ECB press conference transcript with highlighted dictionary words

Date: 2003-05-08

Introductory statement

The first news I can report is that today we successfully concluded our discussions of the ECB 's monetary policy strategy. However, I would ask you to postpone any questions you may have on this subject to a little later this afternoon. A press release will be issued on this matter and Mr. Issing will join us for a special press briefing in the form of a seminar on the outcome of our discussions. This seminar will take place in this room immediately after the press conference. You will also note that, as a consequence of the conclusions we reached, I have restructured today 's introductory statement somewhat, and I will be following this new structure in the future. The introductory statement will henceforth present first economic analysis, followed by monetary analysis. It concludes by cross-checking the analyses conducted under these two pillars.

Turning now to our discussion of monetary policy, we have decided to keep our key interest rates unchanged. Taking due account of new economic and monetary information as well as the latest geopolitical developments, we concluded that the current monetary policy stance remains consistent with the preservation of price stability over the medium term. At the same time it maintains a monetary environment that is conducive to economic growth. With the end of the military action in Iraq, important downside risks to the economic recovery have diminished, and our focus is now again on the other forces that have been shaping the economic outlook. The Governing Council will carefully monitor future developments and assess whether conditions for price stability continue to develop favourably.

Let me explain our assessment in detail.

In the context of our economic analysis, focusing on the short to medium term, recently published survey data and the latest information from conjunctural indicators suggest that economic activity in the euro area has remained subdued so far this year. Looking ahead, we continue to expect a gradual strengthening of real GDP growth to start later in 2003 and to gather more pace in the course of next year. Factors supporting this outlook are an expected recovery of global demand, the prospect of falling inflation benefiting real disposable income growth, and the low level of interest rates. Moreover, the recent unwinding of uncertainties associated with geopolitical tensions should contribute to an economic recovery. Such an assessment also seems to be reflected in recent financial market reactions. Since the end of the war in Iraq, financial market volatility has declined significantly, with a notable increase in stock prices.

Nevertheless, there continue to be downside risks. First, there are the risks originating from the past accumulation of macroeconomic imbalances outside the euro area, and lately concerns have arisen with regard to the SARS virus. Moreover, there is also some uncertainty over the extent of the adjustment still needed in the euro area corporate sector in order to enhance productivity and profitability, which could have an impact on employment growth and thus private consumption.

As regards price developments, the annual rate of HICP inflation generally fluctuated at around 2.3-2.4% between the autumn of last year and March 2003. Broadly speaking, declining inflation rates in services and non-energy industrial goods have been offset by rising rates in energy and processed food prices. Conversely, in April energy prices are expected to reflect the decline in oil prices following the developments in Iraq. This expectation is in line with Eurostat 's flash estimate for the inflation rate in April, which was 2.1%, i.e. 0.3 percentage point lower than in March.

Looking ahead, current indications do not point to further strong declines in the inflation rate in the immediate future, but lower oil prices, an environment of moderate economic growth and, of course, the effects of the significantly higher exchange rate of the euro should all contribute to reducing inflationary pressure beyond the short term. The outlook for inflation will also depend to a significant extent on wage developments. The available indicators suggest that labour cost growth has shown signs of stabilising in the course of 2002. Moderate wage trends are indeed crucial both to maintain price stability and to foster employment growth.

In the context of our monetary analysis, focusing on the medium to long term, the broad monetary aggregate M3 has now been growing strongly over a protracted period. Moreover, the data for more recent months do not suggest that a process of correction has started. As a consequence, the euro area economy continued to accumulate liquidity significantly above the amount needed to sustain non-inflationary growth The strong monetary expansion contrasted with the more moderate growth in loans to the private sector. This is consistent with our assessment that monetary developments continue to be fostered by portfolio shifts, reflecting a sustained preference on the part of investors for liquid and secure assets in an environment of high uncertainty. However, the low level of interest rates has also contributed to strong monetary growth.

When interpreting monetary trends, particular account needs to be taken of the portfolio shifts towards increased demand for monetary assets for precautionary reasons. The reduction in geopolitical tensions should support an unwinding of these portfolio shifts. A reversal in monetary trends would in any case dampen the concerns regarding the medium to long-term implications of recent monetary dynamics. As a consequence, monetary developments will continue to be monitored closely.

