22 March 2001, 15:17 ECB'S PADOA-SCHIOPPA:ECB STILL IN A 'WAIT AND SEE'MOD
By Chris Middleton
WASHINGTON (MktNews) - The European Central Bank remains in a "wait
and see" position on monetary policy and has given no clear indication
of when and what its next move could be, Executive Board member Tommaso
Padoa-Schioppa said late Wednesday evening.
Citing a moderation in European growth and other factors, including
a "very sharp slowdown in the American economy," in recent months,
Padoa-Schioppa said the ECB had shifted from an interest rate tightening
bias to a neutral stance.
He gave his assessment of the ECB state of play to a star-studded
audience of the Institute for International Economics, which included
International Monetary Fund Managing Director Horst Koehler, IMF Chief
Economist Michael Mussa, former Federal Reserve vice chair Alice Rivlin
and former Council of Economic Advisers chairman Martin Baily, among
others.
"The most recent developments, I'd say those of the last three
months have seen a slowdown ... a marginal slowdown in growth of the
euro area," Padoa-Schioppa said.
Tracing developments in the past few months, he noted that the euro
zone saw the "end of the long decline of the euro" from November onward,
a "softening of the oil effect" which had caused price pressures in the
second half of last year and eventually a monetary policy shift.
This was a "change in position by the European Central Bank from a
position that was still present ... at the beginning of December in
which a further increase in rates was seen as likely and possibly
imminent to what we call now a wait and see attitude -- namely a
position in which there is no clear indication of when and what the next
move could be," Padoa-Schioppa said.
Asked during questions and answers whether the ECB might respond
soon to recent signs of weakness in the euro economies, the Italian
central banker said, "The answer is: I don't know."
Padoa-Schioppa also indicated the ECB is "not particularly" worried
about United Kingdom declining to take part in the common currency zone.
"The participation of the U.K. is primarily a problem of the U.K.,"
he said.
"There is nothing that prevents the euro area and Europe to
function and to manage the present situation properly." The European
Economic and Monetary Union is not "too small" he added, while also
noting that "Of course, we are exceedingly interested" in U.K.
developments on this front.
Asked whether there might still be some confusion in the financial
markets about the ECB's implementation of foreign exchange policy,
Padoa-Schioppa said there is no fixed process and that the central
bank's actions would speak for themselves.
"The interventions of September and November were important to
clarify that intervention is a possibility," he noted.
As for the divergence between U.S. and European growth rates in
recent years, Padoa-Schioppa said the fundamental difference "at this
moment" is structural, with more rapid adjustments to technology also
playing a role in generally faster U.S. growth.
But he said he remains a proponent of the European approach, which
is economic improvement "without abandoning the safety net."
Padoa-Schioppa declined to comment on the implications of a
possible new conservative government in Italy for its status in the EMU,
saying "any government in any country can respect or breach the
Stability and Growth Pact in the future. I don't know what the future
will be in any of the 12 countries."
Former conservative Prime Minister Silvio Berlusconi has a solid
lead in most opinion polls leading up to Italy's next elections, which
has generated speculation about a possible shift in policy.
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