Statistics for monetary union
by Peter Bull, Director general, Directorate General for Statistics, European Central Bank(*)
Introduction - The broad approach
The availability of statistics is of vital importance to support the conduct of policy. Indeed, the Statutes of the ESCB and of the predecessor of the European Central Bank (ECB), the European Monetary Institute (EMI), mention statistics and statistical preparations as a task incumbent upon the two institutions.
Changes to statistical systems, however, take a long time to implement. The preparation of statistics for Monetary Union began in the early 1990s, some two years before the EMI was even set up, with a collection of user requirements (as far as these could be foreseen), a stocktaking of existing data in the Member States, and an identification of gaps with plans and priorities for filling them. Since the primary responsibility and tasks of the Eurosystem (to use the current terminology) were to be similar to those already carried out by the national central banks (NCBs), it is not surprising that the statistical requirements were expected to be broadly similar to those already implemented. Because the main focus of policy interest was expected to be on the euro area as a whole, however, it was essential for statistics to be sufficiently comparable in all respects, so as to permit sensible aggregation across the area. To achieve this, an extensive programme of harmonisation was undertaken – a specific responsibility of the EMI and the ECB. Since aggregates for the euro area are not a simple sum of national aggregates in some areas of statistics – notably monetary aggregates, the balance of payments and the financial accounts which are partly based on them – even if these are perfectly harmonised, sufficient information was also required to permit proper consolidation at the euro area level.
It took some years to establish and refine the essential statistical requirements. It was clear, however, that the work of implementation would have to begin well before the composition of the euro area was decided. Therefore the EMI published statistical requirements in July 1996, two and a half years before the start of Stage Three of Economic and Monetary Union, because the NCBs estimated that it could take that long to implement the requirements in the reporting institutions and in the central banks themselves. This indeed proved to be the case. Monetary data were available only just in time for final policy preparations in autumn 1998, and the ECB first published a balance of payments for the euro area in spring 1999. Even now, there are many loose ends to be tied up. Almost every month there are changes to the statistical section of the ECB Monthly Bulletin as new series become ready for publication.
It was also essential to prepare an IT infrastructure to support the electronic transmission of data within the ESCB. For this purpose, a new message format was developed which is now becoming widely used elsewhere.
These statistical preparations were undertaken by all EU Member States, since it was not clear until a late stage which of them would proceed to Monetary Union in January 1999. However, there were other good reasons for all to prepare. The first is that it seemed the best way to ensure readiness for later entry to the euro area, which, in principle, might come at any time. Not to make the preparations would mean running the risk of not being ready for participation in the euro area, with possibly serious effects on the ECB’s ability to maintain the quality and coherence of euro area statistics. The second is that the ECB would want to monitor economic and financial developments closely in the non-participating Member States. It is important for the ECB to be able to monitor developments in these Member States regularly and to compare monetary and economic developments there as closely as possible with developments in the euro area. In a more formal sense, the ECB assumes the tasks of the EMI, as laid down in the Treaty establishing the European Community, with respect to Member States with a derogation, including an obligation relating to the co-ordination of monetary policies. The third reason is narrower and more technical – the ECB may use information from non-participating Member States, for example on the euro-denominated business of their banks, to supplement its own sources of data.
On the content, it should be stressed that ECB’s statistical requirements are consistent with European and international statistical standards, although they may need to go beyond them to meet particular policy needs and the need for proper consolidation of national data to form euro area aggregates.
The ECB's need for statistics
In late 1998 the ECB announced the main elements of its stability-oriented monetary policy strategy. This strategy is designed to maintain price stability in the euro area, thereby fulfilling the mandate given to the ESCB by the Treaty establishing the European Community. The strategy consists of three main elements: a quantitative definition of the Eurosystem’s primary objective, namely price stability, and the «two pillars» of the strategy used to achieve this objective. These pillars are a prominent role for money, as signalled by the announcement of a quantitative reference value for the growth rate of a broad monetary aggregate (M3), and a broadly based assessment of the outlook for price developments and risks to price stability in the euro area as a whole, which draws on a wide range of economic and financial information.
Although the details of the monetary policy strategy could not be known when statistical preparations began, it was clear that the ECB would require, broadly speaking, the type of statistical information used by central banks with similar functions, in a form suitable for aggregation. This information fell into the following broad categories:
- money and banking, securities issues, interest rates;
- balance of payments, international investment position;
- financial accounts;
- prices and costs;
- government finance, national accounts, labour market statistics, other real economy data.
