The European Parliament adopted by 442 votes to 88, with 40 abstentions a resolution on the 2011 Annual Report of the European Central Bank.

The resolution commends the proactive stance of the ECB during 2011 and 2012 both in regard to its monetary policy and its actions to stabilise the financial markets, in a context in which risks to eurozone stability increased considerably.

Parliament considers that the decisions of April and July to increase the key ECB interest rates may have contributed, among other factors, to increasing the policy-induced risk premia of financial intermediaries and, therefore, to slowing down credit growth, weakening further the already anaemic economic recovery observed in early 2011. It welcomes the subsequent decision to reverse these decisions at the end of 2011.

ECB initiatives: Parliament acknowledges the efforts taken by the ECB to help stabilise markets, in particular the Securities Markets Programme (SMP), the Longer-term Refinancing Operation (LTRO) and the Outright Monetary Transactions (OMT), but points out that a structural solution to the crisis is not yet in sight. However, while the two three-year LTROs have been effective in avoiding a credit crunch, Parliament considers that questions remain as to the ability of the financial sector to return the loans received by the ECB.

The resolution points out that the results, in terms of credit growth, have been unsatisfactory and notes that the decision to launch the first three-year LTRO in December 2011 coincided with the winding down of the SMP programme.

Parliament highlights a number of issues of concern in relation to the situation in 2011:

• transfer of risks from struggling banks and governments to the ECB’s balance sheet, which is now worth more than 30% of the eurozone’s GDP. Parliament stresses that the three-year LTROs do not provide a fundamental solution to the crisis;
• rising levels of excess liquidity observed through 2011 which is due to a lack of confidence between banks and a lack of lending to the real economy. Parliament points out that this situation, which is indicative of risks conducive to a liquidity trap, damages the efficiency of monetary policy efforts;
• swap lines with other central banks, as well as the recourse to the main refinancing operations: this signals a severe impairment of the monetary transmission mechanism and the eurozone interbank lending market;
• high levels of Emergency Liquidity Assistance (ELA) lines provided by national central banks in the course of 2011: Parliament demands further disclosure of, and complementary information on the precise extent of such lines and the underlying operations, and on the conditions attached to them;
• significant levels of non-marketable assets and asset-backed securities put forward as collateral to the Eurosystem in the framework of the ECB’s refinancing operations: the ECB is asked to provide information on which central banks have accepted such securities, and to disclose detailed information on the valuation methods regarding all assets, including impaired ones.

Credit available to businesses and households: Parliament notes that the credit available to businesses and households is still far below the pre-crisis levels and has slowed down its growth in 2011. It takes note of the measures of the ECB on the lowering of collateral requirements and the stance on collateral rules for asset-backed securities (ABS), as these are deeply correlated with loans to households and SMEs.

Collateral: Parliament is worried about the significant levels of non-marketable assets and asset-backed securities put forward as collateral to the Eurosystem in the framework of its refinancing operations and ask the ECB to provide information on which central banks have accepted such securities, and to disclose detailed information on the valuation methods regarding all assets, including impaired ones. It believes that, on collateral rules, the same standards should apply for sovereign as for regional government bonds in those cases where regions have legislative and tax powers, as both types of bond have relevant influence on the good transmission of the ECB monetary policy.

Conditionality: the resolution underlines that institutions which have benefited from extraordinary central bank liquidity support should be subject to conditionality, including the commitment by institutions benefiting from such support to increase the levels of credit by establishing loan targets to the real economy, and especially to SMEs and to households.

The ECB is asked to explore, in close cooperation with Member State governments, competent national supervisory authorities and the Commission, the possibility of implementing a framework, such as the MERLIN programme elaborated by the Bank of England in partnership with the UK treasury, regarding conditionalities attached to the access to central bank non-conventional facilities such as targets on loans granted to SMEs.

The economic crisis and the ECB: Parliament calls on the ECB to make public the legal decision concerning the OMT programme in order to be able to analyse more deeply its details and implications.

It points out that the ongoing crisis is a matter of concern as it threatens the substantial efforts made by Member States regarding their budgetary consolidation and crisis response strategies. It notes that the current severe economic downturn in several eurozone Member States has negative economic and fiscal consequences, further deteriorating their public debt problems.

