Let me first report that the Governing Council decided to reconfirm the existing reference value for monetary growth, namely an annual growth rate of 4 1/2% for the broad aggregate M3. This decision was taken on the grounds that the available evidence continues to support the assumptions underlying the initial derivation of the reference value in December 1998 -LRB- and its confirmation in December 1999 -RRB-, namely those for trend potential output growth and the trend decline in M3 income velocity in the euro area. With regard to the assessment of trend potential output growth, there is still no decisive evidence that measurable and lasting increases in productivity growth in the euro area would warrant a significant upward revision in the assumption for trend potential growth. This notwithstanding, the uncertainties surrounding estimates of the medium-term development of potential output growth in the euro area have become skewed to the upside. Against this background, the Governing Council will carefully monitor further evidence with regard to an acceleration of productivity growth in the euro area. The Governing Council also wishes to emphasise that potential output growth could be strengthened by further structural reforms in the labour and goods markets. Naturally, the ECB 's monetary policy will take such changes appropriately into account. The ECB will issue a press release today to provide some background information on the review of the reference value carried out by the Governing Council.
The Governing Council also conducted its regular examination of monetary and economic developments and their implications for the maintenance of price stability in the euro area. It decided to leave the minimum bid rate on the main refinancing operations of the Eurosystem unchanged at 4.75%. The interest rates on the marginal lending facility and the deposit facility were also kept unchanged at 5.75% and 3.75% respectively.
Starting with the first pillar, it is fair to say that M3 growth rates have shown signs of moderation over the past few months. However, taking into account the protracted upward deviation of M3 growth from the reference value of 4 1/2% and the still robust growth of credit to the private sector, caution continues to be warranted with regard to the upside risks to price stability stemming from the monetary side.
As for key indicators related to the second pillar, the assessment is currently complicated by increased uncertainty. In the first place, this applies to tendencies in the world economy. With regard to the evolution of real GDP growth currently foreseeable for the euro area, the underlying dynamism of growth continues to prevail, although subject to some moderation. Developments in euro area bond markets, characterised by a decline in bond yields in November and December, broadly confirm this assessment of growth. In foreign exchange markets, also reflecting the current outlook for global growth patterns, the euro has appreciated against the currencies of the euro area 's most important trading partners. The Governing Council considers this development to be a step in the right direction.
Turning to consumer price developments, recent developments have continued to reflect, above all, developments in oil prices, but also previous developments in the euro exchange rate. Over the medium term, the upward pressures from energy prices are expected to disappear gradually, while HICP rates of inflation will increasingly depend on domestic forces. On balance, the Governing Council judges the risks to price stability still to be on the upside.
The Governing Council will continue to counteract any risks to price stability in the medium term by responding in a timely manner. At the same time, it does stress the importance of all economic actors responding in an appropriate manner to the current oil price-led increase in consumer price inflation. In particular, social partners can rely on the commitment of monetary policy to maintain price stability over the medium term and they should continue along the path of wage moderation observed in recent years. In the same vein, fiscal authorities should control expenditure growth, as it could otherwise fuel upward pressures on prices.
Let me now give the floor to the Vice-President to inform you about other issues discussed by the Governing Council.
First of all, I should like to provide you with information on several issues relating to the euro banknotes and coins.
First, pursuant to the Treaty -LRB- Article 106 -LRB- 2 -RRB- -RRB-, the ECB has the exclusive right to approve the volume of coins issued by the euro area Member States. To this end, the Governing Council adopted an ECB Decision on the volume of coin issuance in 2001. This Decision, which also covers Greece for the first time, will soon be published in the Official Journal of the European Communities.
Second, in order to raise citizens ' awareness and to prepare them for the cash changeover at the beginning of 2002, the Governing Council agreed to organise a series of conferences on euro changeover issues in the course of 2001. These conferences will bring together the key parties involved in the euro cash changeover process, both at the national and at the European level, with a view to focusing on the cash changeover preparations. This action should also be seen against the background of the Conclusions of the European Council meeting in Nice on 7 to 9 December 2000.
Third, the Governing Council decided that tests on the euro banknotes will be carried out in all euro area countries in 2001. These tests will offer companies an opportunity to check and fine-tune their cash and/or vending machines and sensors with regard to their being able to recognise and accept euro banknotes. They will be organised by the euro area national central banks ; the Bank of England will also be invited to participate. The ECB will monitor the test scenario in order to ensure a consistent approach and will act as the contact point for companies registered in a country without a test centre.