Overall, it currently appears that inflation rates should decline to below 2% over the medium term, in particular given the outlook for economic activity and the significant appreciation of the euro. It also appears that the strong expansion of M3 should not adversely affect this outlook, as portfolio shifts have played a prominent role ; in particular, the build up of liquidity should not translate into inflationary pressure as long as economic growth remains modest. Hence, cross-checking the information from the two pillars leads us to conclude that the risks to price stability over the medium term remain limited.

Regarding fiscal policy, developments in 2002 were generally not satisfactory. In particular, countries that had not achieved sound fiscal positions in earlier years when the economic conditions were more favourable are now struggling to keep their budgets under control. Looking ahead, it is crucial to underpin the fiscal policy framework with decisive action, strong peer pressure and consistent implementation of the rules of the Treaty and of the Stability and Growth Pact. Countries should maintain budgetary positions close to balance or in surplus over the cycle, and, where this is not yet the case, take the required structural consolidation measures. This also creates the necessary room for the operation of automatic stabilisers. At the same time, governments are advised to place the emphasis on growth-oriented consolidation policies that strengthen the productive forces of the economy. By strengthening confidence, a credible medium-term fiscal consolidation strategy will also support economic growth in the short term.

Finally, structural reforms are essential to increase the euro area 's growth potential and enhance its ability to better withstand external shocks. Indeed, such reforms, which should aim to reduce rigidities in labour and goods markets, could significantly strengthen the degree of resilience of economic activity to such shocks, both in the euro area as a whole and in its regions. Renewed momentum in the process of structural reform will be important to foster consumer and investor confidence in medium and long-term growth and employment opportunities in the euro area. This, in turn, should also have a positive short-term effect on spending and investment decisions in the euro area.

Questions and answers

Question: President Duisenberg, you said that you expect inflation fall to below 2% in the medium term. Can you tell us whether you are becoming more pessimistic that that will happen this year, or by the end of this year? And, can you tell us a little bit about how big a risk you think food prices are for inflation? And my second question would be: at the last press conference you said that the twin deficit in the United States could, if it is sustained at the current level, make our lives more difficult. What exactly did you mean by this and are you worried about the effect of the exchange rate of the euro against the dollar?

Duisenberg: Whereas earlier this year we expected inflation to fall to below the upper limit of 2%, we now, due to the recent increase in oil prices, and in food prices, expect that not to happen before around the end of this year. And we also expect inflation as from then -- everything else remaining unchanged, of course -- to remain at around that level for some time to come. But that is looking really far ahead. On food prices: are they significant? Yes, they are significant. They are part and parcel of household spending. But I can not assign greater significance to food prices than to all other factors that influence the consumer price index. The twin deficit has emerged, I might say, and we do hope that the inevitable adjustment which has to take place, and which will take place over time, will occur in an orderly and gradual manner.

Question: Can you give us some idea of how extensively was an interest rate cut discussed today? Was it even considered and what were the most compelling reasons for not cutting rates, especially since, as you pointed out in your statement, the downside risks continue to be there?

Duisenberg: Well, as always, it was discussed extensively, the monetary policy stance as such. And the reasons for not changing rates were manifold today. We need more information, we need more information on whether recent developments -- in particular, I am also thinking about the exchange rate here -- will continue or peter out. Or will they even reverse? We do not know yet. We have to have more information -- we have to know more. We do have one bit of new information -- which we basically knew already -- namely that it will take inflation longer than originally expected to fall below the threshold of 2%. All the reasons indicated, I might say, to still wait a while.

Question: I would like to ask a follow-up to that question. Are you at all concerned about the risks of inaction when compared with the risks you have described, which appear to be really rather vague in terms of, simply, that you must wait until you know a little bit more. You have not actually identified a specific risk involved in making a move now, whereas there would appear to be quite severe risks involved in your inaction?

Duisenberg: We have, of course, considered risks. We always consider risks, but there is no risk of inaction. I would like to point out that deciding to keep interest rates unchanged is also an action.

Question: I would like to know how you would respond to those people in the markets, and elsewhere, who take the view that the ECB has so consistently underestimated the weakness of the euro area economy and has so consistently overestimated inflation pressures that you are now a very long way behind the curve?

Duisenberg: Well, I do not know whether we are that long behind the curve. I believe that this underestimation of growth prospects is -- I am almost inclined to say -- a worldwide phenomenon. It is not only happening here. So, that is not the cause of particular concern.

