ECB should explore ways of strengthening euro's international role - MEPs

MEPs have called on the European Central Bank to desist from further reducing the amount of different Euro banknotes in circulation, insisting that the cash remains an important means of payment for EU citizens.

In its report on the European Central Bank’s 2020 Annual Report, the Committee on Economic and Monetary Affairs within the European Parliament urged the ECB to explore ways of strengthening the international role of the euro, as this would increase the EU’s ability to frame its policy stance independently vis-à-vis other global powers and is a key element in safeguarding European economic sovereignty.

The committee expressed concern about the unprecedented healthcare, economic and social crisis caused by the COVID-19 pandemic, with a sharp contraction of the euro area economy and rapidly deteriorating labour market conditions, including the rise of unemployment.

The committee called for an urgent re-evaluation of systemic risk in the financial sector following the pandemic, particularly since the speed and scale of the rebound in euro area activity remained highly uncertain and uneven across Member States.

It also noted that the balance of risks to the growth outlook remains to the downside in a context of exceptional uncertainty where the extent of the contraction and the recovery will depend on the duration and effectiveness of the containment measures, the success of fiscal and monetary policies to mitigate the adverse impact on incomes and employment, and the extent to which supply capacity, domestic demand and international supply chains are permanently affected.

The committee insisted that monetary policy alone will not suffice to achieve a sustainable economic recovery; reforms that strengthen competitiveness and social cohesion are necessary to restore and enhance economic growth across the Union.

“The committee believes that the potential of monetary policy alone to facilitate recovery is limited and, while respecting the independence of the ECB, calls on the ECB to study the possibility of using other policy measures that have the potential to stimulate the economy, within the confines of its mandate,” the report reads.

In a warning to Member States, the committee stressed they should not take the low-interest rate environment for granted, as a rise in interest rates could have an adverse impact on the servicing of public debt.

It also warned against the risk of excessive valuations on bond markets, which risk being difficult to handle if interest rates start to rise again, particularly for countries involved in an excessive deficit procedure or those with high levels of debt.