Fourth, further to the ECB 's press release of 3 August 2000, when the decisions of the Governing Council regarding the euro area financial modalities for the 2002 cash changeover were announced, the Governing Council agreed on general principles for the so-called frontloading and sub-frontloading of euro banknotes outside the euro area as from 1 December 2001. Today 's decision, which complements the principles agreed with regard to the frontloading and sub-frontloading of euro banknotes inside the euro area, has to be seen as a contribution to ensuring a smooth cash changeover in 2002. You will find further information relating to this decision in a separate press release to be issued this afternoon.
With regard to TARGET, the Governing Council decided to establish a long-term calendar of TARGET operating days to be applied from 2002 onwards. The establishment of such a common long-term calendar was deemed necessary in order to reduce uncertainties for financial markets. In addition to Saturdays and Sundays, TARGET as a whole, including both domestic and cross-border transactions, will be closed for a total of six days in the calendar year. You will find further information relating to this decision in a separate press release to be issued this afternoon.
The Governing Council also adopted several legal acts related to the field of accounting, which will be published shortly in the Official Journal of the European Communities.These acts relate to the legal framework for accounting and reporting within the ESCB, the annual accounts of the ECB and the allocation of monetary income of the euro area national central banks and losses of the ECB for the financial years 1999 to 2001.
Let me also draw your attention to some of the decisions taken by the Governing Council at its previous two meetings.
First, the ECB budget for 2001 has been approved. It includes a staff increase of 7%. By the end of 2001, the ECB will therefore have approximately 1,100 staff members.
Second, in connection with the Bank of Greece 's entry into the Eurosystem, the Governing Council adopted several legal instruments on the transfer of foreign reserves from the Bank of Greece to the ECB, the crediting to the Bank of Greece of a corresponding claim on the ECB and the contribution to the capital, reserves and provisions of the ECB by the Bank of Greece. These legal acts will be published in the Official Journal of the European Communities shortly. Amendments to several other legal instruments were also adopted.
Third, I should like to mention that, following the very positive reaction to last year 's" Helsinki Seminar '', the ECB is organising a second seminar with high-ranking officials from the central banks of the EU accession countries. This seminar will be held tomorrow in Vienna, in co-operation with the Oesterreichische Nationalbank, and will focus in particular on issues related to the price dynamics in accession countries, the role of the central banks in managing the accession process and the co-operation between the Eurosystem and the accession countries ' central banks. The" Vienna Seminar '' will be followed by a press conference at 4 p.m. tomorrow.
Finally, I should like to inform you that the Governing Council has decided that its next meeting, which is scheduled for 4 January 2001, will be held by means of a teleconference. The press conference originally planned for that day has thus been cancelled. The next press conference will take place on 1 February 2001.
Question: President Duisenberg, how would you comment on the statement Alan Greenspan made on 6 December. He said," Do not worry - we may reduce interest rates if there is too quick a slowdown in the United States. '' What do you think? Will this have as an impact on Euroland. And the next question is: how do you feel about the exchange rate of the euro? Are you happy with the way things have gone?
Duisenberg: Usually, I think that a central banker should not comment on speeches of other central bankers, so I will refrain from commenting on the speech presented by my colleague, Greenspan, last week. The development of the exchange rate of the euro is - I must say - completely in line with what we have said and expressed all along as our opinion, namely that the euro had a strong potential to appreciate from the levels it had reached in earlier months, so that has not been a surprise, but rather an expectation that has come true.
Question: A follow-up on that, Mr. President: could you tell us the extent to which Alan Greenspan 's statement has indirectly had a soothing effect on Euroland.
Duisenberg: It was not discussed in the Governing Council, so I that have nothing to report in this respect. But I think that the speech made by Mr. Greenspan has itself contributed to the tendency of the euro exchange rate to appreciate, which had already set in some time earlier. So, in that way, it has had a positive impact.
Question: Two questions, if I may: my colleague introduced the question. The first question, Mr. President, is that I would like to have your view of the results of the European Council in Nice. Do you think that the results of the European Council in Nice, which are not great, will have an effect on the euro exchange rate? And the second question, as we are now coming up to the second anniversary of the single currency: how do you feel about the year that the euro has experienced? Has it been a good year or has it been an annus horibilis for the euro?
Duisenberg: First of all, if the European Council meeting in Nice were to affect the exchange rate, it would already have had that effect because exchange rates happen to react very quickly to events, be they political or economic in nature, and - as you will have seen - the euro exchange rate has hardly been touched by the outcome of the European Council meeting, which - I think - is a good thing in itself.