Question: Mr. President, is a strong euro already a matter of concern for the Governing Council?

Duisenberg: Well, twice in my introductory statement I talked about the significant appreciation of the euro. One can say that the euro -- at the moment -- is about at the level which, as we also said in Greece, better reflects the fundamentals and it is roughly at average historical levels. So, there is not yet anything excessive about the level. The speed at which it is strengthening is almost equal to the speed at which it declined two years ago. And that is a matter which we will closely watch in the near and more distant future.

Question: I wonder if I could ask. Obviously, you have mentioned many times the need to keep bringing inflation down to below 2%, to the target or below. I wonder whether you are detecting any concerns in any parts of the euro area economy about deflation, whilst also having your eye on the inflation target?

Duisenberg: We also read our newspapers and we see that here and there the word" deflation '' is re-emerging. We do not share this fear for the euro area as a whole. But may I refer the remainder of your questions to the second part of this press conference. First of all, I protest against the word" target ''. We do not have a target, as you know and -- as Mr. Issing will explain later -- we wo n't have a target. Well, let me leave it at that.

Question: Mr. Duisenberg, did you discuss yesterday evening or maybe today about the draft for the new constitution from the EU Convention. Because there the Eurosystem is not mentioned, only the ECB. And another point about the status of the ECB: did you discuss this and are you dissatisfied or satisfied with it?

Duisenberg: We did discuss it in today 's meeting. But we have not drawn any conclusions. You have to remember that neither the ECB nor the Eurosystem is a member of the Convention. So, what information we get we get in an informal way and sometimes we respond in an informal way. And, on the whole, let me say we were not shocked by the draft Constitution.

Question: But you were not pleased either?

Duisenberg: Well, that varies from participant to participant in the discussion.

Question: Mr. Duisenberg, I learned from central bankers, from national central bankers, that there are two lines of conflict actually concerning Article 21, that the Board would like to accept Article 14 because Article 21 means that the status of the ECB, the ECB as the one institution, gets a higher ranking on account of the formulation in this draft. They are very dissatisfied with this and they want you, Mr. Duisenberg, to write a letter to clarify this, saying that the Eurosystem is not satisfied with these two articles. Now, did you find a solution? Is that going to be a continuing fight or did you find a solution within the Governing Council?

Duisenberg: First of all, I would dispel or do away with the argument that there would be a rift between the Board members and the other members of the Governing Council. Then, the discussion has not been concluded yet. In Article 14 of the draft Constitution it is mentioned that from then on, when the Constitution becomes law, the ECB would be regarded as a so-called European Union Institution, which it is not now. We are still studying that and we agreed that we will come back on that issue at a later stage. After all, you have to remember that once the outcome of the Convention, the draft for the new Constitution, has become the subject of the Intergovernmental Conference then the ECB will be asked for an advice or an opinion, or is entitled to give an advice or an opinion. At this stage, we are not at all involved. On Article 21, we have a slight preference -- the whole Governing Council has a slight preference -- to drastically shorten and make more precise the wording of Article 21, where it describes the tasks and functions and mandate of the ESCB and the ECB, implicitly therefore also all the Eurosystem. That can be phrased, we believe, much more elegantly and concisely, whereas our main concern -- that of the entire Governing Council -- is that the Convention 's proposal should in no way change anything in the mandate, in the independence, in the legal position, in the power to issue regulations of the Eurosystem, the ECB, and the ESCB. And we will make these views known to the Praesidium of the Convention.

Question: Mr. Duisenberg, you said that you expect growth to pick up later this year. Is that different from what you had been saying earlier, that you expected growth to pick up in the second half of this year? Is growth this year going to pick up later in the year than you had initially expected?

Duisenberg: It is no different.

Question: And the 1% growth expected for this year -- does that still hold, do you still expect that?

Duisenberg: That is still about the figure we have. But as you know, we are in the process of undertaking a new forecasting exercise. Those projections will be concluded and published in June. I can not already say now what the outcome will be.

Question: I have two questions. I do not know if I heard that you said that the rates are appropriate.

Duisenberg: I said the same as I said last time: that they are consistent with the present economic stance and economic situation.

Question: That leads me to think that your position is more neutral, or are there more risks on the downside?

Duisenberg: I would not qualify it as that. I would advise you, once you have it, very carefully to read again what I said in my statement. I will leave it to you then to interpret it and to draw your own conclusions.