Money and banking statistics, securities issues, interest rates
The ECB compiles monthly banking aggregates and monetary statistics, with more detailed data being provided each quarter. As noted above, the growth of broad money, M3, is of particular importance in the ECB’s monetary policy strategy.
The first need was to identify a complete and homogeneous monetary sector to constitute the reporting population for the production of money and banking statistics. These are called Monetary Financial Institutions (MFIs). In addition to central banks, the MFI sector comprises two broad groups of financial institutions. These are credit institutions as defined in Community law [«an undertaking whose business is to receive deposits or other repayable funds from the public (including the proceeds arising from the sales of bank bonds to the public) and to grant credit for its own account»] and other resident financial institutions «whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or make investments in securities». Most of the second group are in fact money market funds.
The second need was to devise a set of balance sheet data which MFIs would report and from which the monetary aggregates and counterparts are compiled monthly, with extra detail quarterly. This information includes much data on instruments, maturity, currency and sector of counterparty.
In addition to being the main source for monetary statistics, the balance sheet data provide the basis for the calculation of the minimum reserves which credit institutions in the euro area are obliged to hold with the Eurosystem. Details of the data which MFIs are obliged to report (with reduced requirements for small institutions) are annexed to the relevant ECB Regulation.
Statistics on securities issues (new issues, redemptions, net issues and outstanding issues by euro area residents, with some further analysis, and issues, etc. denominated in euro, whoever makes them) are not so closely harmonised. The same is true of retail interest rates which, although loosely harmonised for purposes of aggregation across the euro area, continue to reflect features of national retail financial markets.
Where relevant, the data conform to the European System of Accounts 1995 (ESA 95).
Balance of payments and international investment position statistics
The ECB compiles a monthly balance of payments for the euro area from (very largely) data on the transactions of euro area residents with the rest of the world (including EU Member States not participating in the euro area). The monthly data, which are available after about six weeks, are used to support the conduct of monetary policy. They are rather highly aggregated and designed principally to record the main items affecting monetary conditions and exchange markets. Thus the current account shows only four items (goods, services, income and current transfers) and the new capital account is a single item; there is, however, more detail in the financial account. The monthly key items are supplemented by more detailed quarterly statistics, with the extra detail in investment income (in the current account) and in some financial account categories (portfolio and «other» investment, and reserve assets).
The ECB also compiles statistics on the international investment position (i.i.p.) of the euro area. At present these annual data are on a net basis, meaning that they do not show external assets and liabilities separately, because the national statistics from which they are compiled do not sufficiently distinguish between cross-border positions within and outside the euro area. The intention is, however, to show assets and liabilities separately when this is feasible.
It might be noted in connection with the balance of payments and i.i.p. data – although it is in fact an issue common to other areas of financial statistics – that the holders of negotiable securities frequently cannot be identified by the debtor reporting the liability. A priority for the ECB is to find better ways of allocating holdings of negotiable instruments.
As far as possible, balance of payments and i.i.p. statistics for the euro area conform to the international standards set in the Balance of Payments Manual (5th edition) of the International Monetary Fund (IMF).
Financial accounts
The Regulation implementing the ESA 95 requires all Member States to prepare financial accounts at least annually and in a prescribed format. The requirement comprises a detailed statement of financial flows, a statement of financial assets and liabilities outstanding at market value, and a reconciliation of the two.
The data will be on a national basis; they cannot be properly consolidated to provide financial accounts for the single currency area. Moreover, monetary analysis requires quarterly data. Nevertheless, the ESA 95 offers a powerful instrument for achieving consistency in definitions and compilation practices, as well as requiring the production of financial accounts where (as in several Member States) there have hitherto been none. To complement monetary analysis and policy research, the ECB will compile a fairly full, though incomplete, quarterly account with proper consolidation for the single currency area from the money and banking, balance of payments and capital market statistics mentioned earlier, again drawing on the ESA 95 data wherever possible. The first results in 2000 will be a table showing the financing and investment of non-financial sectors in the euro area. In addition to providing valuable information for analysis, the financial accounts will offer a useful check on information from other sources.
Economic statistics
In the areas of statistics described above, the ECB is primarily responsible at the European level or shares responsibility with the European Commission (Eurostat).
