European Central Bank
Delivered in Plenary 26th October 1999
Nine months after the euro’s launch and with enthusiasm for its future role as the major international reserve currency dimmed as the result of exchange rate weakness, it cannot be heralded as an unqualified success. It remains to be seen if the ‘one-size-fits-all’ model of interest rates will work in countries like Ireland, without causing large tax rises and damaging the popularity of the Euro-project.
Nevertheless, I applaud the aims and coherence of the Huhne report as a basis for defining accountability of the Central Bank, on which I should like to say a few words, particularly on the issue of transparency and accountability.
Some may question why I, as a British Member, should like to speak on this issue. I would like to point out that Britain and the British Conservative Party – to which I belong – have never been hostile to the euro as a currency for those Member States which genuinely wish to join, as we are all bound together through our membership of the single market so that a collapse in confidence for the euro would affect us all, whether we are in or outside the EMU. For this reason it is vital that the Central Bank enjoys the confidence of the financial markets. We live in an era of massive capital flows and foreign exchange markets. Some £300 billion is traded every day in the City of London. A collapse in the credibility of or belief that the Bank would not be prepared to pursue an anti-inflationary policy at all costs could have severe repercussions economically throughout the whole Union.
I believe that only the Central Bank, for instance, should pronounce when necessary on foreign exchange target zones for the euro, to avoid conflicting messages being given to the financial markets. It is also vital, in my opinion, that the Bank be encouraged to follow the example of other leading central banks, such as the Federal Reserve in America, and make transparency a central feature of all its activities. I regret, therefore that attempts to require the Bank to publish the names of those present, the voting on monetary actions, after a grace period of some two years and the publication of the ECB’s econometric models were defeated at committee stageand have not been put before this House today.
It was also confusing yesterday to hear that Mr.Issing, the ECB’s chief economist, reportedly stated in London that the Bank would not publish economic forecasts for Euro-land, perpetuating a culture of secrecy. I welcome Mr. Duisenber’s clarification on this issue today. I believe that any confident central bank would welcome the opportunity for its members to be challenged on the fundamental assumptions underlying their decisions. But particularly in the ECB’s case, as it does not have a track record of the mighty Bundesbank and could quickly lose the confidence of the financial markets if it is reluctant to protect itself through greater transparency.
Openness to criticism is not a weakness but a strength. As a doctor, I know that advances in medicine are often achieved only after rigorous scrutiny and challenge in the peer review journals. The Bank has to learn to operate within the same spirit. I also believe that the financial markets and the people of Europe will expect no less of this new Central Bank and that this Parliament should be relentless in the pursuit of an open and accountable European Central Bank for the near future.