Question: My second question is about the euro. An international investment bank has said that the euro has appreciated 27%, starting from October 2000, and that this equals an increase of about 180 basis points in interest rates. Do you agree with that?

Duisenberg: I do not have those figures in mind. I simply do not know them. But I would like to repeat that, at the moment, the international price competitiveness of euro area exporters -- when measured on the basis of real effective exchange rates -- is near the historical averages. And this is a development which we have always expected, and which we welcome.

Question: Mr. Duisenberg, the strong monetary growth of M3 is not a risk for price stability. Is it a risk for financial stability? Can it build up a new bubble in some asset markets or in the real estate market?

Duisenberg: We have no indication of that building up. But then, as Mr. Greenspan used to say, it is very difficult to predict a bubble.

Question: Professor Issing, what does" close to 2% '' mean in the definition of price stability? Is it a little bit less than 2%, on average, in the medium term or is it a pure inflation target now?

Issing: Certainly not. We have confirmed our two-pillar approach. This is totally different from what is normally seen as inflation targeting. And second, this" close to 2% '' is not a change, it is a clarification of what we have done so far, what we have achieved -- namely inflation expectations remaining in a narrow range of between roughly 1.7% and 1.9% -- and what we intend to do in our forward-looking monetary policy.

Question: I have a follow-up question. You aim to maintain inflation rates close to 2%. Mr. Issing, some time ago you said publicly that inflation rates below 1% over the medium term are a problem, or could be a problem. Does this mean that we are now dealing with an implicit lower bound of 1% as a formalisation of what you have actually been doing over the last couple of years?

Issing: I think that what has certainly not changed, and what was always in our minds, is that if we were to identify a risk of inflation approaching very low levels on a sustainable basis and threatening to fall below 1% in a persistent way, then we should of course be extremely concerned. With our clarification now, that we aim to keep inflation at close to 2%, I think it is clear enough that we are not blind in the eye which identifies deflationary problems. We have both eyes -- as Paul Samuelson said in a slightly different context -- watching deflationary as well as inflationary developments.

Question: Mr. Issing, I am a little slow on the uptake. I am sorry, but I simply do not understand your distinction between ''... the definition of price stability is confirmed... '' and the second point ''... we aim to maintain inflation... ''. That was my first question. I have to communicate it, I have to write it, and I have not understood it.

Question: do you still need the distinction of two pillars or will the first pillar in the future be your economic analysis and the second pillar your monetary analysis? In other words, could we actually skip the term" pillars ''?

Question: And the next question is: if I have understood you correctly, it seems to me that you are going to be less transparent about what you are analysing in your monetary analysis as you are no longer going to publish the reference value. What do you share with the public under your former first pillar?

Issing: I am glad to contribute to your article. First, we did not say that we will no longer publish a reference value. But we will discontinue the practice we have adopted so far, namely that of the Governing Council reviewing the reference value in December each year. What is behind that? It is mainly that there was a misconception that the yearly review would lead to a yearly reference value indicator, a kind of normative indicator for the development of money. This was never intended. It was a" timeless '' concept right from the beginning. A yearly review in this context has perhaps led to some confusion. So what we will do is not skip the reference value ; we are keeping it. But this will be monitored and if there are changes, for example in the trend of potential growth -- hopefully in the upward direction -- in the euro area, which is badly needed, then this will have consequences for the reference value. But this might or might not happen. And when the time comes, then we will do it in a more technical way and not in this preannounced procedure that gave rise to expectations which were never intended from our side.

Issing: On the two-pillar structure, I am a bit surprised by your question because this is the core element of today 's confirmation. What we do in the changed format of the introductory statement, and perhaps you could again see this as I think it reads much better now, is that we start with more short-term developments in the economic analysis part and then move finally to monetary analysis with a focus on medium to long-term elements, before organising the cross-checking. This remains exactly the two-pillar approach which is specific to the European Central Bank, which gives weight to monetary and to economic analysis, avoiding the impression that all the assessment comes from one single approach. The final assessment is indeed a single one, but the approach is based on two pillars. And I think we make this process very transparent. This still gives money a very prominent role in the assessment of risks to price stability. Sometimes critics argue that we should combine both assessments into one single assessment or one pillar, or whatever you might want to call it. I think that anybody who can solve this problem of integrating money into the usual models deserves the Nobel Prize. So far there has been no approach which, in a satisfactory, comprehensive way, combines monetary and the usual economic forecasting analysis. And so, we are keeping this two-pillar structure unchanged. But I think we have clarified our communication.