Duisenberg: If I reflect on the past year, I am always inclined to reflect on the period since the birth of the euro, i.e. a period of almost two years. On that basis, I am filled with a feeling of satisfaction in many areas, namely the smooth introduction of the euro, the rapid development of a single money market in the euro area, the rapid developments - which are still going on - in the capital markets in the euro area, and I could go on and on with phenomena like that. I will not deny that, in the past, I have been somewhat dissatisfied or - how should I say that in English - disappointed with the actual development of the exchange rate of the euro. That feeling of dissatisfaction has disappeared now that the euro seems to have turned the corner.
Question: Mr. President, although you said that you are not very fond of commenting on other central bankers, I will cite Sir Edward George, Governor of the Bank of England, who welcomed the slowdown in the United States a few days ago. He said that the fears of a hard landing were exaggerated. Do you share his opinion and how do you see the global economy, the situation in Japan and so on?
Duisenberg: Well, I can only report on what the Governing Council discussed today. This, of course, also included the risks of a hard landing and the outlook for the world economy as a whole. And, as I had said in my introductory statement, all available evidence is pointing towards the fact that a period of robust economic growth, be it at a somewhat slower pace than we have seen in recent months, still lies ahead of us in what we regard as the foreseeable future. We therefore anticipate that a growth rate in the order of 3% per year will be maintained in the euro area for at least the next two years.
Question: In June you said that the US slowdown would be a weak wind that you could easily withstand. Is there any reason to believe that Europe would not be able to withstand that slowdown as well today as it would have in June. And the other question I have is: how serious are these upside risks to price stability? I am asking this because in the last few weeks a lot of banks have been scaling down their interest rate increase projections and now think that rates will remain on hold for some time and that the next move will be a cut. Are the markets a little bit premature?
Duisenberg: Well, on your first question, I can not see any reason to change that judgement. On the second question, I can not quantify how serious the upside risks are, but there are always risks to price stability - in one direction or another. The main thing I said was that the risks, as we see them, are on the upside rather than on the downside, but I can not quantify the degree.
Question: Mr. President, Greece will be a member of Monetary Union in now two weeks time. Two questions on that: Obviously, Greece does have a tendency to inflation. How much work do you think does Greece have to make sure that inflation remains under control? And the other aspect is, of course, that this is the first big expansion, the first expansion of the single currency area since its birth. How you see that in historic terms, Greece 's membership?
Duisenberg: Could you expand a little on your second question?
Question: I mean that this is obviously a historic moment. It is the first time that the single currency area has expanded since its birth. In historic terms, how do you see this Greek entry?
Duisenberg: To answer the last question first. It is indeed a historic and a both very satisfying and gratifying moment for a member of the European Union to be able to comply with all the criteria relating to entry to the euro area, to participation in Monetary Union. And I think we have to say that Greece has made great and commendable efforts in order to reach this stage. It shows the extent to which entry into Monetary Union and, therefore, complying with the Maastricht criteria have acted and are still acting as a catalyst for moves towards more sound public finance policies, an environment of low inflation and appropriate monetary policies. So that is all gratifying and sound. As to your first question...
Question:... how much work now do you think Greece has to undertake to make sure that it keeps inflation under control, because it has had a tendency towards inflation in the past?
Duisenberg: It still has a lot of further work to do. But I would also like to mention that Greece is going through a period which we all having to go through - a period in which oil price increases are working their way through in the domestic economy. And, in the case of Greece, the oil dependency or energy dependency of the economy is significantly higher than in other areas or in the rest of the euro area. So, it still has to undertake great efforts to make the position it had reached upon entry a sustainable one.
Question: Talking about inflation and, in spite of the beneficial effects of the Maastricht criteria of which you were talking, there are countries such as Spain which have an inflation rate which is double that of Germany. What risks do you see in this situation in the long run? And what could these countries do to try to keep inflation under control?
Duisenberg: Well, what countries outside the spectrum can not do is use monetary policy to fight inflation. They will therefore have to revert to all other areas of policy and behaviour. And this is not only a call for government action. It is also a call for social partners to try to get back in line with the average for the euro area and, ultimately, to get back in line with the goal that monetary policy has set for itself, namely keeping inflation below 2%.
Question: Mr. Duisenberg, in the light of your decision to leave the M3 reference rate unchanged and also in the light of the comments you have just made about the risks to price stability, do you think that there is any danger that, in the minds of the markets, you will only serve to underline the differences between a very activist pro-growth Federal Reserve and a more conservative, more price-orientated European Central Bank?
