XI. Meet as one group. One of you should lead the meeting. Decide how the euro problem can be solved.

Text 4.

The ECB’s Credibility

Take the claim that the ECB'S monetary-policy strategy is confusing. It has, in effect, two targets: one for inflation and another for money-supply growth. What if money and inflation move in different directions? But at least the ECB has a clearly defined mandate of price stability. The Fed does not have an inflation target at all. So the basis of the Fed's interest-rate decisions is far from clear.

What of the second charge, that the ECB'S decision-making is opaque? It is true that the ECB does not publish minutes of its policy meetings; the Fed, in contrast, releases summary minutes about six weeks later. But the monthly press conferences, at which Wim Duisenberg, the ECB'S president, explains policy decisions, come close to providing an instant summary. Arguably, this is better than releasing carefully edited minutes weeks later.

The Fed never holds press conferences after interest-rate changes and, unlike Mr. Duisenberg, Alan Greenspan, its chairman, never gives on-the-record interviews. To make things even less clear, Mr. Greenspan has turned the language of central banking into an art form. "I know you believe you understand what you think I said, but I am not sure you realise that what you heard is not what I meant," he told some Wall Street economists a few years ago.

The third main accusation is that the ECB'S policy board is disunited. Yet since monetary policy is an inexact science, such divisions are perfectly healthy. The Fed is equally divided. Only the dominance of" Mr. Greenspan has prevented a revolt by Fed associates who have been uncomfortable with the recent looseness of monetary policy. Two notable hawks are Larry Meyer, a Fed governor, and Jerry Jordan, president of the Cleveland district Fed. In speeches and articles, both have given the impression that they think interest rates should have been increased more rapidly.

In the end the ECB and the Fed will be judged by their ability to keep inflation under control. On current evidence the ECB is doing the better job. In the 12 months to March, consumer prices in the euro area rose by 2.1%, just breaching the ECB'S medium-term goal of 2%. But the core rate of inflation (excluding oil and food) was only 1.1%. In contrast, American inflation jumped to 3.7%; even core inflation is running at 2.4%. First-quarter figures, which showed an alarming jump in labour costs and annual growth in domestic demand of 8%, suggest that inflation is likely to pick up.

You might conclude that the ECB is the more credible of the two central banks. Unfortunately, it has two disadvantages. It has no track record, so it has to try harder to explain its decisions. And it does not have at its helm the saintly Alan Greenspan.

Mr. Greenspan has undoubtedly been an excellent central banker. But he has also been lucky: his time at the Fed has coincided with a worldwide fall in inflation. He has been heavily criticized by some (The Economist among them) for not doing more to prevent a financial bubble and its accompanying financial and economic imbalances.

Now investors remain confident that he will be able to engineer a soft landing and that America's economy will continue to outpace Europe's. The evidence of rising inflation, and hence the need for interest rates to rise by more than the markets expect, will make that task harder. And if Mr. Greenspan does not manage it, investors may soon start treating the dollar with the disdain that they now reserve for the euro.

Text-study

I. Learn the following words.

accusation - обвинение

revolt - восставать, бунтовать

dominance - влияние; преобладание

to claim – заявлять, утверждать

interest-rate – процентная ставка

to outpace – перегонять, опережать

II. Answer the following questions.

1. How do you understand the introductory sentence of the text: "Investors, it seems, cannot have too little of the euro"?

2. What are the main drawbacks the ECB is accused of?

3. How does the Fed differ from the ECB?

4. Which of the two central banks is the more credible one?

5. What was Mr. Greenspan criticised for?

6. What task is Mr. Greenspan facing now? What factors make it harder?

7. What does investors' attitude towards the euro depend on?

III. Complete the sentences with suitable words from the box.

lack, transparency; to make interest-rate decisions: the ECB's credibility; monetary-policy strategy; inflation target; core inflation; financial bubble.

1. Countries of the European Union must have a single … .

2. There is no special … .

3. The work of European Banks lacks … .

4. Their main task is … .

5. … is well-known.

6. … prevents the work of different banks.

7. Some of the banks are very often … .

IV. Fill in the blanks with articles if needed.

Mr. Greenspan has undoubtedly been … excellent central banker. But he has also been lucky: his time at the Fed has coincided with … worldwide fall in inflation. He has been heavily criticized by some (The Economist among them) for not doing more to prevent … financial bubble and its accompanying … financial and economic imbalances.

His halo may yet slip, but for now investors remain confident that he will be able to engineer … soft landing and that America's economy will continue to outpace Europe's. … evidence of rising inflation, and hence … need for interest rates to rise by more than … markets expect, will make that task harder. And if Mr. Greenspan does not manage it, … investors may soon start treating … dollar with …he disdain that they now reserve for … euro.

V. Explain the italicized grammar constructions in the following sentences.

1. The Fed never holds press conferences after interest-rate changes and, unlike Mr. Duisenberg, Alan Greenspan, its chairman, never gives on-the-record interviews.

2.To make things even less clear, Mr. Greenspan has turned the language of central banking into an art form.

3. "I know you believe you understand what you think I said, but I am not sure you realise that what you heard is not what I meant," he told some Wall Street economists a few years ago.

4. The evidence of rising inflation, and hence the need for interest rates to rise by more than the markets expect, will make that task harder.

5. He has been heavily criticized for not doing more to prevent a financial bubble.

VI. Translate the text into English:

Снижение показателей экономического развития в Европе часто связывают с деятельностью Европейского Центрального Банка. Утверждают, что по сравнению с Федеральным Резервом США Европейскому Центральному Банку не хватает открытости и ясности целей. Недостатком считается то, что Банк отдельно устанавливает две контрольные цифры: контрольную цифру роста инфляции и контрольный показатель роста денежной массы. Однако следует учитывать, что Федеральный Резерв вообще не устанавливает никаких контрольных показателей, что позволяет говорить о более чем неопределенной основе для принятия решений о величине процентных ставок. В конечном счете, способность обоих банков удерживать инфляцию под контролем станет краеугольным камнем в оценке результатов их деятельности.

VII.Translate the following sentences into Russian:

1. American inflation jumped to 3.7%.

2. Core inflation is running at 2.4%.

3. In the end the Fed and the ECB will be judged by their ability to keep inflation under control.

4. Inflation is likely to pick up.

VIII. Summarize the text, using the words and phrases given below:

to allege; to make interest-rate decisions; to undermine the ECB's credibility; to confuse financial markets; to release summary minutes; to hold press conferences; to give on-the-record interviews:

to keep inflation under control; to prevent a financial bubble; to engineer a soft landing; to outpace smb/smth.

IX. Speak about the dependence of a domestic currency's performance on the central bank’s policy.

X. Work in several groups. Say what the ECB and the Fed have in common.

XI. Meet as one group. One of you should lead the meeting. Dwell upon the ECB's advantages and drawbacks.

Revision of Chapter 1

Test