As usual, we examined recent monetary, financial and economic developments. The Governing Council concluded that the current level of key ECB interest rates remains appropriate for the maintenance of price stability over the medium term and, accordingly, decided to leave them unchanged.
Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 stood at 7.8% in the period from December 2001 to February 2002, compared with 8.0% in the period from November 2001 to January 2002. The high level of the annual growth rates of M3 continues to reflect the past portfolio shifts to liquid positions. These shifts primarily occurred during autumn 2001, when the economic and financial environment was characterised by high uncertainty. However, in the meantime, some normalisation in the development of M3 has taken place. This is indicated by a significant slowdown in the short-term dynamics of M3 in early 2002, a period in which the annual rate of growth of loans to the private sector has also continued to decline. However, the period of moderation in monetary growth has as yet been too short to allow a definitive assessment.
Against this background, the Governing Council continues to hold the view that the information from the first pillar does not thus far point to risks to price stability. Nevertheless, the persistence of excess liquidity in the economy could become a concern once the economic recovery in the euro area gathers pace.
As regards the second pillar, the trough in economic activity was in all likelihood reached at the end of last year. Further information received over the past few weeks, i.e. surveys, financial market and leading indicators, strengthened the expectations of a recovery in the course of this year. While some uncertainty remains as regards the precise pattern of the recovery, not least in the context of a substantial increase in oil prices, the latest evidence has reinforced our previous assessment. Real GDP growth rates in the euro area should again be in line with potential growth later this year. Domestic factors support the recovery. First, a reversal of the past inventory drawdown is under way and real disposable income growth is expected to benefit from lower rates of inflation. Second, financing conditions are favourable. We also expect the stronger international environment to play an important role in stimulating euro area exports, and both domestic and external factors should foster investment. Finally, the positive outlook for the euro area economy is very much supported by sound fundamentals and the absence of major imbalances.
Turning to price developments, let me first recall that, over recent months, annual rates of consumer price inflation have been affected by several factors of a special or temporary nature. This volatile pattern was broadly anticipated. However, annual inflation rates are currently somewhat higher than was expected a few months ago, with early estimates for March pointing to a figure of 2.5%. This is mainly because oil prices have again risen significantly in the more recent period. If sustained, higher oil prices would also have an impact on inflation rates in the remainder of 2002. While inflation rates are expected to fall to below 2% later in the coming months, this decline may possibly be less pronounced than was foreseen, and inflation rates during this year could turn out to be somewhat higher than previously expected.
Beyond the shorter term, upward pressure on prices from aggregate demand should, in the light of current projections of a gradual economic recovery in the euro area, remain contained. In addition, the outlook for inflation is fundamentally dependent on wage moderation. Such moderation is important not only in order to contain risks to price stability but also to foster employment growth. As I have already noted on earlier occasions, there is some cause for concern with regard to ongoing wage negotiations.
Fiscal policies in the euro area can also contribute to the maintenance of a favourable outlook for non-inflationary growth. It is vital that the commitments made to achieving balanced budgets by 2003-04 be firmly followed up in the Member States concerned. A continuation along the path of fiscal consolidation is essential, as is vigilance in ensuring strict adherence to the medium-term plans and rigorous implementation of the procedures of the Stability and Growth Pact.
Equally, the expected recovery should be seen as an ideal opportunity to strengthen efforts towards implementing comprehensive structural reforms -- in public expenditure and revenues and product, labour and financial markets. Heads of State and Government confirmed this objective during their recent meeting in Barcelona. If implemented vigorously, such reforms could increase the growth of real GDP and employment on a sustainable basis. Past improvements in the functioning of markets, together with wage moderation, have contributed to strong employment growth and a considerable reduction in unemployment. It is therefore clearly in the interest of all countries to continue to rigorously implement the agenda agreed in Lisbon and recently confirmed in Barcelona.
Question: From what you have just said about oil prices and the rest of your introductory statement, can you still say that you are confident that, on average, inflation will be below 2% this year and, if it is not, what are the wider credibility issues involved? Is there one for the European Central Bank?
Duisenberg: We still think that inflation will fall to below 2% later this year, i.e. in the coming months, and, on average, we still think and are confident that it will be below but close to 2%.
Question: Mr. President, the recovery again seems to be quite export-led. So, consumer confidence has not strengthened very much. Is there a risk that the audiences see the ECB as being too busy, too hawkish, to raise rates? And, when we look at the market expectations, they are expecting quite early interest rate rises.
Duisenberg: Well, consumer confidence remained broadly unchanged in March, while it has increased slightly in the first quarter of 2002 as a whole. And now, the more subdued behaviour of consumer confidence, as compared with industrial confidence, is in line with similar developments at other turning points in the cycle. Therefore, to answer your question quite frankly, we do not think that a recovery in the euro area will be predominantly export-led. It will be predominantly domestic demand that will lead it.
Question: Mr. President, two points. First, on what you refer to at the end of your statement. Do you consider as compelling for the Member States of the euro zone, for example France, the commitment agreed among the Finance Ministers to balance the budget at the latest in the year 2004...
Question:... and I would add to that: do you think, like some, that measures to achieve these 2004 goals could be avoided if they contradict the current economic impulse, if they have a negative impact for the euro zone Member States ' economies right now, that these Member States could postpone this goal? And the second point was: do you consider the reform of protection against lay-offs in the labour market in the euro zone, as planned in many Member States like Italy and as mentioned in Germany, an again compellingly necessary step to achieve this reform of the labour markets? Thank you.
