Following our regular economic and monetary analysis, we continue to judge the current stance of monetary policy as appropriate to preserve price stability over the medium term. Accordingly, we have decided to leave the key ECB interest rates unchanged at their low levels. The available indicators point to an ongoing economic recovery in the euro area. This assessment has not fundamentally changed. Although recent exchange rate developments are likely to have some dampening effects on exports, export growth should continue to benefit from the dynamic expansion of the world economy. Import price developments in the euro area should become somewhat more favourable, thereby helping to contain inflationary risks. We will continue to carefully monitor all developments that could affect our assessment of risks to price stability over the medium term.
Let me now explain our decision in more detail.
Starting with the economic analysis, recently available indicators confirm that world economic growth is progressing. For the euro area too, the latest information on production and confidence is consistent with an ongoing recovery in economic activity, and the momentum for growth should strengthen in the course of 2004. This assessment is supported by all available forecasts from official and private sources, as well as by developments in the financial markets.
On the external side, recent exchange rate developments are having a negative impact on the price competitiveness of euro area exporters, but thus far this should be partly compensated for by the ongoing expansion of global demand. Overall, euro area exports should therefore continue to grow. On the domestic side, investment growth should benefit from the ongoing adjustment efforts of firms to enhance productivity and profitability, as well as from the low level of interest rates and generally favourable financing conditions. Private consumption should receive support from real disposable income growth, partly due to favourable effects on terms of trade and inflation stemming from the past appreciation of the euro.
The short-term risks to this outlook remain balanced. Over longer horizons, the uncertainties continue to be related to persistent external imbalances in some regions of the world and their potential repercussions on the sustainability of global economic growth. This is a challenge to be addressed by sustainable macroeconomic policies and structural reforms which foster a sound balance between savings and investment in all major partner countries, enhance the production potential in the euro area and support a further expansion in trade of goods and services at the global level.
With regard to price developments, HICP inflation rates over the short term are still expected to fluctuate around the 2% level, following a rate of 2.1% in December, according to Eurostat 's flash estimate. As I have explained on previous occasions, adverse food price developments, the evolution of oil prices and increases in indirect taxes and administered prices have all adversely affected the short-term outlook for inflation.
However, in the course of this year we expect inflation rates to fall and to remain in line with price stability thereafter. This expectation is based on the assumption that wage developments will remain moderate in the context of a gradual economic recovery. Moreover, the past appreciation of the euro should dampen price pressures. These views are also reflected in the available forecasts and projections. We are, of course, fully aware of the conditional nature of these forward-looking exercises and therefore bear in mind all elements of risk to the outlook for price stability. In the same vein, we continue to closely monitor inflation expectations.
Turning to the monetary analysis, the strong monetary growth of the last few years means that there is significantly more liquidity available in the euro area than needed to finance non-inflationary growth. At the same time, the growth of loans to the private sector has been rising over recent months, benefiting from the low level of interest rates and the general improvement in the economic environment.
In our view, the accumulation of excess liquidity should not be of concern for price stability as long as the economic recovery is gradual. However, should excess liquidity remain high once there is a significant strengthening of economic activity, it could lead to inflationary pressures over the medium term. We will therefore carefully examine monetary developments as they unfold.
In summary, the economic analysis continues to indicate that the main scenario for price developments in the medium term is in line with price stability. This picture is confirmed by cross-checking with the monetary analysis.
Concerning fiscal policies, 2004 will be a crucial year for strengthening the credibility of the institutional framework and confidence in the soundness of public finances of Member States across the euro area. Together with the Treaty provisions, the overall fiscal framework of the Stability and Growth Pact remains of central importance and must be fully respected. These are the foundations for trust and confidence in EMU. They are key not only to stability but also to growth, and are a precondition for preserving low risk premia in financial markets. We therefore strongly urge governments and the ECOFIN Council to live up to their responsibilities and to the commitments they made last November.
Finally, the Governing Council strongly supports ongoing efforts by a number of governments to proceed with structural reforms -- in the fiscal domain, and in labour and product markets. Building on what has already been implemented, further reforms are required to make the euro area economy more flexible, to allow a better allocation and utilisation of capital and human resources, and to enhance the euro area 's growth potential. The process of structural reform would be greatly enhanced if social partners were to fully commit themselves to the objective of making the euro area a more dynamic, innovative and competitive economy. Such common efforts should help to better communicate to the public the benefits of effectively responding to the main challenges of the euro area: bringing down the high level of structural unemployment, enhancing the production potential, increasing productivity, reducing the inefficiencies of the tax system as well as preparing the health and pension systems for the ageing of the population.
