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 Oct-2008 Oct-2009 Oct-2010 Jan-2008 Apr-2008 Jul-2008 Jan-2009 Apr-2009 Jul-2009 Jan-2010 Apr-2010 Jul-2010 Jan-2011 Apr-2011 MRO 1 MP Outright Portfolio 3-m + 6-m + 12-m FTO Providing FTO Absorb. net recourse toMLF Liquidity Needs 4
ECB policy rate deposit rate main refinancing / minimum bid rate E ONIA marginal lending rate 6 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
Macroeconomic Volatility 2.0 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 1.5 1.0 0.5 S 0.0 0.0 1.0 2.0 3.0 S td. deviation of real GDP growth Sources: OECD, ECB calculations 6
Inflation Expectations in the Euro Area 5-year BEIR 10-year BEIR Euro 5-year forward 5 years ahead BEIR 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 United States 10-year BEIR 5-year forward 5 years ahead BEIR 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: 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 E uro 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 E uro Area (12 countries) US (14 MS As) 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 E uro area (12 countries) US (50 S tates & D. Columbia) 3.5 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 E uro area 12 United S tates 8 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 Ireland Greece S pain France Italy Luxembourg 120 Netherlands Austria P ortugal Finland 115 110 105 100 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 Ohio Michigan California Kentucky Louisiana Idaho 120 Arizona Florida Nevada 115 110 105 100 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
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