The Governing Council comprehensively examined monetary, financial and economic developments and also considered the accumulated changes in the economic outlook since its decision to lower the key ECB interest rates in November 2001. We concluded that the prospects for price stability appear to be somewhat less favourable than they were towards the end of last year. At the same time, we recognised that the economic outlook remains subject to uncertainties and that price developments partly reflect the influence of specific temporary factors. Accordingly, we decided to leave the key ECB interest rates 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 decreased to 7.5% in the period from January to March 2002, down from 7.8% in the period from December 2001 to February 2002. The high annual growth rate of M3 continues to reflect the portfolio shifts to liquid positions which occurred last autumn. In the meantime there has been some normalisation in the development of M3, as indicated by the slowdown in its short-term dynamics in early 2002. The annual rate of growth of loans to the private sector also continued to decline in March. However, M3 growth has only slowed relatively recently and, for the time being, the reversal of built-up liquidity is proceeding only slowly.
As regards the second pillar, our expectations for a rebound in real GDP growth in the euro area have been confirmed by recently published forecasts of international organisations, which all paint a similar picture. While the recovery in 2002 is expected to initially proceed at a gradual pace, real GDP growth rates in the euro area should again be in line with potential growth later this year and solid growth rates should be attainable by 2003. The more positive international environment should also help stimulate euro area exports, thereby fuelling aggregate demand in the euro area. Finally, sound fundamentals and the absence of major imbalances support the positive outlook for the euro area economy. However, there are still a number of uncertainties surrounding the strength of the current upswing, such as those related to the future development of oil prices and to the impact of existing imbalances elsewhere on the world economy
Turning to price developments, trends in inflation -- with annual HICP increases of 2.7% in January falling to 2.2% in April, according to Eurostat 's early estimate -- have been less satisfactory than expected a few months ago, not least as a result of higher oil prices. As stated on previous occasions, price developments in both 2000 and 2001, and again in recent months, have been shaped by a sequence of adverse but rather specific shocks to prices. These should unwind sooner or later and, in principle, such shocks should not affect the medium-term outlook for price stability.
However, it is essential that past upward tendencies in prices -- even though they partly resulted from a clustering of specific factors -- do not become entrenched. Recently published forecasts of price developments in the euro area, developments in indicators of inflation expectations and recent trends in wage settlements neither clearly confirm nor entirely contradict the risk of such entrenchment. At this juncture, it is therefore particularly important to remain vigilant with regard to the further evolution of the key factors determining the outlook for prices.
On the basis of current information, it is still possible that annual HICP inflation rates will fall below 2% in the coming months. However, the outcome is highly dependent on oil price developments. The rather protracted upward trend in services prices is also a factor to be taken into account. For next year, projections for price developments depend largely on the assumption of continued wage moderation. The outcome of the ongoing wage negotiations in some regions of the euro area could become a matter of concern. Excessive wage increases could create additional cost pressure with potential consequences not only for prices but also -- to an even greater extent -- for employment creation and real GDP growth.
Regarding fiscal policies in the euro area, let me reiterate the views previously expressed. It is vital that those Member States that have not already done so manage the transition to budgetary positions in balance or in surplus so that the Stability and Growth Pact can operate smoothly and effectively in future. Commitments made to achieving balanced budgets by 2003-4 must therefore be honoured by the Member States concerned.
The Governing Council calls upon Member States to make faster progress in implementing comprehensive structural reforms -- in public expenditure and revenues and product, labour and financial markets. The forthcoming finalisation of the Broad Economic Policy Guidelines for 2002 will be an opportunity both to take stock of the unfinished agenda following the agreements of Lisbon and, more recently, of Barcelona and, in particular, to accelerate the implementation of reforms. As we have said on numerous occasions, such reforms are needed to increase the growth of real GDP and employment on a sustainable basis. Past experiences both inside and outside the European Union indicate that measures to promote the efficiency and integration of markets, the encouragement of entrepreneurship and the fostering of a knowledge-based economy are clearly working in this direction and are thus in the interest of all member countries.
