report also notes the continued decline of the euro throughout most of 2000 before its rebound towards the end of year. The report observes that by 13 March 2001, the euro had appreciated by almost 4% compared with the average for 2000.

25.6 On central bank operations, the report notes that the operational framework for the implementation of the single monetary policy had worked efficiently; the minimum reserve system and euro area money market had both functioned smoothly; and the TARGET system had operated successfully throughout 2000 and is recognised by market participants as the core euro payment system.[69]

25.7 The report notes that on 19 June 2000 ECOFIN confirmed that Greece had fulfilled the necessary conditions to adopt the single currency as of 1 January 2001.

25.8 In the chapter on economic developments in the other countries of the European Union, the report notes that the Eurosystem and the national central banks of the three non-participating EU countries co­operate closely with a view to contributing to the maintenance of price stability.

25.9 In the chapter on European, international and bilateral issues, the report notes that the ECB continued to be involved in various EU fora, such as ECOFIN, the Euro-group of participating Member States, the Economic and Financial Committee and the Economic Policy Committee. The chapter also notes that the ECB continued to be involved with the IMF and the OECD on monetary, economic and financial matters. In 2000 the ECB continued its work with many central banks outside the EU, in particular with central banks of accession countries.

25.10 In respect of payment and securities settlement systems, the report notes that the five large­value payment systems that process payments in euros alongside TARGET continued to operate smoothly. As regards the preparations for the final changeover to the euro on 1 January 2002, the report states that there is no indication of any insurmountable problems.

25.11 In the chapter on financial stability and prudential supervision, the report notes the review of the institutional arrangements and regulatory framework, which concluded that the existing institutional arrangements provide a coherent and flexible basis for safeguarding financial stability in increasingly integrated markets, but that their operational functioning needs some enhancement. The report also notes that the ECB was involved in consultations with the Lamfalussy Committee on achieving a more flexible and effective regulatory process.

25.12 In respect of the production of euro banknotes and coins and preparations for the cash changeover, the report notes that it is estimated that the cash changeover will require some 14.25 billion banknotes with a total face value of around 642 billion euros by January 2002. The chapter also notes that the Counterfeit Monitoring System database will become operational in December 2001 and will work in parallel with the Counterfeit Analysis Centre. The ECB and the 12 NCBs are implementing a "Euro 2002 Information Campaign" focussing on, amongst other things, the appearance of banknotes and coins and the authentication features.

The Government's view

25.13 In her Explanatory Memorandum of 19 June 2001, the Economic Secretary to the Treasury (Ruth Kelly) says:

    "The Government welcomes the publication of the ECB's Annual Report for 2000, which covers the second full year of Eurosystem monetary policy. The Government believes that openness and transparency are important in ensuring the ECB gains the trust of the European public and financial markets, and will ultimately help to provide the credibility needed to deliver a more effective monetary policy."

Conclusion

25.14 This is a long and detailed report, covering a number of issues, including highly technical issues relating to the conduct of European monetary policy.

25.15 We note the report's findings that many aspects of European monetary policy are running smoothly and its statement that there are no indications of any insurmountable problems in the preparations for the final changeover to the euro on 1 January 2002.

25.16 We clear the document.



67  This index is maintained by the Commission (Eurostat) in liaison with national statistical institutions in Member States and the ECB. Back

68  (21186) 7769/00; see HC 23-xix (1999-2000), paragraph 17 (24 May 2000). Back

69   TARGET, which is the Trans-European Automated Real-Time Gross settlement Express Transfer system, is operated by the European Central Bank and links together the payment systems of other European countries to provide payment services, especially for money market and foreign exchange market operations. Back


 
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