Duisenberg: I do think that adhering to the goals set in the Stability and Growth Pact will enhance confidence amongst the public that governments are keeping to their plans and will, thereby, increase the credibility of economic policies as such. And the measures on the labour market that are being contemplated in various countries differ very much from country to country, but I do think it is very much of interest to restructure the functioning of the labour markets, in particular in the countries you have mentioned.
Question: Mr. Duisenberg, have you made any assessment of the potential risk to the economic recovery as a result of the higher oil prices? Are there any concerns that the rebound in growth may be delayed or weaker than you anticipated, especially since you expect the recovery to be led by domestic demand?
Duisenberg: If the recent rise in oil prices, which has been significant, persists or even continues to rise, there will obviously be risks to both inflation and output developments. But it is a big" if ''.
Question: Mr. Duisenberg, how does the ECB characterise the risks to price stability today and, as regards the month of May, is that still the month that inflation will go below 2%?
Duisenberg: I hope it is. I said" later, in the coming months ''. Well, May is one of the coming months. How do I assess the risks to price stability? The conclusion: that we regard the current monetary policy stance as appropriate, to my mind, speaks for itself.
Question: Mr. President, has the Governing Council talked about the crisis in the Middle East and what sort of dangers are arising down there? Talking about oil prices again, are there also other kinds of slowdown for the world economy and maybe the European economy?
Duisenberg: We have not.
Question: Mr. Duisenberg, in Germany people call the euro" Teuro '' because we have a lot of higher prices, especially in the service sector. Do you agree with that view and is there a risk to consumer confidence because people tend to be cautious when they see the euro prices and especially in the service sector you can see some euro prices as high as Deutsche Mark prices were before?
Duisenberg: As far as we can measure, the impact of the cash changeover to the new currency has only had a very limited impact on the overall price index on a very broad basket of prices of goods. Now, it is true that in some sectors, particularly the ones you mentioned, services, larger price increases have been observed and if you look at, in particular, the goods that are -- let me say -- closest to the hearts and the wallets of the population, i.e. the cost of a haircut or going to a restaurant, then you notice it. That may cause some -- let me call it --" bias '' in the judgement of the people, and I do hope that that effect will fade away sooner rather than later.
Question: Mr. Duisenberg, markets seemed to expect that interest rates may rise by as much as 1 full percentage point by the end of the year. Would you say that it is a realistic expectation or are they anticipating too much?
Duisenberg: What I said about the current monetary policy stance should be enough. It is appropriate and I do not want to engage in any speculation about future moves.
Question: The ECB 's Chief Economist said there were no price risks on the immediate horizon, but that, if there were, they would be on the upside. How quickly are these risks approaching and what would the main source of these risks be?
Duisenberg: We do not know. I agree with the statement that if there are risks they are mainly on the upside. To what extent and how quickly they would emerge or materialise is totally uncertain. It is too early to tell.
Question: I have two questions. Mr. Duisenberg, would it be a problem for the European Central Bank to have missed the stability target of below 2% for two consecutive years and this year as well because of the oil price and other aspects? Second question. I would like to refer to the informal ECOFIN Council, which is meeting in Oviedo. In your meeting in the Council today, did you talk about possible candidates that you might have to choose? Do you think the successor of Mr. Christian Noyer will be appointed in Oviedo?
Duisenberg: I do not want to speculate again about the possibility that inflation on average might turn out higher than 2%. As I already said in answer to an earlier question, we are confident that we will be below but close to 2% on average this year. And as far as the succession of my distinguished colleague here is concerned, I refrain, also there, from speculating. I expect a proposal maybe in Oviedo or shortly thereafter. And you will understand that the right of initiative is this time fully with the Ministers of Finance. Our judgement will come at a later stage.
Question: I have two questions. First, what do you think about Mr. Welteke 's proposal to sell part of the gold reserves of the Deutsche Bundesbank and buy some stocks instead? Could this measure also be adopted by other national central banks? And the second question is about the Italian government. Yesterday, the Italian minister, Giulio Tremonti, said that the deficit-GDP ratio would be higher than expected in 2002, namely 0.7% instead of 0.5%. What is your view on this?
Duisenberg: To take the last question first. The Italian government is one of the twelve that have committed themselves to reaching the goals set in the Stability and Growth Pact by 2003 and 2004. So, what the deficit in 2002 will turn out to be is not out of line with that intention. As far as the statement by President Welteke is concerned, I would like to remind you that he has declared that the Bundesbank may sell some of its gold stocks over the medium to long term. However, the Bundesbank is also a signatory to the Central Bank Gold Agreement, which expires only in September 2004. Thus, his statement only refers to the period after that. And then I am sure that the Bundesbank, as all signatory central banks are doing, will act in a very responsible manner.
Question: Mr. Duisenberg, Mr. Welteke has also proposed that the Deutsche Bundesbank use some of the money from the sale of gold stocks to buy equities. Do you have any objections to that idea, or are there any objections from the European Central Bank against this in terms of jurisdiction?
Duisenberg: Well, the management of both the foreign reserves and the domestic assets of any national central bank falls, beyond certain thresholds, under the guidelines and guidance of the ECB. That is one thing. And to buy equities is, let me put it this way, for many central banks not unusual.
Question: Is it your expectation that when the successor to your colleague, Mr. Noyer, is announced, there will also be an announcement concerning the successor to Ms Hämäläinen?
Duisenberg: I do not expect that. The succession of Ms Hämäläinen and -- may I add -- of myself is not yet on the agenda. That is not a short-term problem. I expect that to be dealt with in the first half of next year.