This week President Jean-Claude Trichet President of the European Central Bank and Mr. Jean-Claude Juncker, chairman of the Eurogroup (which comprises of the 16 European Union countries that have joined the euro) cautioned members of the European Parliament in separate statements to not begin implementing measures to exit the crisis. President Trichet and Chairman Juncker meet with members of parliament ("MEPs") this week to discuss mainly how the proposed European Systemic Risk Board would work.
Yesterday, President Trichet in a speech before the Economics Committee of the European Parliament stressed that "[n]ow is not the time to exit", with respect to the "non-standard measures the ECB [and the European Union] has been using to support the financial system." He noted however, that the "ECB has an exit strategy and stands ready to put it into action when the appropriate time comes." Today, Chairman Juncker before a joint session of the ECB President and the Parliament's Economic and Monetary Affairs Committee noted that the economic environment still remains "fragile and predicted several years of slow economic growth ahead." These statements echo the sentiments expressed by the Leaders of the G-20 at the Pittsburgh Summit and by the IMF in its recent report entitled "Crisis-Related Measures in the Financial System and Sovereign Balance Sheet Risks," that cautions governments from withdrawing official support from the financial sector and provides guidelines for governments "to consider in moving towards an eventual exit from financial sector support."
Last week, the European Commission issued important legislative proposals intended to strengthen the framework of financial supervision in Europe at both "the macro- and micro-prudential supervision levels" by creating the "first EU wide system of financial supervision." The proposals, which will require approval by both the European Council and the European Parliament, would create a European Systemic Risk Board (ESRB), which would "detect risks to the financial system as a whole with a critical function to issue early risk warnings to be rapidly acted on," and a European System of Financial Supervisors (ESFS), which would "be composed of national supervisors and three new European Supervisory Authorities for the banking, securities and insurance and occupational pensions sectors." Regarding the recent legislative proposal outlining the framework for the ESRB, President Trichet noted that he thought it was a "right step to set up a body specifically responsible for the macro-prudential oversight at the European level." He also noted that the ESRB will have close links with the ECB. Some MEPs asked President Trichet to provide recommendations and insight as to the role and powers of the ESRB in particular "how it would ensure its recommendations are followed by Member States." Mr Trichet stated "that the role of the council would be to identify risks and give recommendations but not to decide in the place of other authorities."
With respect to recent positive trends and growth experienced by the euro zone, Chairman Juncker cautioned that despite measured improvements in the euro economy, MEPs should be "'modestly optimistic' in terms of economic growth in the second half of the year." He further noted that he did not think that year 2010 would "be the right time to implement the exit strategy, but [that] the moment has come to discuss this strategy."
On Thursday, the European Union's (EU) finance ministers and governors of central banks will meet in Göteborg, Sweden to discuss how EU countries can "restore good order to the public finances when the need for support measures recedes," and how the EU can "create a framework to prevent a similarly widespread crisis from happening again."