Question: Do you think it would be wise or helpful for the Commission to go to court over the finance ministers ' action in November? And, secondly, what would you like the Irish Presidency to do about the Stability Pact? Should they start the process of reform or simply do nothing and hope for the best?
Trichet: To reply to your first question: as you know, Commissioner Solbes was with us and we were informed of his views and of the procedure which takes place in Brussels, inside the Commission. We took note of what we were told. And, at this stage, we consider that each institution has its own responsibility to bear. We have no position on what has been envisaged in this respect. We consider it a very important matter, a very important question, and of course, we will continue to meditate -- if I may put it like that -- but it is not our own responsibility. And we took note of what we were told. We have no particular message for the Irish Presidency. But the President of the Eurogroup and of the ECOFIN was here, as I have said. He expounded his own views and I will only refer, if you permit, to our own position, which is that the Stability and Growth Pact exists. The letter and the spirit of the Stability and Growth Pact exist. We already said that. This is not, if I may say, a scoop. We consider that there have been commitments which were made in the decision -- which was taken by the Council, commitments by two countries, commitments by the Council itself -LRB- by the qualified majority of the Council -RRB-, namely that if these commitments were not met then the procedure envisaged in the Stability and Growth Pact would be implemented. We already said that. And I can reiterate that today of course. It is a position which is very well known by everybody, including the Irish Presidency.
Question: Is the continued strengthening of the euro putting political pressure on the ECB to take a more activist role in promoting growth? And, if so, how is the ECB responding to that?
Trichet: As you know, we have a concept of monetary policy which has been explained, clarified recently, which undergoes an economic analysis, and then a cross-checking -- as I just mentioned -- with the monetary analysis. And our monetary decisions are based upon this overall implementation of our monetary policy concept. In our economic analysis, we introduce all elements, all factors, that have a bearing on the situation, and -- as I said several times on behalf of the Governing Council -- we are not the prisoner of an equation, we are not the prisoner of a system of equations, we are not the prisoner of an algorithm which would dictate our conduct and behaviour. We take, I would say, all pertinent information -- all pertinent analyses -- and we make a judgement. And, of course, exchange markets and movements in the exchange markets are part of the input into our overall analysis, which is entirely devoted to ensuring price stability -- as we have been given that mandate by the Treaty and as it is very, very important, as I have always said, for growth. Because by anchoring a low level of inflation in the years to come, and not in the medium term but also in the long term, we pave the way for this favourable financial environment which is conducive to growth. So, exchange markets come into our analysis as part of the input which needs to be examined when we devise our own position. As I said, we have an impact of exchange markets in our analysis, I mentioned this on behalf of the Governing Council several times in my introductory statement, and it is part of a much more complex set of inputs.
Question: Mr President, I suppose you would not like to comment on the level of the exchange rate of the euro to the dollar, but perhaps you could tell us whether you have any concerns about the dynamics of the movement of the exchange rates. Are there any particular risks arising from these?
Trichet: I will only say that, like all central banks, we have a stake in financial stability. By this I mean stability in general, and it is clear that we do not particularly like excessive volatility or excessive turbulence.
Question: When you say that you do not like excessive volatility in the exchange rate, does that apply to the recent shifts you have seen in the euro? And my second question is, in your opinion, to what extent is the euro 's recent appreciation a result of a refusal of some central banks, perhaps in Asia, to respond to the preferences of the Dubai statement on exchange rates?
Trichet: Well, I shall let you judge whether I am addressing recent events or less recent events when I say that we do not like excessive volatility on the exchange markets.
Question: Do you consider the fact that the euro is beating a new appreciation record, every other day a sharp movement and, if so, are you satisfied with this?
Trichet: As I have said, we have a stake in financial stability and in stability in general and we have no particular preference for excessive volatility or excessive turbulence.
Question: Yes, but in Dubai you said that there would be a response to any sharp movements in the currencies. So which kind of response can we expect from the central bank?
Trichet: I have no memory of having commented in that way the Dubai communiqué.
Trichet: Question -LRB- Translation -RRB-: Your predecessor said" The euro is me, I am Mr Euro. '' So the question still needs to be asked: are you satisfied with the present level of the euro and the current dynamics of the euro? My second question is a more practical one. At present, opinion polls show that there is a growing mistrust in the euro. In France this morning 's Nouvel Observateur states that 56% of the French population think that the euro is bad and that it has had inflationary pressures, and the same is true in many countries in southern Europe, for example in Greece or Italy. Is that not worrying, because any mistrust in the currency does not really inspire confidence?