Issing: Finally," close to 2% '' clarifies what we have done so far, what we have had in mind so far and what we will try to continue to achieve, and if the next four-and-a-half years are marked, as were the past four-and-a-half years, by inflation expectations of below 2%, in a range of 1.7% to 1.9%, I think that this would be a result that perhaps nobody would have expected before the euro was introduced.

Question: A question to the three of you: with the definition of price stability you released today, namely to maintain inflation rates close to 2% over the medium term, would you have had a different monetary policy in the last four years?

Duisenberg: No.

Question: So we do not expect any changes in the future?

Duisenberg: That I can not say for the future, but for now the answer is no.

Question: My question concerns the reference value of M3. How often will it be reviewed: on an annual basis or in the medium term? How often will it be published? If you look back over the last four years, what would be the appropriate reference value?

Issing: I think that it was appropriate for the past, otherwise we would have changed it. But for the future, I do not know. What we have discovered is that this annual review apparently causes misunderstanding and confusion. We should not specify any horizon within which the reference value should be reviewed. Changes in the trend velocity of money and in potential growth are dependent on factors which are not, so to speak, connected to the calendar year.

Question: Can I then draw the conclusion that we should expect the current reference value to be maintained for rather longer than only until December?

Question: I do not know if you have actually said this before -- do you plan to conduct further strategy reviews of the whole strategy, not just M3, in future? Will this become a regular thing?

Issing: I do not know if this procedure will become regular. My term runs for another three years and I do not expect another evaluation within that period. We are somewhat exhausted and need some recreation now. These studies which support the final decision by the Governing Council can not be done every day and it would not make sense to do so. We have looked at and assessed so many aspects, for example ranges, point targets and focal points. You will find all that information in the background papers and I do n't think it makes sense to repeat the process within a very short horizon.

Issing: On the reference value, I do not know. We will, of course, assess potential growth in the euro area and will continue to study stability of money demand. In this context, one of the results in both cases will be that we have new estimates on potential growth and on trend velocity. If these developments indicate a major, sustainable change, then we will have to consider reviewing the reference value. When this will happen, I do not know.

Question: Professor Issing, you have obviously gone to a lot of trouble to produce this review, but could you explain exactly what difference it is going to make to the way you formulate monetary policy? Will it, for example, make it easier to cut interest rates? Or is it all really a question of presentation?

Issing: First, it was no trouble. It was not always pleasurable, but it was fascinating and, for somebody with my background, it was a very challenging aspect of my work, and co-operation with our experts is always very enjoyable. The word" trouble '' is certainly not appropriate in this context. But as the President has already said, even if we had had the same clarification back in 1998, our policy would not have been any different. So I do not expect -- and there is no reason to expect -- a different monetary policy on the basis of the clarification of the strategy, which was decided on today.

Question: What was the point of it then?

Issing: If you are married and after four years of a happy married life, perhaps one evening you sit together over a glass of wine and think about why you are so happy all the time: nobody would say it does not make sense. -LSB- Laughter -RSB- But, to be a bit more serious, there was a lot of criticism and we do not ignore criticism. We only ignore unsubstantiated criticism. There were many aspects raised by many papers with interesting questions and we had to study, for example, ranges: are they more successful in guiding inflation expectations? The outcome was" no ''. If you compare our policy results with those of other central banks, we can not complain -- this was an important result -- but we do not just rely on our conviction that we are the best. We want to see our results confirmed by studies. And you have to study stability of money demand. It is not a question or law of nature. It depends on developments in financial markets, etc.. So, all the background discussions conducted were useful and necessary and, from time to time, I think it is necessary for any institution to ask itself," are we on the right track? '' This does not mean that you start from a point of uncertainty: you simply want to be more certain that you are on the right track and this, of course, can only be done at large intervals.

Duisenberg: Let me repeat that we wanted to improve communication. A central bank has to have confidence and credibility. You only get that when you are being understood by the public and by the markets. In order to be understood, you have to explain. So, to a very large extent, this is indeed a method. It is an effort on our part to be better understood than we were in the past.

Question: Forgive me, Professor Issing, if I have missed something, but what is the clarification regarding the 2% inflation reference? I thought it was 2% before and now I see this 2% figure again. What is the clarification regarding the inflation value? What is different now?

