On the basis of our economic and monetary analysis, we have concluded that there are no fundamental changes to the medium-term outlook for price stability. Accordingly, the current stance of monetary policy remains appropriate and the key ECB interest rates have been kept unchanged at their low levels. Inflationary risks should be contained by somewhat more favourable import price developments, while the economic recovery in the euro area should proceed in line with our expectations. We will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term. With regard to exchange rates, we again particularly stress stability and remain concerned about excessive exchange rate moves.
Let me now explain our decision in more detail.
Starting with the economic analysis, the latest data on euro area production as well as survey evidence on business confidence remain consistent with ongoing growth around the turn of the year.
Looking ahead, the external environment of the euro area should continue to develop favourably. In particular, robust real GDP growth in our major trading partners ' economies can be expected to support foreign demand for euro area goods and services, while export growth may be dampened somewhat by the decline in price competitiveness.
The conditions for an improvement in domestic demand are also favourable. Investment activity should not only profit from global trends in demand, but also from companies ' efforts to enhance productivity and profitability, from the low level of interest rates and from generally favourable financing conditions. Growth in private consumption, which has so far remained rather subdued, can also be expected to recover in line with an increase in real disposable income. This assessment is reflected in all available forecasts from official and private sources and seems to be confirmed by developments in financial markets.
Looking at the risks to this outlook, there are no new factors to be taken into account. Over the shorter term, risks remain balanced. Over longer horizons, uncertainties relate to the persistent imbalances in some regions of the world and their potential repercussions on the sustainability of global economic growth. This calls for sustainable macroeconomic policies and structural reforms which foster a sound balance between savings and investment in all major partner countries, which enhance the production potential in the euro area and which support a further expansion in trade of goods and services at the global level.
Turning to price developments, we have seen a fall in the HICP inflation rate for December to 2.0%. The same rate was estimated by Eurostat for January. In the course of this year, inflation rates should fall below 2% and remain in line with price stability thereafter. While US dollar-denominated global commodity prices have been on an upward trend over recent months, the past appreciation of the euro is dampening their effects on domestic prices. Moreover, we continue to expect wage developments to remain moderate in the context of high rates of unemployment and a gradual economic recovery. Recent data on labour costs seem to broadly confirm the assessment of a levelling-off of wage increases. On the whole, inflationary pressure remains limited -- an assessment that is confirmed by all available forecasts. Given the conditional nature of any forward-looking evaluation, it is of course important to bear in mind all elements of risk to the outlook for price stability and to monitor inflation expectations closely.
Turning to the monetary analysis, annual M3 growth has continued to moderate slowly over recent months. This can be explained by the still cautious reallocation of portfolios by economic agents and the effects of generally low interest rates on the growth of very liquid assets. At the same time, the growth of loans to the private sector reflects the effects of both low interest rates and an improvement in the economic environment.
The strong monetary growth over the past few years means that there is significantly more liquidity available in the euro area than needed to finance non-inflationary growth. Whether or not the accumulated excess liquidity will translate into inflationary pressures over the medium term depends on the extent to which past portfolios shifts are reversed and on the future strength of economic growth. Should excess liquidity persist, it could lead to inflationary pressures over the medium term.
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. Cross-checking with the monetary analysis does not alter this picture.
With regard to fiscal policies, there are several important issues that warrant close attention. First, the implementation of fiscal policies should be in line with the commitments made late last year. In this connection, a thorough assessment of the new Stability Programmes of Member States is currently under way. All parties involved need to live up to their responsibilities and commitments. Sound public finances support a stable macroeconomic framework, which in turn enhances confidence and promotes investment, growth and employment in the euro area.
Second, as regards the Stability and Growth Pact, the Governing Council shares the concerns of the European Commission regarding the conclusions of the ECOFIN Council in November last year. The Commission is the guardian of the Treaty and the ECB respects the Commission 's decision to seek legal clarity. Furthermore, we do not see a need to change the Treaty and, in our view, the Stability and Growth Pact in its current form is appropriate. We are in agreement with the Commission that the implementation of the Stability and Growth Pact could be further improved, in particular in terms of the analysis of structural imbalances and the strengthening of incentives for sound fiscal policies during good economic times. Clarity and enforceability of the fiscal framework should be enhanced.
A stable macroeconomic framework is necessary to enhance our growth potential, but it alone is not sufficient. Boosting employment, fostering labour productivity and making the best use of technological and scientific progress in the context of an ageing society all require structural reforms -- in the fiscal domain as well as in financial, product and labour markets. The Lisbon Strategy provides the appropriate blueprint for progress. The responsibility for its implementation, however, lies with governments, parliaments and social partners. The Governing Council strongly supports ongoing efforts in a number of countries to proceed with structural reforms. At the same time, we fully share the view that additional, sustained efforts are required, as recently reiterated by the Commission in its progress report on the implementation of the Lisbon Strategy and the priorities for 2004. It is a major challenge to convince the public at large that everybody would benefit -- in terms of growth, more and better jobs, and higher incomes -- if the reforms needed were indeed implemented.
