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.