Parliament points out that sovereign bonds and financial institutions show persistent vulnerabilities and that the negative feedback loop between sovereign bonds and banks can only be broken through fiscal consolidation and banking sector capitalisation in an economic growth environment. It considers that a cause of public accounts unsustainability in some countries of the eurozone is the ongoing economic recession, causing rising unemployment and falling tax revenues. It affirms, therefore, that policies to foster growth and job creation must be a key priority for the Union.

The resolution encourages ECB President Mario Draghi to resume a tradition initiated by his predecessor, who at the Eurogroup meetings persistently raised the issue of macroeconomic imbalances, especially the differentials between productivity and wage increases, which led to a marked divergence between competitiveness levels between the Member States.

Parliament points out that it has called for an increased budgetary capacity for the EMU, in the framework of the EU budget and based on specific own-resources. It considers that such a budgetary capacity would significantly improve the policy-mix in the EMU.

Parliament notes that the economic situation in some economies is generating severe capital flows that worsen those economies’ funding difficulties and that are unsustainable in both the short and long term. These imbalances can only be dealt with if a comprehensive and far-reaching solution to the eurozone crisis is implemented that is built on an approach combining solidarity and responsibility.

Banking union: Parliament considers it urgent to create the banking union. In its view, to overcome the structural deficiencies inherent in the EMU, and to effectively curb the pervasive moral hazard, the proposed banking union should draw on the earlier reform of the Union financial services sector and on the strengthened economic governance, and new budgetary framework, of the European Semester to ensure greater resilience and competitiveness of, and increased confidence in, the Union banking sector, and to secure enhanced capital reserves in order to prevent Member States’ public budgets from having to bear the costs of future bank bail-outs.

Parliament welcomes the current impetus aiming at building a single supervisory system (SSM) which should increase the credibility of the Eurozone banking system. It points out that enhanced proposals on banking recovery and a single European resolution authority, and on deposit guarantee schemes, are necessary in order to complete the broad set of legal instruments required for a banking union. The resolution insists that, in the event that ECB becomes in the end single supervisor for banks in the eurozone, even on a temporary basis, Parliament should have a clear role in the nomination of the members of the supervisory board.

It calls on the Commission to put forward proposals for a new European resolution fund and a European deposit guarantee scheme that complement the supervisory functions of the ECB.

Parliament deems that it is of the utmost importance that effective safeguards are introduced to avoid that conflicting agendas are reflected in the ECB’s monetary policy and its supervisory powers. It stresses that any possible erosion of the ECB’s authority for monetary policy, as well as any erosion of its supervisory powers due to monetary policy imperatives, need to be addressed by means of a suitable mechanism set up to identify and resolve potential conflicts.

Institutional matters: Parliament regrets the lack of transparency of the working method, as well as the lack of accountability of and democratic control over the Troika. It believes that any such body, current and future, involving the ECB and/or the Commission should be accountable both to the European Parliament and to national parliaments at their respective levels. It stresses the importance of making the regular monetary dialogue between the ECB and Parliament much more effective. It also stresses that Parliament will fully play its role as legislator in all matters involving a banking supervision.

In this context, Parliament considers that a Treaty revision, including a revision of the ECB statutes reflecting the ECB’s new tasks, should not be excluded.

Lastly, Parliament calls for its powers to impeach an ECB Governing Council member, in cases of serious misconduct, to be enhanced.

The Committee on Economic and Monetary Affairs adopted the report by Marisa MATIAS (GUE/NGL, PT) on the 2011 Annual Report of the European Central Bank.

The report commends the proactive stance of the ECB during 2011 and 2012 both in regard to its monetary policy and its actions to stabilise the financial markets, in a context in which risks to eurozone stability increased considerably.

Members consider that the decisions of April and July to increase the key ECB interest rates may have contributed, among other factors, to increasing the policy-induced risk premia of financial intermediaries and, therefore, to slowing down credit growth, weakening further the already anaemic economic recovery observed in early 2011. They welcome the subsequent decision to reverse these decisions at the end of 2011.

ECB initiatives: the report looks at the efforts taken by the ECB to help stabilise markets, in particular the Securities Markets Programme (SMP), the Longer-term Refinancing Operation (LTRO) and the Outright Monetary Transactions (OMT), but points out that a structural solution to the crisis is not yet in sight. However, while the two three-year LTROs have been effective in avoiding a credit crunch, Members consider that questions remain as to the ability of the financial sector to return the loans received by the ECB.