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The first plenary session was chaired by Jan Smets, National Bank of Belgium and Belgian Financial Forum. Luc Coene, Governor of the National Bank of Belgium, started his keynote speech by referring to the turmoil in May 2010 on financial markets due to the worsening of the sovereign debt crisis. As a response, the Eurosystem announced a set of measures, including a programme to intervene in markets for debt instruments.
Against this background, the Governor focused on monetary policy in the euro area, and in particular on the challenges posed by the current macro-economic outlook and how the sovereign debt turmoil has an impact on euro area monetary policy decisions. In its latest World Economic Outlook, the IMF talks about a two-speed recovery.
Emerging market economies show significant growth, while the advanced economies still have low growth and excess capacity. In the euro area, the so-called “core countries” are posting nice growth numbers, while the countries most affected by the sovereign and banking crises are lagging behind. Higher inflation can be observed and this has caused the ECB Governing Council to raise interest rates. But how do such increases square with the ongoing sovereign debt turmoil? The securities market programme and the re-introducing of the regime of fixed-rate full allotment for longer-term operations contribute to maintaining financial stability, but these measures are temporary in nature.
Fiscal consolidation is indispensable to secure sustainable public finances over the longer term. In the view of the Governor, heterogeneity across euro area countries does not greatly complicate the task of the Eurosystem. It is part of a necessary process of adjustment through which some countries have to go in order to regain competitiveness and to repair their balance sheets. Although monetary policy cannot be tailored towards the needs of specific countries or regions, national developments are to some extent taken into account. When deciding on monetary policy measures, the Governor saw no problems in raising interest rates, while at the same time continuing to provide banks with unlimited liquidity. The two types of measures are geared towards different, but complementary, goals. The Eurosystem has the will and the tools to cope with the challenges in front of us. There is a lot of work to do.