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The euro, its central bank
and economic governance
Jean-Claude Trichet
President of the European Central Bank
London, 13 June 2011
Non-standard measures
Fixed-rate full-allotment
Longer-term liquidity provision
Expansion of collateral
Liquidity provision in foreign currencies
Financial market support via purchases of covered
bonds
3
[Non-standard measures]
€ bn
€ bn
1100
1100
900
900
700
700
500
500
300
300
100
100
-100
-100
-300
-300
-500
-500
008 r-2008 l-2008 t-2008 n-2009 r-2009 l-2009 t-2009 n-2010 r-2010 l-2010 t-2010 n-2011 r-2011
2
n
Ju
Ju
Ju
Ja
Oc
Ja
Oc
Ja
Oc
Ja
Ap
Ap
Ap
Ap
MRO
1 MP
Outright Portfolio
3-m + 6-m + 12-m
FTO Providing
FTO Absorb.
net recourse toMLF
Liquidity Needs
4
ECB policy rate
6
deposit rate
EONIA
main refinancing / minimum bid rate
marginal lending rate
6
5
5
4
4
3
3
2
2
1
1
0
0
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
5
Std. deviation of annual CPI inflation
Macroeconomic Volatility
2.0
EA 99-07
US 99-07
JP 99-07
UK 99-07
1.5
EA 99-10
US 99-10
JP 99-10
UK 99-10
1.0
0.5
0.0
0.0
1.0
2.0
Std. deviation of real GDP growth
3.0
Sources: OECD, ECB calculations
6
Inflation Expectations in the Euro Area
5-year BEIR
10-year BEIR
5-year forward 5 years ahead BEIR
Euro
area
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
Jul-
Jan-
Jul-
Jan-
Jul-
Jan-
Jul-
08
09
09
10
10
11
11
Sources: Eurostat, ECB calculations
Note: BEIR is Break-Even Inflation Rate from comparison of inflation-indexed and conventional sovereign bonds.
7
Inflation Expectations in the United States
5-year BEIR
10-year BEIR
5-year forward 5 years ahead BEIR
United States
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
Jul08
Jan09
Jul09
Jan10
Jul10
Jan11
Jul11
Sources: US Bureau of Labor Statistics
Note: BEIR is Break-Even Inflation Rate from comparison of inflation-indexed and conventional sovereign bonds.
8
Real GDP per Capita
1999Q1 = 100
120
Euro area
US
115
110
105
100
95
90
85
95
97
99
01
03
05
07
09
11
Sources: US Bureau of Economic Analsyis, Eurostat, ECB calculations
Note: Output per capita is real GDP divided by total population
9
Dispersion of Annual Inflation
Unweighted standard deviation in percentage points
3
Euro Area (12 countries)
US (14 MSAs)
2
1
0
1995
1997
1999
2001
2003
2005
2007
2009
2011
Sources: Eurostat, US Bureau of Labor Statistics, ECB calculations
Note: MSAs: Metropolitan Statistical Areas
10
Dispersion of Real GDP Growth
Unweighted standard deviation in percentage points
4.0
Euro area (12 countries)
3.5
US (50 States & D. Columbia)
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Sources: European Commission, US Bureau of Economic Analysis, ECB calculations
Note: There is a statistical break in the US regional data in 1998. For the US States the data refer to Gross Domestic Product (GDP) by state.
11
Dispersion of Unit Labour Cost
Unweighted standard deviation in percentage points
9
Euro area 12
8
United States
7
6
5
4
3
2
1
0
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Sources: European Commission, US Bureau of Labor Statistics and US Bureau of Economic Analysis
12
ULC Dynamics in the Euro Area
ULC relative to euro area average, 1998=100
125
Belgium
Germany
Spain
France
120
Netherlands
Austria
115
Ireland
Italy
Portugal
Greece
Luxembourg
Finland
110
105
100
95
90
85
80
75
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: European Commission
Note: ULCs are computed as the ratio between compensation per employee and real GDP per employed person
13
ULC Dynamics in the United States
ULC relative to US national, 1998=100
125
Oregon
Alaska
California
Kentucky
120
Arizona
Florida
115
Ohio
Louisiana
Nevada
Michigan
Idaho
110
105
100
95
90
85
80
75
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: US Bureau of Economic Analysis
Note: ULCs are computed as the ratio between compensation per nonfarm employee and real GDP per employed person.
14
Reform of European Economic governance
• Fiscal Surveillance
–
–
–
–
Ex Ante Economic Policy Coordination (EU Semester)
Faster and more automatic sanctions
Earlier, Less Discretionary Enforcement Mechanisms
National Fiscal Frameworks Aligned with SGP Requirements
• Macroeconomic Imbalances Surveillance
– Alarm System Based on Macro Indicators
– Missions, Reports, Enforcement Mechanisms
15
Financial Governance Reforms
• Need to ensure full implementation of reforms
– More stringent banking regulations
– More ambitious capital requirements
• Key areas with work in progress
–
–
–
–
Treatment of systemically important financial institutions
Mechanism of bank crisis management
Oversight of the shadow banking system
Further regulation and oversight of financial markets
16
The euro, its central bank
and economic governance
Jean-Claude Trichet
President of the European Central Bank
London, 13 June 2011