Finally, allow me to add a short remark regarding the publications of the ECB. As you may have noticed, the ECB 's Monthly Bulletin has been enhanced in a number of ways relating to its design, structure and general presentation. The in-depth coverage of all economic and monetary aspects relevant to monetary policy has of course been maintained, together with the statistical information. However, we believe that the report is now more accessible to the Press, financial market participants, policy-makers, and academics and students, as well as those members of the general public with an interest in European economic and monetary affairs.
Question: What message are you taking to the G7 meeting in Florida, and are you concerned that the Americans seem keen to reaffirm the Dubai commitment to exchange rate flexibility?
Trichet: It is not my tradition to announce in advance anything as regards the G7 meeting. I will give you a" rendez-vous '' after the meeting of the G7 in Florida. We will have the usual press encounter to explain the communiqué which we will discuss with friends from all over the world, including friends from the United States.
Question: Mr Trichet, the signs of the economic recovery so far are mixed and somewhat weak in many cases. Are you disappointed with the pace of the economic recovery so far in the euro area?
Trichet: Well, our judgement -- as I just said -- is that there has been an ongoing recovery since the third quarter of last year, which we have been observing very carefully. And, as I have said, all the signs that we have indicate that there is indeed an ongoing recovery. That being said, we are observing -- and, as you have said, there have from time to time been signs -- that it is an ongoing, relatively slow process of recovery. But we judge that all the elements that are available confirm that this recovery is proceeding. And I have to say also that this is not very original on our part because it is the global consensus. All international institutions judge that this ongoing recovery is proceeding.
Question: I would like to ask you if you discussed a rate cut today at all or if you agree with statements by your colleagues that a rate cut is in fact not on the agenda at all right now. And my second question would be: I heard that there was a report out from Japan where an advisor to Koizumi said that the Europeans should do more to boost growth and in fact cut interest rates. I would like to ask you what your comment would be on such a report and, if you have n't heard about this report, what, generally, your statement would be to people who make such comments. Thank you.
Trichet: First of all, at each of our monthly meetings we look at the overall economic situation, we make a judgement, and the Vice-President and I have the privilege of bringing that sentiment to you in an open and transparent way. And I consider that this is indeed a demonstration of a total transparency. We have looked at the situation. Our judgement is that our monetary stance is correct. At each of these meetings we look at whether we have to increase rates, decrease rates or leave rates unchanged, and I have no other comment on that. This is by definition what we do at each of our monthly meetings. As regards Japan, I have no particular comment on the policy pursued. I will discuss this with colleagues in the G7 in a very short time from now.
Question: Mr President, the Governing Council has concluded for a quite a long time now -- probably over a year -- that all the conditions are in place for a recovery of domestic demand. But it has n't happened so far, which makes the European economy very dependent on export-led growth. Are you surprised by this stickiness of domestic demand and are you worried by it?
Trichet: Over several meetings of the Governing Council, we have said that we thought the conditions were there for a pick-up in domestic demand -- conditions from the investment side of the coin. And from that standpoint, it seems to me that we have a number of indicators which are encouraging. Of course, the confidence of entrepreneurs, which is materialising progressively, the favourable financial environment, and all the efforts made by firms to re-shape and increase their own resilience and profitability certainly go in the right direction. And this is the substantiation of this judgement of the conditions. As regards households, it is clear -- and this is something that we said constantly during our recent press conferences -- that the level of confidence in the household sector is very important. The disposable income is there. The fact is that we still have to improve confidence. And it is also part of our own contribution to the prosperity of Europe that we reassure households by telling them that, as regards our own responsibilities, we are doing all we can to help them have confidence in their overall purchasing power, that we are there to ensure that they will have stable prices and monetary stability. And we believe that all we can do to communicate this element of confidence to the households is very important. Part of the confidence of households should normally be that governments, parliaments and social partners are tackling structural reforms. It is important for us to perhaps take advantage of this press conference to say that households in Europe should not be frightened by the fact that we are tackling necessary structural reforms. On the contrary, they should be encouraged because the fact that the problems existing here and there are being coped with is reassuring ; if we did not cope with them it would not be reassuring at all. This is the reason why we back the structural reforms and we tell the public that every citizen of Europe is better off when we proceed in this direction.
Question: President Trichet, your colleague at the Deutsche Bundesbank, Welteke, said the other day that a strong currency is an asset. And" strong '' is a word that, it seems, many officials have tried to avoid in recent days. It suggests that there might be a sort of division of views. Could you comment on that and tell us what the right message is?
Trichet: The right message is the message that I delivered just a moment ago. I have no other comment on that.
Question: Mr Solbes said in an interview yesterday that the Stability and Growth Pact is too strict in bad times, that in bad times states should not cut expenditure too much and that the Pact in bad times is pro-cyclical. I would like to hear if you share this opinion and if you think damage has been done, following from this judgement, to the economic situation in the last three years?
