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| Lucas Papademos Vice President and Jean-Claude Trichet President, of the European Central Bank |
The European Central Bank today called for tenders for a seven-day main refinancing operation expiring Sept 5th, saying it will allot more than €194 billion of funds as part of its objective to gradually reduce the large reserve surplus which has accumulated in the last weeks.
The ECB said it calculates that it would need to allot €194 billion at the refi for banks to be able to fulfil their minimum reserve requirements over the next week.
"Consistently with the ongoing normalisation of conditions on the short term of the money market, the ECB continues to aim at gradually reducing the large reserve surplus which has accumulated in recent weeks," it said.
"Accordingly, the allotment amount in this main refinancing operation will exceed the published benchmark of €194 billion by an amount which is consistent with this aim," it said.
This 'benchmark' allotment figure takes account of banks' current account holdings with national central banks and liquidity needs arising from factors such as tax payments.
A minimum bid rate of 4.00% applies at the refi.
Bids with the highest interest rates will be satisfied first and bids with successively lower interest rates will be accepted until the total liquidity to be allotted is exhausted.
At the last main refi last Thursday, the weighted average interest rate on accepted bids was 4.61%.. The marginal rate, the lowest rate at which bids were accepted, was 4.49%.
European Central Bank President Jean-Claude Trichet told the 22nd Annual Congress of the European Economic Association in Budapest, today that that Eurozone productivity growth will only improve significantly through structural reforms. The ECB's interest rate policy can do nothing to boost productivity, he said.
'Monetary policy has no effect on trend productivity growth. Structural policies must take the responsibility to create conditions conducive to better productivity performance in the euro area,' he said.
Trichet said there has been some progress in labour market reforms, which have led to an increase in participation rates and output growth, but not enough has been done.
'"The implementation of structural reforms has been until now too slow," he said.
He said there is still a need to get more people into work, increase competition and foster innovation and technological advances.
"Investment in human capital in Europe is still clearly inadequate for a 'knowledge intensive' economy," he said.
Trichet, meanwhile, gave few hints on the bank's interest rate plans ahead of the next meeting of the Governing Council on September 6th.
He said that labour productivity growth had been gradually increasing since 2005.
"In the services sector it has not improved as much, even if it, too, is growing slightly," he said.
As expected, Trichet kept his options open on interest rate movements.
In a question and answer session after today's speech, Trichet said his monetary policy stance made on Aug. 2nd was prior to a rise in market volatility.
“At that time [August 2], after having mentioned our strong vigilance, I also said we were never pre-committed – as this has always been our constant position,” he said.
In early August, he had used code "strong vigilance," which was seen as a signal for a rise in the ECB's key interest rate to 4.25% in September.
Productivity in the euro area and monetary policy - - Speech by Jean-Claude Trichet, President of the ECB
Special lecture: 22nd Annual Congress of the European Economic Association Budapest, 27 August 2007
Figure 2: Labour Productivity Growth in the Euro Area(*) 1980-2004
(average annual percentage growth rates)
Figure 3: Labour Productivity Growth in the U.S., 1980-2004
(average annual percentage growth rates)
Jean-Claude Trichet said in his lecture that the last decades have already brought about an enormous increase in the level of educational attainment. So far, however, investment in human capital in Europe is still clearly inadequate for a “knowledge-intensive” economy. In 2003, the U.S. annual expenditure on higher education institutions represented 2.9% of GDP, while in the euro area it only represented 1.2%. The gap is mainly a result of greater private funding. European universities could be allowed and encouraged to seek complementary private sources of funding and legal, and other barriers to public-private partnerships between universities and businesses should be removed. Many European countries also need more incentives for innovative research and an active and regular quest for synergies with the private sector. A more effective education system, as estimated by some research of the European Commission, might bring about a significant contribution to the annual EU GDP growth rate.
What makes trend productivity developments particularly difficult to factor in is the fact that they are extremely hard to gauge in real time and subject to recurring changes. Twenty years ago, the Journal of Economic Perspectives published the proceedings of a symposium on “The slowdown in productivity growth”. The main focus was on the poor U.S. performance in the 1970s and 1980s. Who could have at that time expected that a very significant, positive jump in trend productivity would be observed seven years later?
A lot of good research is suggesting that we are not wrong in thinking that what happened in the US is due to the generalisation of the full reengineering process associated with new technologies – and not necessarily only ICT – in the context of a highly flexible economy. If indeed this is true, then there are good reasons to think that the progressive completion of the European single market for goods and services and the active implementation of European structural reforms aiming at more flexibility in all markets will eventually permit the euro area and the European Union to experience a kind of productivity jump similar to the US one ten years ago.
If the President of the European Economic Association is kind enough to invite again the President of the ECB in the future, I consider it likely that the time will come when the speech of the ECB President will concentrate in explaining the consequences of the upward jump in total factor productivity and labour productivity in Europe. I regret not being able to do that right now, but I am confident that it will happen, provided the reforms that are overdue are actively implemented.
