The European Central Bank has done "excellent work" in managing the financial turmoil, enhancing its reputation, says the Economic and Monetary Affairs Committee in its annual report on the ECB adopted on Tuesday. MEPs also call for the ECB to monitor exchange rates and take action if necessary, and to be cautious about raising interest rates to avoid endangering growth.
In a report drawn up by Olle Schmidt (ALDE, SE) in reaction to the ECB's annual report for 2007, MEPs in the committee highlight the "increased need for cooperation between central banks and supervisory authorities" and ask the ECB also to continue to improve its relationship with other central banks and relevant institutions. The report calls for the setting up of an EU framework for financial supervision closely involving the ECB.
Recognising the ECB had warned about the under-estimation of risk before the crisis, MEPs ask the Central Bank to examine how to improve "the correlation between such forward-looking warnings and market reactions" and to say what powers it needs to improve macro-prudential supervision in the euro area.
Economic and monetary developments
The committee notes that the Treaty gives the ECB its goal of ensuring price stability, but also that of supporting EU economic policy, and that the two are not substitutable.
The report backs the ECB's "two-pillar" approach to targeting price stability, which includes analysis of the M3 measure of money supply. It highlights the risks of asymmetric economic developments within the euro area and calls on the ECB to tackle these risks at an early stage. Respect by Member States of the Stability and Growth Pact, is among the strongest measures to protect against these risks.
Caution on interest rates
Given that expectations of economic growth have been revised downward, any further interest rate rises "should be undertaken with caution in order not to endanger economic growth" says the committee, also emphasising the need for investment and structural reforms by Member States to support growth.
A close watch on exchange rates
MEPs in the committee note the recent rise in the value of the euro against the US dollar in particular, and ask the ECB to monitor developments and take action if necessary. They invite the Eurogroup, Commission and ECB to step up their coordination on exchange rate policy.
Communicating with Parliament and the public
The report asks the ECB to provide Parliament and public with an annual summary of the measures it takes to improve its performance in line with Parliament's annual resolution. The committee was disappointed with "the low level of commitment" of the ECB's response to last year's resolution.
MEPs say that the ECB's ex-post accountability via the monetary policy dialogue with Parliament is "of primordial importance for confidence, and hence stability, on the financial markets." Acknowledging the ECB's full independence, the committee states its belief that as the ECB becomes an EU institution (under the Lisbon Treaty), Parliament's responsibility, as an institution to which the ECB is accountable for its monetary policy decisions, will increase.
More transparency on decision making?
While recognising the difficulties in making the Governing Council's minutes public, the committee calls for the ECB to elaborate clearly whether consensus was easily reached within the Council or if divergent view persisted.
Governing Council structure and Executive Board appointments
The committee calls on the ECB to present its ideas for reforming the structure of the Governing Council, which will be ever more necessary as more countries join the euro area.
As for appointments to the Executive Board, MEPs stress that nationality should not be a factor, and that democratic accountability would improve if "the Council evaluated several potential candidates and if the candidate proposed by the Council were then subject to a vote of approval by Parliament."
Unified international representation
The report also calls for specific steps to be taken towards "a unified euro area representation within international financial institutions such as the IMF."