Trichet: I will not comment on any remark made by any member of the Commission, including Mr Solbes. I will only say that our position is that the Treaty should not be changed. This is the position of the Governing Council of the ECB. We believe that the secondary legislation, namely the Stability and Growth Pact itself, the wording of the Pact, should not be changed. The implementation of that secondary legislation and of that Treaty could be improved, along the lines that have been suggested by the Commission and especially by Commissioner Solbes, taking account, in particular, but not only, of the fact that structural analyses complementing nominal analyses are very useful. The issue of what to do in affluent times is also something which is of importance. And you have a number of other improvements that could certainly be made and that would be welcome.
Question: I understand that you can not comment on the G7 meeting. But if you say that you are worried about excessive currency swings, how confident are you that the United States and Japan share that view?
Trichet: It is not that I can not comment. We have not had the meeting yet. Our position is very clear. I have on many occasions explained how we see our own situation, how we see the global economy and so forth. And I have also said that we all have homework to do. We have structural reforms to implement and we know that all other partners, of course, also have homework to do. I will comment after the meeting, not before the meeting.
Question: You spoke again today of your concern about excessive volatility where the exchange rate is concerned, but you only identified advantages to the strong currency where Europe is concerned. Are you aware of any disadvantages?
Trichet: Any disadvantages that are associated with the current exchange rate? I would not wish to comment further. I have been very, very clear on our position and I will let you meditate on the sentence concerned, which presents our position in compact form.
Question: Let me try again. Do you still stick to the proposition that it is a fundamental aim of central banks, such as the ECB, to strive for a stable and strong currency in the long term?
Trichet: We have also said very clearly that our long-term strategy remains unchanged. I can add that a long-term strategy is extraordinarily important for inspiring confidence in the currency and for anchoring long-term inflation expectations. This makes possible what we have today -- a fantastic asset of the European economy -- namely a financial environment which is very favourable, with medium and long-term interest rates that are very favourable and -- I would say -- are" crystallising '' the performance of the best legacy currencies prior to the euro. This is a prouesse -LSB- amazing achievement -RSB- on the part of the euro, because, as I have already said, the markets and global observers did not believe in 1997 and 1998 that we could deliver a new currency that would be as credible as the best legacy currencies.
Question: Are you satisfied with having succeeded in holding back the continued rise of the euro in the last month? Second question, with regard to the exchange rates, you said that all partners have efforts to make, do you feel you have made the necessary efforts, and who needs to make efforts?
Trichet: I will not give an answer to the first question, I do not comment. The markets and the operators, the investors, and all partners, they have to make their own judgement based on what the Governing Council of the European Central Bank has said. And I leave it up to them to comment and to draw their own conclusions. With regard to the second point, I said it already, we all have, of course, work to do to improve the situation. Each and every one on their own side, we all have homework to do. We do not lecture anybody, we have work to do and we know that others have work to do as well.
Question: I do not want to quote in German what Ernst Welteke said on Tuesday night, but he said that the strong Deutsche Mark had helped Germany a lot. Do you think that the strong euro also helps the euro area? A second point, you have referred to scientific progress, which you support in the framework of the Lisbon strategy. Do you think that the member countries, especially France and Germany, are doing enough in the field of research at the moment.
Trichet: I think you already got an answer to the first question: the long-term strategy allows a maximum of confidence, allows an advantageous financial environment and this works in favour of growth and job creation through the level of medium - and long-term market interest rates. With regard to your second question, I would say simply that we think, generally speaking, that the diagnosis of Lisbon is a good diagnosis, it lays great emphasis on the efforts that have to be made to create, by 2010, the best society in terms of the economy, in terms of knowledge. Scientific research and development is fundamental and so we encourage all efforts made in this field.
Question: Have you discussed during the Governing Council meeting the decision of the Bank of England today?
Trichet: No, we did not.
Question: On the euro question I 'll put my two cents worth in as well. Are you discussing, or did you discuss, at this meeting the question of the exchange rate and the strength, or relative strength, of the euro any more or less than you did at previous meetings?
Trichet: No, frankly speaking, it is for you to judge. I mentioned what our position was. I would say that it was no more, no less, than before.
Question: Mr President, what do you think about Japan 's massive yen-selling intervention? Is it appropriate or not? And will you ask Japan to share more of the burden of the dollar 's underlying weakness?
Trichet: We will have a nice occasion to discuss that directly with our Japanese friends within a few hours. Thank you.
Question: Mr Trichet, after the G7, next Monday is the ECOFIN, which will discuss who will follow Mr Domingo Solans. Are you involved in this discussion informally? And what is your position? Some time ago Mr Welteke had the idea that the ECB Council should be involved before this discussion.
Trichet: In any case, as you know, the Treaty involves us very profoundly because we have to give our advice. And we are called into the decision-making process as well as the European Parliament. So, we are necessarily involved in the decision. That being said, as you know, after being called upon to give our advice, the ultimate decision is taken by the Council itself. We are observing what has been said here and there and we will continue, of course, to follow that important question very carefully.