Trichet: As a central bank, as the European Central Bank, we, of course, are concerned about ensuring that there is both financial stability and stability on the markets in general. So we were not particularly satisfied with what I called the excessive volatility or excessive turbulence or excessive shifts in general. And I can only reiterate that. Now, as to your question on confidence, I think that the issue of confidence is an extremely important one. Take, for example, the situation in the euro area, where we have a very favourable financial environment, with short-term rates at zero in real terms and extremely low long-term rates. This was the case in much of Europe, and has now been attained throughout the euro area. If I also look at the level of savings and at the availability of capital, it is quite clear that there are many factors which should create a new dynamism in Europe, which would be very satisfying. But as for confidence, I think that that is one of the most significant problems that we are facing and we therefore feel that we should do everything in our power to increase confidence.
Trichet: I have already mentioned the fact that we do not like excessive volatility and turbulence in general and that we had a stake in stability and stability in the exchange market as well as financial stability in general. As regards confidence, I was saying a moment ago that it is extremely important to consider the overall environment in the euro area. We have a low level of interest rates, short-term rates are at zero in real terms, long-term rates are at the very low level, which had been achieved in the past by only a part of the European Union but are now generalised throughout the euro area. We have savings, we have capital and therefore we have many of the conditions required for a pick-up. Perhaps we need a little more confidence. The reason why I pick up on the word" confidence '', which was in the question, is to say how important it is that we all contribute to confidence and that we should try to do what we can to improve confidence. I think that confidence is really crystallised, in a way, in terms of the low level of medium and long-term market interest rates, which again is part of the overall environment in the euro area.
Question: Does the ECB have any calculations as to the proportion of euro area exports going to external countries actually affected by this appreciation of the euro? Today in Berlin... someone from the Commission mentioned a figure of 10%. I ca n't understand that. What figure would you put on it? And the second question is: for some days there has been speculation that the central banks, presumably because of the weakness of the dollar, will record considerable losses on their 2003 balance sheets. Can you please tell us what the European Central Bank 's situation will be and comment on the speculation? Thank you.
Trichet: Thank you very much, Madame. Perhaps, I could respond to the first question and ship the second to Lucas, if he wants it. The second, would you?
Papademos: Yes, the strengthening of the euro, or the depreciation of the dollar, in 2003 had an impact on the financial results of the ECB. In general, the ECB 's profitability is subject to considerable fluctuations due to large exchange-rate and interest-rate exposures arising from the structure of its balance sheet. You all know that the bulk of the foreign reserves of the ECB is held in US dollars. So the strengthening of the euro implies that the euro value of the ECB 's holdings of US dollar-denominated assets declined, and this resulted in unrealised losses. We pursue an accounting policy based on the principle of prudence and therefore we treat unrealised losses as realised losses. I should also say that the low interest rates, which prevailed in the year 2003 and their evolution both on the foreign reserves of the ECB as well as on the euro assets also adversely influenced the ECB 's interest income. We have estimated that the financial accounts of the ECB, which will be published towards the end of March, will show a loss of the order of half a billion euro. I should mention, however, that the ECB has substantial buffers to cover this loss.
Question: Will the national central banks be asked to contribute to covering the loss?
Papademos: No, it will not be necessary.
Trichet: Thank you very much. You had a first question, and I will only say that we of course examined very thoroughly, as I have said, the impact -- in our view and in the view of a number of analyses -- of the moves in exchange rates on exports. And we took into account the fact that, on the one hand, you have a confirmation of the dynamism of global growth: all the information we have had since our last meeting, for instance, is going in the direction of more dynamic global growth and global demand for our exports. And on the other hand, we had some dampening effect, as I said on behalf of the Governing Council. Taking all this into account, our judgement was that the overall situation, from our standpoint, had not substantially changed, and that explains why we made the diagnosis that we had to keep rates unchanged.
Question: Mr Trichet, you have stressed in the past the need for a strong and stable currency, and you have talked about stability today. Would you repeat that and say that a strong currency is what you are still looking for, given the rises?
Trichet: I have referred several times to the fact that all central banks in the world are pursuing sound and reasonable policies and that I was myself rejoicing that they are pursuing those policies which we are pursuing, which our friends and partners across the Atlantic are pursuing and which others are pursuing. And I believe that this set of sound and reasonable policies is one of the necessary conditions for markets and exchange rates to be stable. That is my position.
Question: Did the Council today discuss a possible interest rate cut on the basis of the strengthening of the currency?