Question: Mr. Duisenberg, among the risks for economic recovery you mentioned existing imbalances elsewhere. Could you therefore please say what you had or have in mind and what would be the worst case scenario if these risks materialised?
Duisenberg: The main risk I have in mind is the huge and growing current account deficit of over 4% of GDP in the United States which, I am inclined to say, is a risk to the world economy. I am not, however, going to speculate about what would happen should this situation develop further. I hope it can be contained in due course because, over time, I regard it as unsustainable.
Question: Mr. President, will inflation in the euro zone still be below 2% on average this year? I also have another question on the euro. We have seen some appreciation over the last week. We have also seen that strong currencies may affect monetary policy, as in Switzerland this morning. When will the euro start affecting the ECB 's inflationary outlook and its monetary policy?
Duisenberg: I am not as sure as I was before that, on average, we will be below 2%, but we will be close to 2%. The recent sharp increase in oil prices and perhaps a somewhat greater impact of the cash changeover on the rounding of prices has made us reconsider the outlook for prices. We will, therefore, be close to 2% on average, but I am no longer in a position to state with as much certainty as I did before that we will be below this level. We have had some disappointments, may I say, but one factor that could help to attain this goal, of course, once it works its way through, is the effect of the recent strengthening of the euro, provided that it continues.
Question: Mr. President. Returning to the US current account deficit, the US government is under increasing pressure from both inside and outside ; even the ECB has mentioned it as an increasing problem, as well as the strong dollar. Would you welcome it if the Government of the United States tried to talk down or otherwise worked on bringing down the dollar from its high levels?
Duisenberg: I am not going to comment on exchange rate developments. What I am concerned about is the tendencies that may emerge, and indeed may already have emerged, towards increased protectionism, as has happened in the United States in the steel sector. Neither the exchange rate nor the current account deficit should be instrumental in strengthening these tendencies.
Question: Mr. President, did the Council discuss the question of the supervision of banks in the euro area, and what is the ECB 's stance on this?
Duisenberg: We briefly discussed it in the knowledge that the ECOFIN Council will next week probably go in the direction of taking a decision on the future co-operation of supervisory and central bank authorities. Our position is that the Treaty clearly states that the ECB 's mandate is to foster the smooth conduct of supervisory practices and financial stability by the competent authorities. Our mandate compels us to include in the discussion of the ministers the relevant provision in the Treaty, and we try to do that by incorporating our Banking Supervision Committee in the structure that will probably emerge.
Question: Mr. Duisenberg, you stressed again today that wage moderation is essential for the maintenance of price stability. Could you perhaps comment on developments in Germany in particular: would you say that developments there and wage negotiations are going in the right direction? Secondly, the April purchasing managers ' report which was released today showed the second largest increase ever in the index measuring price developments, which seems to indicate that pipeline price pressures are building up. Would you say that risks to price stability are then currently rather on the upside?
Duisenberg: I believe when I stated in my introductory remarks that the outcome of ongoing wage negations in some regions of the euro area could become a matter of concern, I think those who can hear can also listen. And I am sure that in Germany they perfectly understand what I was alluding to. Are the risks to price stability now on the upside rather than on the downside? All the remarks I made do indicate that there is a great deal of uncertainty, that we have had some, may I call them," disappointing '' developments in the area of oil prices, and of services prices in general, and therefore that, added to the wage developments that are going on here and there, I would be inclined to say that the risks are indeed now more on the upside than on the downside.
Question: Just one small question concerning the comments of Mr. Le Pen in France. He said that it would be possible to reintroduce the French franc alongside the euro, the single currency. How do you see these claims, do they worry you?
Duisenberg: I am sure that that question will not be on the agenda.
Question: Mr. President, I maybe missed it, but is the word" appropriate '' not in the statement? You usually say that the rates are" appropriate '' for the medium term, is that not in the statement and why not?
Duisenberg: We ca n't repeat the same text every time. We do regard the current monetary policy stance as being appropriate, but we also admit that the uncertainty surrounding our assessment is greater than ever.