Issing: We stated that we are satisfied with the outcome of an inflation rate of below but close to 2%. At the same time, this means that we have an adequate safety margin to alleviate any concerns about falling into the trap of deflation ; or about dealing with measurement bias. This is all included now. So I think again, we have clarified what we always had in mind. Perhaps we have previously not communicated it successfully enough.

Papademos: If I can elaborate a bit on this issue. I think it is useful to focus on the role of the monetary policy strategy. It serves two purposes, it has two roles: first, to help decision-making and, second, to facilitate communicating this decision. Today 's clarification helps to this end. In the past there has been some uncertainty and some criticism about the exact aim of monetary policy within the quantitative definition of price stability adopted. We have confirmed the definition of price stability. At the same time we have clarified that, within that definition, the aim of our policy will be inflation close to 2% from below. Ex post, one could say that the policies pursued over the last four years have shown that this was indeed the strategy pursued. Now this is clarified and this should help us to communicate our monetary policy decisions. So I think this is the essence.

Question: Does it mean there was an informal aim of 1.5%, or was there uncertainty about a range of 1.5% to 1.7%, and now you have clarified that it was between 1.7% and 1.9%.

Papademos: No, there was no such decision.

Question: Now that the evaluation process of the strategy is over, could you elaborate a little bit more about the different points of view among the Governing Council Members about this important issue in the last few months? Could you mention a few points where it was particularly difficult to reach agreement in the Governing Council? Do you think the new strategy will allow the Governing Council to reach monetary decisions quicker in the coming months?

Duisenberg: The last point is basically the same as the question that was asked earlier: are you not behind the curve in coming late with decisions. As Professor Issing has explained, we do not explicitly have an activist, short-term-oriented policy. We do not want that. So we will not reach decisions quicker or slower, if decisions are warranted at all. As far as the first part of your question is concerned, I would like to assure you that the discussions we had did not, of course, immediately lead to a unified view. But the decision taken and confirmed today was made with a strong consensus view in the Governing Council. That does not mean that there were no differing views. There were, but they were also going in different directions. For example, on the formula of the definition itself: maintaining price stability is defined as a rate of inflation of below 2%. There were those who pleaded for an even tighter interpretation. There were others who pleaded for a looser interpretation. In the end we all agreed that we would have a big credibility problem and would even create our own credibility problem if we were to change the definition. And so we quickly reached consensus that there was no need, and that it would even be dangerous, to change the definition. It would have been remarkable if, in a discussion involving 18 participants, we had all had our noses pointing in the same direction from the outset.

Question: Professor Issing, whatever you say to the contrary, there are bound to be those in the markets who look at this new 2% formulation and say, this is opening the door to possibly looser monetary policy in the future, so I would just like you to categorically dispel that idea.

Issing: I dispel it.

Question: There was something which I did not understand. I think Professor Papademos said that close to 2% does not mean absolutely 1.9%. The definition is close to 2% from below. Given this, now that you acknowledge you want to have a safety margin to avoid going into deflation, I have the impression you have a sort of corridor in mind. Does it mean, for instance, that 1% is the deflation point at which you start being afraid? Second, many economists have had problems with this definition of below 2%. How do you solve the problem of keeping inflation close to 2% from below when some countries, such as Germany, may be sent into deflation. Also, some sectors may be sent into deflation because services usually grow at a faster pace than other sectors. So how do you solve the problem of other sectors which can go into deflation?

Issing: The concept of deflation is not question of sectors and countries, it is a question of the monetary area. In all large monetary areas in the world, you have regions with low and even sometimes negative developments in prices, and others with higher price developments. This is not specific to the euro area, but it has nothing to do with deflation. Deflation is a concept related to monetary policy for the average of the whole monetary area. Sectoral price developments are a question of relative prices and it is quite normal that, for example, in the computer sector or telecommunications, you have extreme price declines: it is part of everyday life. It is a question of relative prices of a market economy. This is totally different from the concept of deflation and, as the Vice-President has already indicated, and as I have tried to explain, we did not have a corridor before and we do not have a corridor now.

Duisenberg: In the 16 years that I was the Governor of the central bank of the Netherlands, there were two years in which we had deflation of 1/2%. I publicly declared then that I lived in a central banker 's paradise ; as long as the others have more inflation, it is not a problem.