Question: I also wanted to ask about the following: there does seem to be some slowdown at least in the reversal of capital flows between the United States and the euro zone and, since you were trumpeting this some time ago, I wonder if you could comment on this issue.
Duisenberg: I do not see that much of a difference, if at all, between the degree of activism of the Federal Reserve system, on the one hand, and the European Central Bank, on the other. It is true that we have a well-defined primary target, a primary mandate in our policy, namely maintaining price stability, whereas the mandate of the Federal Reserve is much broader in scope. It includes the promotion of economic growth, an equitable income, even balance of payments behaviour, as well as, of course, inflation. But as different as the circumstances of their respective economies may be, I can not really see any difference in the actual behaviour of the two central banks. So, this is also something the markets should understand. As regards the second question, could you, Christian, say something on this...?
Noyer:... on this slowdown in capital flows or on capital flows in general? We do not have any new figures compared with what we had discussed before. I apologise for this, but I do not think we have released much in the meantime. So, this is probably a question which should be raised at a later occasion, once we have new evidence.
Question: Mr. President, what kind of information, what kind of knowledge can the financial community gain from the publication of the macroeconomic projections in the next Monthly Bulletin and how do you expect the financial markets to react to their publication? How are they supposed to handle them?
Duisenberg: They will see that we will publish some macroeconomic indicators in terms of ranges of projected developments. The public will have to understand, and we will make it very clear, that these projections are based on certain hypotheses concerning, in particular, interest rates and exchange rates, which will supposedly remain unchanged in the future. Thus, the projections will be based on hypotheses which, to be honest, will in all likelihood not turn out to be true in the future. Thus, the projections, to put it differently, are likely to move out of line with real developments in the future. But, as a central bank we will never, as some other institutions do, create expectations or formulate certain hypotheses about underlying variables which are crucial to us, like the exchange rate or short-term interest rates. We will never make them into a self-fulfilling prophecy. So we have to base these expectations on these hypotheses in public. And the media and academia will have to understand that, and I think they will. If everyone understands them in this way, they will make our deliberations even more transparent by showing on what hypotheses our deliberations - those of the Governing Council are what I am now talking about - are basically well-founded.
Question: Mr. President, one of the big issues in Nice was the attempt to streamline the decision-making process in the European Union with a view to the accession of new countries from eastern Europe. Do the decisions that have been reached there have any bearing on your thinking or maybe even decision-making process or on your own institution and the decision-making process in the Governing Council, since the situation seems to be similar to the situation in the European Commission, for example?
Duisenberg: No, but what the Intergovernmental Conference has done is take a decision to propose a change to Article 10 of the Statute of the European System of Central Banks and of the European Central Bank, which relates to the voting procedures. This would consist of including in the Treaty an enabling clause. This clause would make it possible in the future, if the number of members of the Eurosystem - not of the European Union, but of the Eurosystem - were to increase significantly, to change the procedures of the decision-making bodies of the Eurosystem. This change could then be enacted by a decision of the EU Council in the composition of the Heads of State or Government on a recommendation of the Governing Council of the ECB, which would, in that case, have to be made unanimously and after having consulted the European Commission and the European Parliament or on the recommendation of the European Commission after having consulted the European Central Bank and the European Parliament. So, it is an enabling clause which is to be included in the Treaty. The enabling clause itself has - as do all other decisions - to be ratified by all parliaments of the EU Member States and this is expected to take some time - I believe that it is expected that the ratification procedure may take up to two years.
Question: Mr. President, you mentioned the seminar tomorrow in Vienna. But are you worried by the changes in the heads of some central banks in the European Union accession countries, namely in the Czech Republic and, to a lesser extent, in Poland? How do you view this issue? Thank you.
Duisenberg: Well, in both cases the governors of the central banks concerned have left of their own free will and fully independently. One has taken on a position in London, the other is taking up a position in Basel. So, I do not see that as being of any relevance to the accession process as such.
Question: A question, Mr. President: if in Euroland you see a potential growth of between 2% and 2.5%, and if you assume that economic growth is over 3% this year and will probably be over 3% next year, and perhaps in 2002, the simple question is: are there going to be bottlenecks? Are there going to be capacity bottlenecks and do you think that this may have a negative impact on price stability?
