The ECB is one of the most, if not the most, independent central bank in the world. Its independence and that of the participating national central banks are firmly enshrined in the Maastricht Treaty. Members of the
Governing Council are not allowed to take or seek instructions from anybody, politicians included. Politicians are not allowed to give such instructions. Members of the Governing Council have a term of office of at least five years. The ECB is financially independent.

The independent status of the ECB fits into the recent world-wide trend of granting independence to central banks. This tendency is evidenced by both practical experience and academic research. By shielding monetary policy decisions from political interference, price stability can be maintained without having to give up economic growth. Indeed, in that sense having an independent central bank is a good thing for all concerned. The reason for central bank independence is that monetary policy-making under the influence of politicians tends to focus too much on short-term considerations. This can easily lead to temporary, non-sustainable increases in growth, but inevitably results in lasting increases in inflation with no lasting gains in growth and employment at all.
Politicians all over the world have come to realise this and have decided to remove the temptation to pursue short-term gains and to make their central bank independent. It should be underlined that granting this independence is, as it should be, a political decision. An independent central bank needs a clear legal mandate.

4. The monetary policy strategy

The ECB has, as I mentioned earlier, such a mandate. However, the
Treaty does not specify how the ECB should pursue its primary objective of maintaining price stability; in other words: it is silent on what is called the monetary policy strategy. The ECB therefore formulated its strategy in the second half of last year. That was no easy task. The introduction of the euro constitutes a structural break, which may change the behaviour of firms and individuals and make it less predictable. To a certain extent it is comparable to what Poland experienced when it embarked on its reform process. The rules of the game change and this makes policy-making more complicated. Our monetary policy strategy has taken these specific circumstances into account. It is tailored to this unique period of the introduction of the euro, although it has elements of both monetary targeting and inflation targeting.

In the context of this strategy the ECB has provided a quantitative definition of price stability. Price stability is defined as a year-on-year increase in the harmonised index of consumer prices (HICP) of below 2% for the euro area as a whole. Price stability is to be maintained in the medium term.

The strategy consists of two pillars. The first pillar is a prominent role for money. Ultimately, inflation is a monetary phenomenon. It is in the end result of too much money chasing too few goods. Therefore, we have formulated a reference value for the growth of a broad monetary aggregate,
M3, of 4 Ѕ% on an annual basis. Growth of the money stock at this pace would provide the economy with sufficient liquidity for growth in activity in line with trend growth, without inflation. At the end of this year this figure will be reviewed. It should be emphasised that we did not define a target for money growth. The reason for this is the structural break that the introduction of the euro creates. By calling this a reference value, it is made clear that money is one variable which we look at very carefully in order to examine whether inflationary or deflationary pressures are tending to emerge. We do not, however, react mechanistically to changes in money growth.

The formulation of the second pillar is also prompted by the potential changes in economic behaviour on account of the introduction of the euro. It is a broadly based assessment of the outlook for price developments on the basis of an analysis of monetary, financial and economic developments. In this context interest rates, the yield curve, wage developments, public finance, the output gap, surveys of economic sentiment and many other indicators are analysed. Use is also made of forecasts produced by other bodies and internally for inflation and other economic variables.

This brings me to the role of the exchange rate of the euro in our strategy. Since our primary objective is price stability and since the euro area as a whole is a relatively closed economy with an export share of 14% of gross domestic product, we do not have a target for the exchange rate of the euro, for example, against the US dollar. This does not mean, and it is good to underline this once more, that the ECB is indifferent to the external value of the euro or even neglects it. The external value of the euro is one of the indicators we look at in the broadly based assessment of the outlook for price developments. Within that framework, we constantly monitor exchange rate developments, analyse them and shall act on them, if and when this becomes necessary. However, such action will never be mechanistic, nor will it be isolated. The external value of the euro and its development are analysed and considered in the context of other indicators of future price developments. The ECB also tries to assess international confidence in the still very young euro. Of course, the level of international confidence in the euro is not the only factor determining its external value, nor is the exchange rate the only indicator of confidence in the euro. It is, for instance, encouraging to see how the euro has been received on the international money and capital markets. I am sure that an internally stable euro will also strongly underpin international confidence in this currency, as it has for other currencies in the past.

As the currency of a very large area, the issue of the international role of the euro naturally arises. The ECB takes a neutral stance regarding this role. It will neither be stimulated, nor hindered. On the one hand, an international currency has advantages for citizens in the euro area, on the other, it may sometimes complicate the conduct of monetary policy when a large amount of euro is circulating outside the euro area. We shall leave the development of the international role of the euro to market participants and market forces. If history is a guide as to what will happen, there will be a gradual process whereby the euro will have an increasingly international role. Such a gradual development would also be a welcome development, if only to prevent the euro from becoming too strong externally at some point in time. It is likely and understandable that interest in the euro is already considerable in those countries aspiring to join the EU, including Poland. I shall elaborate on this issue at the end of my speech.

Coming back to our monetary policy strategy, I should like to point out that it is important to make clear what monetary policy can and cannot do. Monetary policy can maintain price stability, but only in the medium term. In the short term prices are also influenced by non-monetary developments. Moreover, monetary policy measures only have an impact on prices with long, variable and not entirely predictable time-lags of between 1.5 and 2 years. Therefore, monetary policy-making should have a forward-looking character. Today's inflation is the result of past policy measures, and current policy measures only affect future inflation. The uncertainty of the economic process in a market economy is another reason for policy-makers to be modest. The ECB does not pursue an activist policy.
Precise steering of the business cycle or a cyclically-oriented monetary policy are not feasible and are likely to destabilise rather than stabilise the economy. Some commentators have interpreted our recent interest rate reduction as a change to a more cyclically-oriented monetary policy strategy. This is not true. Our strategy was, is and shall remain medium term-oriented and firmly focused on maintaining the price stability which currently prevails in the euro area.