Question: Just on the euro, it does seem to be showing a great deal more solidity than it has in the past now. I am wondering what your analysis of that is? Do you see it as a fleeting dollar weakness, or do you hope that this might mark a fundamental change in market sentiment? Furthermore, if there is a more rapid depreciation of the dollar or an appreciation of the euro, will this pose risks for both growth and possibly even deflation?
Duisenberg: I would not speculate on a more rapid development of whichever exchange rate, as you can understand. A continuing appreciation, or even a continuation at the current level, will help us at least in keeping inflation under control. And that is a good thing. And I do not believe that it will have, as far as it has gone now, any impact on the real economy developments, on output and export capabilities. As to your first question on whether the current solidity of the euro marks a change in market sentiment, well, I hope it does. But I have to admit that, because the relationships with other currencies -- sterling, the Swiss franc and the Japanese yen -- have not changed to the same extent, it is more a dollar weakness than a euro strength.
Question: Two questions. First of all: M3. The three-month average rate is still 7 1/2%, while the reference value is 4 1/2%. Now, in May, you are saying that the main reason for this was uncertainty at the end of last year, but this is not absolutely convincing because bond markets and stock markets have become more attractive in recent months. Second question: Have you reached a consensus in the ECB Council concerning its structure once enlargement occurs, because you will have to agree if the ECB wants to make a proposal, as this will have to be prepared.
Duisenberg: I also said in my introductory statement that if you look at the short-term dynamics, then the rate of M3 growth is coming down much more rapidly than is clear from the annual comparisons. Indeed it is coming down very moderately, very slowly, but it is in any rate coming down, and we will not stop looking at M3 as a symbol for all monetary developments. We use M3, but we also look at M1, credit to governments, credit to the private sector, etc.. However, we can not encompass all the monetarily relevant phenomena in just the one concept of M3. So, you have to look at it as a symbolic entity. As to your second question, we have not discussed it at all today. We are still in the process of coming up with a proposal which can be unanimously approved by the Governing Council.
Question: President Duisenberg, can you explain how the ECB monetary and interest rate policy is perceived in your country? You have 4.5% inflation. The question of all questions is how you can improve that in the Netherlands, with the policy you have. What can be done on average in Europe? I do not have to explain this to you. What do we do in Europe if inflation is high, for example, in the Netherlands? I am particularly interested in the case of the Netherlands as you yourself are from the Netherlands.
Duisenberg: I have to say that in my home country, the move towards a relatively high rate of inflation has been very much initiated by a specific factor, namely the increase in indirect taxation, which in itself was -- and now I am speaking as a Dutchman -- a highly sensible and welcome measure in changing the tax structure. Only the timing could not be foreseen but came at a very unfortunate moment. As in all countries, there will be inflation differentials among the various regions all the time, just as there are in the United States, but then there will also be forces at work to diminish those differentials. We saw this two or three years ago, particularly in the case of Ireland, and that situation rectified itself, as it will indeed do here.
Question: Reading your statement today, I have the impression that you are less optimistic about growth than some months ago. Is this the case?
Duisenberg: No, this is not the case. I still believe that we will reach the potential growth rate of the euro area -- which we estimate to be between 2 and 2.5% -- towards the end of this year and that next year we will even surpass it. So we are no more or no less optimistic.
Question: Are you not concerned by the way the German economy is developing, which is less optimistic than was thought to be the case a couple of months ago and do you think that...
Duisenberg: When I talk about these things, I indeed take a euro area perspective. I talk about the outcome of an analysis which we are constantly making of the euro area as a whole, and that includes our assessment of the developments in individual countries such as Germany.
Question: But Germany is not Luxembourg.
Duisenberg: There you are totally correct.
Körber: Ladies and gentlemen, given that there are no further questions, the President would like to say a few last words.
Duisenberg: Thank you very much ladies and gentlemen. I would like to take this opportunity to thank most of all my colleague sitting next to me, Christian Noyer, who is attending his last press conference in his capacity as Vice-President. I would like to thank him for the unrelenting support and co-operation he has extended to my colleagues and to me in particular. Christian, thank you very much. I believe I can say this on behalf of the press as well.
Noyer: Thank you.