Question: Then, with regard to the enlargement process, a second question: President Welteke from the Deutsche Bundesbank has said over and over again that it is a question of real convergence, not nominal convergence of the Maastricht criteria, but real convergence in terms of the maturity of an economy, legislation, and privatisation. Is this a concern for the ECB, if these countries join the EU and then, soon after, the euro area?
Duisenberg: First, we do not see the likely or expected development of the real economy for the foreseeable future as in itself being a danger to price stability, as we define it. Alongside the expectation of a continuation of what we call a" robust pace of economic growth '', we also expect the level of inflation to come down gradually over the medium term to within the limits we have set ourselves, which define price stability, namely to under 2%. However, we have to cope with the, in principle, temporary effect of the huge increase in oil prices which is permeating the economies.
Duisenberg: As far as the convergence process for the accession countries is concerned, when the time comes, i.e. after having become a member of the European Union, the accession countries will have to demonstrate that they are converging in the direction of the average performance of the euro area and we will assess this when the time comes, at the time when they actually want or desire to participate in Monetary Union as well, which is more than just the European Union. We will write a convergence report at that time, but not at this point. But, that convergence report will then be based on - or will use - the same criteria as those that are currently being used and that have been used for all present and future members of Monetary Union.
Question: I would like to come back to the question of the M3 reference value. You have stuck with the estimate of trend potential growth in the euro zone of 2-2.5%. Is it your view that trend potential growth in the United States is higher than that which you have stuck with in the euro zone? And I would also like to know whether, at the Council meeting today, there was anybody at all, any Council member, who ventured to suggest that trend potential growth was in fact higher than 2-2.5% in the euro zone?
Duisenberg: We discussed this extensively. Of course we discuss the question" Has the new economy arrived in Europe? '' - because that is basically your question - extensively almost every two weeks. We sometimes feel that it has arrived here and there, but, taking a euro area perspective for the euro area as a whole, on all the available evidence we can not as yet conclude that a decisive shift in the trend rate of productivity growth is discernible. We hope it will come, we may even think it will come, but it has not come yet.
Question: Mr. Noyer, you mentioned in your introductory statement that legal acts were adopted concerning the allocation of monetary income of the euro area. Does that mean that there were any changes made to the current regulation?
Noyer: I hope I said - and if I did not, I will correct myself - that it was for the years 1999-2001, so that covers the period in which we do not have euro banknotes, only national banknotes. In the Governing Council we did take decisions on a number of small issues for tiny amounts where we had already pooled the monetary income, but they were not material. And you will see when the text is published that it is just to be in line with our principle of transparency and clarity about the rules we have adopted that we progressively publish in all official Community languages the previous decisions when they are consolidated, but there is nothing new. I mean, the issue you may have in mind has not yet been decided.
Question: A second question on this. Here in Germany there is a discussion among academics on the redistribution effects of the seigniorage and when Mr. Welteke was asked about this issue he answered that, yes, negotiations are already under way with regard to the redistribution effects after these three years, i.e. after 2001, in order to alleviate these effects for another period, which is possible under the Treaty. So, could you say something about this point please?
Noyer: I can only say that the Governing Council needs to take a decision in order to implement one of several articles of the Statute concerning the issuance of the banknotes and the precise features of income distribution or redistribution, whether there will be any need - in the judgement of the Governing Council - for smoothing and, if so, how the features of this smoothing will be based on provisions contained in the Statute and the Treaty. Such decisions have to be taken before the end of next year, i.e. before the issuance of euro banknotes. For issues other than banknotes, the decision was already taken earlier and will be published shortly in a consolidated version, but this is not material, as I have said. I can not say anything more for the moment. The Governing Council will take decisions in good time before the end of next year. That is all.
Question: President Duisenberg, two brief questions. The first one is: could you please elaborate a bit on the added value that you think the publication of the projections will bring about in terms of transparency. The second question is: when you switched to the variable-rate tender in summer, you said that you were thinking of ways to overcome the problem of overbidding in the fixed-rate tender. Has there been any solution or has there been any discussion about switching back to the fixed-rate tender yet?
Duisenberg: Last question first. The discussions on finding a solution to the overbidding phenomenon, if we were to return to the fixed-rate tender procedure, are still going on. So we are still looking, but it seems that it would be feasible to at least largely overcome that problem, if it were to arise again, with the available solutions. The publication of projections, which will take place for the first time next week, will in itself simply enhance the transparency of, and therefore the insight that the outside world has into, the internal deliberations of the ECB. It will make our decision-making process more readily understandable and that, I think, is a great added value.