Trichet: As I have said, every month we look at the overall situation. We consider all factors. As we have said, exchange markets are one of the factors that we examine, alongside numerous other factors. And we take our decisions on the basis of all of those factors.
Question: President Trichet, has the outlook for inflation improved since the last meeting a month ago because of the euro? And my second question was: did you decide at this week 's Council meeting that you would make your statement on the excess volatility of the exchange rate? Was that a decision taken at the Council?
Trichet: First of all, as regards the second part of your question, I would say that we had a general discussion. On behalf of the Governing Council I read out the introductory statement and this is our diagnosis, which we have worded to the comma and to the adjective. And I am responding to questions now on behalf of the Governing Council, together with the Vice-President. On the first question, we mentioned once or twice that the fact that there have been changes in the exchange market has a positive effect from the point of view of inflation. It has been mentioned several times and it is obvious that we are as a result importing a little bit of disinflation. That is clear. Overall, having taken into account all the elements of the situation -- and they are very numerous, as I have said -- and all pertinent analyses, our conclusion was, as I have said, that we had sticky inflation, we had inertia in inflation, which could perhaps persist for some months, and that we would then see inflation clearly coming down in line with our definition of price stability. And this diagnosis has not changed since last month.
Question: Could I just shift the attention away for a moment from interest rates and exchange rates, etc., this sort of cat-and-mouse-game we play every time we have a press conference, and think about the future and what will happen after 1 May when the accession candidates from central and eastern Europe are admitted to the European Union. Could you give us some idea of the status of the talks between yourselves and these countries regarding future participation in the euro?
Trichet: Well, first of all, it is extremely important that we come to this question because we all know, of course, that a historic change is on its way within a matter of weeks. As you know, we have in a way anticipated this a little bit because the national central banks of those ten countries are already involved in the ESCB committees. The Governors are already around the table in the General Council meetings, even if it is with observer status. And, of course, the next step, entry into the European Union, is something, which is again historically extraordinarily inspiring, extraordinarily important. Not only at the European level, but also at the global level. That being said, we will see. I would not like to comment further on their entry into the ERM and then afterwards perhaps the euro. You know that we have published a long paper which crystallises the position of the Governing Council of the ECB on that matter. I do not want to elaborate more on that. Everybody knows our position. We think that it is a very important point. Entering the euro is extremely important, and it needs to be examined very carefully. Convergence must be not only nominal, but also real, as is required by the Treaty." Real '' means sustainable in the long run, and" the long run '' means eternity as regards participation in the euro. So there is an enormous amount at stake for the country concerned and for the whole of the Eurosystem, so we must ensure that absolutely no mistake is made, because a mistake would be contrary to the interests of that country, that particular economy, and also totally contrary to the interests of the Eurosystem itself. So it is a very serious, very important question that will be examined on the basis of the Treaty, applying, of course, exactly the same rules that applied to the present members of the euro area.
Question: Italy is experiencing with the bankruptcy of Parmalat one of the biggest financial insolvencies in recent European history. Do you think that such episodes could be better prevented if the ECB were in charge of financial and banking supervision?
Trichet: You know that we -- both in this respect and in relation to the previous question -- we, the Eurosystem has a position on supervision, which was published some time ago. We think that it is appropriate for central banks to be in charge of, or very, very closely associated with, banking supervision. If I may say so, conceptually we are very close to the US in this respect. As you know, the US considers it important that the Federal Reserve should have a very important role here. We are also based upon a decentralised concept. And, as you know, the European concept is a decentralised concept whereby the national authorities have their responsibility and we have ourselves a particular mandate to pave the way for the best possible functioning of that system. And I will stick to this position of the Governing Council, which has also been expressed publicly.
Question: Mr. President, did you discuss with the President of the ECOFIN the next G7 meeting in February? Did you talk about who is" Mr Euro ''? This discussion came up in recent years at the ECOFIN and Wim Duisenberg said:" Mr Euro is the President of the ECB ''.
Trichet: Well, we did not discuss in detail the preparation of the G7 meeting. In the G7, G3/G7, there will be the President of the Eurogroup and he will himself, I trust, examine the situation within the format of the Eurogroup, as it is necessary, of course. But I leave this responsibility with him. We have our own responsibility in the European concept, as you know. And Wim was particularly right in that domain, as in all domains, to say that the ECB has important -- very important -- responsibilities in this respect. And I draw your attention to the fact that in any case when we produce a G7 communiqué, because you mentioned G7, it is signed by ministers and central bank governors. I have no other comment on that. But we ourselves have very, very important responsibilities. That is absolutely clear.