In conducting monetary policy, the ECB also uses a wide range of the statistics for which Eurostat is responsible at the European level. The ECB takes a close interest in their development, but does not collect or compile the data.
Data on prices relate to the ESCB’s primary responsibility to maintain price stability, which is defined in terms of the Harmonised Index of Consumer Prices (HICP). The ECB also uses other price and cost, especially labour cost, indicators. National accounts data provide essential background data for the assessment of the economic situation in the Member States and the euro area. They are covered by the implementation of ESA 95, currently in progress. Since these data are available at best only quarterly and with a delay of some months, the ECB also needs monthly economic indicators so that developments may be identified without delay and their possible implications for monetary policy ascertained. These data cover indicators such as industrial production, orders and labour market developments. Short-term business indicators must be timely and provide a reliable picture of the economy. Business and consumer surveys are also used to assess developments.
Much harmonisation of government sector statistics (deficit and debt) was achieved in the context of assessing the convergence of national economies in preparation for Monetary Union. The implementation of the ESA 95 is also a powerful instrument for improving statistics in this area. There is nevertheless still a lack of quarterly statistics on an economic accounts basis needed to support the conduct of monetary policy. Eurostat has taken measures to provide quarterly data on government accounts. The ECB is seeking to develop quarterly data on government financial assets and liabilities for the same purpose and as an element in quarterly financial accounts.
Organisation of statistical work at the European level
The EMI/ECB did not begin statistical work in a vacuum. Although the details of organisation varied, all EU central banks had statistical functions focused on the provision of data for various policy and administrative purposes. At the European level, Eurostat had for many years provided statistics to support the work of the European Commission and other users.
The relative roles of the ECB and the NCBs were agreed as long ago as mid-1995. Collection of data from reporting institutions, and indeed practically all relations with banking institutions and other reporters, are the responsibility of the NCBs, which aggregate the statistical returns that they receive and send the results to the ECB, which in turn compiles and publishes the euro area aggregates. All aspects of the work, including the legal and IT infrastructures underlying it, conceptual issues and the development of statistics, are kept under close review by the ECB and the NCBs through the Statistics Committee and its working groups, which are part of the ESCB’s committee structure and interact closely with other relevant ESCB committees. ECB statisticians work closely with the users of statistics in operational and policy analysis and research areas of the ECB. This is an efficient arrangement, and conforms to Article 5 of the Statute of the ESCB concerning statistics, and also to the general provision of Article 12.1.
As far as the sharing of statistical responsibility with the European Commission, notably Eurostat, is concerned, the starting points were the Commission’s rather general initial statistical responsibility and the provision in the Statutes that the EMI and the ECB should have statistical responsibilities within their fields of competence. As explained above, perceived statistical requirements of the ECB to support the conduct of policy covered a wide range of monetary, balance of payments and financial data, but also information on prices and costs, government finance, national accounts, labour markets, etc. The agreed division of responsibility at the European level, primarily designed to provide the ECB with the best statistical data possible, but also intended to avoid duplication of effort and parallel reporting lines and to promote coherence in statistics, adheres to institutional priorities and established statistical expertise. Money and banking statistics, interest rates and capital issues are the responsibility of the ECB. Responsibility for balance of payments and financial accounts is shared. Government accounts, prices and costs – all of vital interest to the ECB – and real economy statistics generally, are the responsibility of Eurostat. Consistency and coherence, in the data themselves but also in dissemination, are pursued through the adoption of common statistical standards and also through close co-operation and cross-membership of statistical committees. The Committee on Monetary, Financial and Balance of Payments Statistics was set up in the early 1990s precisely to bring together Commission, central bank and government statisticians, with the statistical needs for economic and monetary union in mind.
The ECB maintains close contact in statistical matters with certain international organisations. ECB statistics conform to international standards; here the world System of National Accounts (1993), with which the ESA 95 is consistent, and the standards in balance of payments statistics established by the IMF are the most important. The euro area countries send data to the IMF; EU central banks have very close links with the Bank for International Settlements (BIS); the ECB itself exchanges data with these institutions, and with the Organisation for Economic Co-operation and Development (OECD), and indeed relies on their databanks for much information. Close contact is maintained through bilateral working relationships and cross-participation in statistical committees.
(*) Article first published in Revue ECU/EURO, special issue "The European Central Bank", 2000.