Monetary policy should be supported by sound budgetary policies and wage developments in line with productivity growth and taking into account the objective of price stability. Otherwise, price stability can only be maintained at a high cost in terms of lost output and employment. This also explains why independence should not mean isolation. It is important to have a regular exchange of information and views with other policy-makers.
The Maastricht Treaty stipulates that the President of the ECB is invited to meetings of the EU Council meeting in the composition of the Ministers of Economy and Finance whenever there are issues on the agenda which are relevant to the ECB's tasks. The President of the Council of Ministers and a member of the European Commission may attend meetings of the Governing
Council, although they do not have the right to vote. The President of the
Council of Ministers may submit motions for deliberation. Apart from these formal contacts, there are many informal contacts, for example in the context of the so-called Euro-11 group of finance ministers from the euro area countries. I regularly attend meetings of this group.

Monetary policy cannot be used to solve structural problems, such as the unacceptably high level of unemployment in the euro area. Structural problems call for structural solutions, in this case measures targeted at making labour and product markets work more flexibly. The best contribution the ECB's monetary policy can make in this context is to maintain price stability. In this way one of the conditions for sustainable growth in incomes and employment is created. As important as this is, it should be realised that jobs are created by firms which are confident about the future and not by central banks.

5. Accountability and transparency

Accountability for policies is the logical complement to independence in a democratic society. The Maastricht Treaty includes a number of provisions in this respect. First, there is the mandate to pursue price stability. This provides a qualitative measure against which the ECB's performance can be measured. As I have already mentioned, we have decided to enhance this by providing a quantitative definition of price stability.
One of the aims of publishing our monetary policy strategy is to make our policy decisions transparent.

The ECB has to publish an annual report in which, inter alia, the monetary policy of the previous and current year are discussed. I present this Annual Report to the EU Council and to the European Parliament, which may hold a general debate on the basis of it. The President and other members of the Executive Board of the ECB may be heard by the competent committees of the European Parliament. I have agreed to appear before the
European Parliament at least four times a year. The ECB has to report on its activities at least quarterly. It has been decided to go beyond this requirement and to publish a monthly bulletin.

It is my view that the main way to achieve accountability is through being transparent and open. In passing, I should like to note that transparency also enhances the effectiveness of a central bank. The better it is understood, the more successful a central bank is. Apart from the activities I have already mentioned, transparency is achieved in several ways. Every month, after the first meeting of the Governing Council, the
Vice-President and I give a press conference. I start the conference with a comprehensive introductory statement, in which I explain the decisions taken by the Governing Council and the underlying analysis and arguments for and against. This introductory statement is published immediately on the ECB's Internet Web site. This is followed by a question and answer session attended by several hundred journalists. The questions and answers are also published on the Internet shortly afterwards. All the members of the Governing Council frequently make speeches, give interviews and contribute to journals and books. Thousands of people visit the ECB and the national central banks each year and, for our part, we and our staff attend many conferences and other public events.

6. EU enlargement

The European integration process continues. The euro should be made a success. I have already explained how we have started the process of doing that. Some observers have criticised the EU for its "obsession with its own internal dynamics", in particular in the context of European Economic and
Monetary Union (EMU). With all energies focused on meeting the convergence criteria and the preparation for the launch of the euro, Europeans outside the EU have wondered whether EMU and enlargement are not mutually exclusive objectives.

Let me briefly comment on this issue. After the historic decision to complete the European Single Market in the 1980s, it was felt that economic integration should not stop at that point. To fully reap the rewards of economic integration within the Community, a single currency was felt necessary; a logic pointedly encapsulated in the title of one report: "One market, one money".

Hence, the underlying idea of EMU was to advance European integration and to ensure that full use would be made of the economic potential of the
Single Market. This idea continues to be the focus of European policy- makers, as evidenced by the association agreements and the ongoing accession negotiations with a number of European countries, Poland among them. Good and mutually beneficial economic relations with third countries in Europe and further afield are a pillar of EU policy orientation.
Recognising this, the principles of an open market economy with free competition are enshrined in the Treaty on European Union. EMU will not weaken this commitment, but rather reinforce it. Closer co-operation in
Europe and the respect of common principles in the political, economic and social fields are likely to form the basis for further integration. The ECB shall contribute to this process within the scope of its responsibility.

Countries wishing to deepen their monetary co-operation to the ultimate extent possible by forming a monetary union will have to adapt their economic and legal systems to the standards required by the Treaty and aim at a sufficient degree of economic convergence. In the absence of these conditions, adjustment costs for both current and new participants could be high. Any premature decision on the adoption of the euro could have severe repercussions on a country's competitiveness and trigger painful economic adjustments. Therefore, implementation of the necessary institutional reforms and of a sufficient degree of convergence should not be considered as an obstacle preventing further integration in Europe, but rather as an essential means of ensuring the lasting success of EMU, for existing and new participants alike. Looking at the impressive progress made in a relatively short time in this country, there is no reason to be pessimistic about Poland's chances of meeting these standards and convergence criteria. I shall not venture, however, to predict when this will be the case.

Even at the current juncture, though, EMU in one part of Europe is already having an impact on the whole region. Let me briefly mention two aspects:

Страницы: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21