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The euro, its central bank and economic governance Jean-Claude - - PowerPoint PPT Presentation

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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

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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

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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

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[Non-standard measures]

  • 500
  • 300
  • 100

100 300 500 700 900 1100 Jan-2008 Apr-2008 Jul-2008 Oct-2008 Jan-2009 Apr-2009 Jul-2009 Oct-2009 Jan-2010 Apr-2010 Jul-2010 Oct-2010 Jan-2011 Apr-2011

  • 500
  • 300
  • 100

100 300 500 700 900 1100

MRO 1 MP Outright Portfolio 3-m + 6-m + 12-m FTO Providing FTO Absorb. net recourse toMLF Liquidity Needs

€ bn € bn

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ECB policy rate

1 2 3 4 5 6 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 1 2 3 4 5 6 deposit rate main refinancing / minimum bid rate E ONIA marginal lending rate

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Macroeconomic Volatility

0.0 0.5 1.0 1.5 2.0 0.0 1.0 2.0 3.0 S

  • td. deviation of real GDP growth

S

  • td. deviation of annual CPI inflation

EA 99-07 EA 99-10 US 99-07 US 99-10 J P 99-07 J P 99-10 UK 99-07 UK 99-10

Sources: OECD, ECB calculations

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Inflation Expectations in the Euro Area

Euro area

Sources: Eurostat, ECB calculations Note: BEIR is Break-Even Inflation Rate from comparison of inflation-indexed and conventional sovereign bonds.

  • 2.0
  • 1.0

0.0 1.0 2.0 3.0 4.0 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 5-year BEIR 10-year BEIR 5-year forward 5 years ahead BEIR

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  • 2.0
  • 1.0

0.0 1.0 2.0 3.0 4.0 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 5-year BEIR 10-year BEIR 5-year forward 5 years ahead BEIR

Inflation Expectations in the United States

Sources: US Bureau of Labor Statistics Note: BEIR is Break-Even Inflation Rate from comparison of inflation-indexed and conventional sovereign bonds.

United States

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Real GDP per Capita

85 90 95 100 105 110 115 120 95 97 99 01 03 05 07 09 11 E uro area US 1999Q1 = 100

Sources: US Bureau of Economic Analsyis, Eurostat, ECB calculations Note: Output per capita is real GDP divided by total population

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Dispersion of Annual Inflation

1 2 3 1995 1997 1999 2001 2003 2005 2007 2009 2011 E uro Area (12 countries) US (14 MS As) Unweighted standard deviation in percentage points

Sources: Eurostat, US Bureau of Labor Statistics, ECB calculations Note: MSAs: Metropolitan Statistical Areas

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Dispersion of Real GDP Growth

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

E uro area (12 countries) US (50 S tates & D. Columbia) Unweighted standard deviation in percentage points

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.

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Dispersion of Unit Labour Cost

Sources: European Commission, US Bureau of Labor Statistics and US Bureau of Economic Analysis

1 2 3 4 5 6 7 8 9 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 E uro area 12 United S tates Unweighted standard deviation in percentage points

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ULC Dynamics in the Euro Area

Source: European Commission Note: ULCs are computed as the ratio between compensation per employee and real GDP per employed person

75 80 85 90 95 100 105 110 115 120 125 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Belgium Germany Ireland Greece S pain France Italy Luxembourg Netherlands Austria P

  • rtugal

Finland ULC relative to euro area average, 1998=100

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ULC Dynamics in the United States

75 80 85 90 95 100 105 110 115 120 125 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Oregon Alaska Ohio Michigan California Kentucky Louisiana Idaho Arizona Florida Nevada ULC relative to US national, 1998=100

Source: US Bureau of Economic Analysis Note: ULCs are computed as the ratio between compensation per nonfarm employee and real GDP per employed person.

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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

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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

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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