Let me now report on the outcome of today 's meeting. On the basis of our regular economic and monetary analyses, we continue to expect that price stability will be maintained over the medium term. Accordingly, we did not change our assessment of the monetary policy stance and left the key ECB interest rates at their current low levels. The low interest rates across the entire maturity spectrum are also supporting the economic recovery in the euro area. As always, we will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term.
Allow me to elaborate on our decision, turning first to the economic analysis. Regarding the current situation and the very short-term outlook, the conjunctural indicators available still provide mixed evidence. All in all, they suggest that the recovery of real economic activity in the euro area has continued into 2004, albeit at a modest pace. Most recent information has been more encouraging, with the latest euro area survey data offering more positive signals with regard to the beginning of the second quarter.
While the latest positive signals need to be confirmed by future developments, they underpin the expectation of the gradual recovery in the euro area continuing and strengthening over time. The conditions for such a recovery are in place.
First, global economic growth continues to be robust and world trade has strengthened. The global economic upturn is broadly based, both geographically and across sectors, and thus provides a favourable external environment for the euro area. In this context, we expect euro area exports to grow significantly this year and next. Second, favourable financing conditions, improvements in corporate efficiency and earnings and the strength of global demand should help investment. Growth in real disposable income should support private consumption, especially since households appear not to face financial constraints that might impede stronger spending. Over time, consumer spending should also be supported by an improvement in labour market conditions.
These considerations underpin our confidence in a continuation of the economic recovery, an expectation which is mirrored by available forecasts and projections. It is also in line with financial market developments over the past few weeks. Obviously, any forward-looking assessment is subject to risks and uncertainties. On the external side, the adverse terms-of-trade effects of recent rises in oil and other commodity prices pose risks at shorter horizons, while the persistence of global imbalances implies some uncertainties over the medium term. On the domestic side, uncertainties surrounding fiscal policy and structural reforms in some euro area countries seem to have contributed to preventing a more vigorous improvement in consumer confidence. A continued commitment to and greater clarity about the content and timing of these crucial reforms, supported by a better understanding of their necessity and benefits for all citizens, would help to resolve this uncertainty and thereby mitigate the associated risks for the euro area economy.
Turning to price developments, annual HICP inflation rates will exhibit some short-term volatility over the coming months, as we already indicated on the occasion of previous meetings of the Governing Council. According to Eurostat 's flash estimate, annual HICP inflation was 2.0% in April, after 1.7% in March. While no detailed information is available as yet, the recent rise in annual inflation rates is likely to mainly reflect a strong base effect in the energy component resulting from the marked decline of oil prices a year ago. Moreover, recent oil price increases have exerted additional upward pressure. As these factors will also play a role in the next few months, inflation rates of 2% or somewhat above are possible over the short term. Despite these recent, less positive developments, over longer horizons we expect inflation rates to remain in line with price stability. In particular, wage developments should remain moderate. The latest data on wage growth in the fourth quarter of 2003 lend support to this view.
Our outlook for price developments is in line with available forecasts and projections. However, at the current juncture, the increase in commodity prices in general, and oil prices in particular, may pose an upside risk to price stability. It will therefore remain important to pay close attention to inflation expectations.
Moving on to the monetary analysis, annual M3 growth has moderated only slowly since the summer of 2003. While there is evidence of continued portfolio shifts out of M3 into longer-term assets, the pace of this adjustment remains modest. Both monetary and credit growth continue to be supported by the historically low level of interest rates in the euro area and may also reflect the improvement in the economic environment over the last few quarters.
Given the continued strength of monetary growth, liquidity conditions remain ample in the euro area. The impact of this high level of liquidity on inflation over the medium term will depend on future developments in the economy and financial markets. Should excess liquidity persist, it could lead to inflationary pressures over the medium term.
To sum up, the economic analysis indicates that the main scenario for the outlook for price developments over the medium term is in line with price stability. Cross-checking with the monetary analysis does not alter this view at the current juncture.
As usual, I also wish to make a few remarks regarding other policies in the euro area. With regard to fiscal policies, the Governing Council sees increased reasons for concern. On the basis of the latest Commission forecasts, the average euro area budgetary position is not expected to improve much this year or next. A growing number of countries are likely to report significant imbalances, while fiscal consolidation efforts might fall short of commitments. It is essential that all countries concerned undertake credible measures to address these concerns. Such measures should be part of a comprehensive reform strategy. This would underpin the ongoing economic upswing by boosting confidence in sound public finances and by improving the prospects for future economic growth. The Governing Council welcomes the decision by the Commission to request more consolidation efforts from a number of countries.
Turning to structural reforms, the Governing Council reaffirms its view that such reforms are essential if the euro area 's growth potential is to expand substantially. In particular, both our employment rate and our labour productivity growth need to increase significantly. Following our discussions here in Finland, let me stress that this requires a strengthened technological and scientific base and its application in the euro area as a whole, fostered by major efforts to enhance the human capital of our economy. In this context, we are particularly concerned that youth unemployment remains high in several countries. In order to achieve these goals, it is necessary to strengthen the implementation of structural reforms, both at the European and the national level. The Lisbon agenda provides an excellent diagnosis of the problem and we have a good understanding of the measures needed to deal with it. We strongly support the ongoing reforms, which should be speeded up across the euro area. It is important to understand that everyone will be better off -- with higher growth and more jobs -- if and when the reforms of the Lisbon agenda are delivered.
Question: Mr President, the Federal Reserve seems to be tilting towards a tightening bias, although a very mild one. Does it have any consequences for the ECB 's policy?
Trichet: Each particular central bank is following its own policy in its own environment, of course. And all environments are different, in the U.S. or in the U.K. or anywhere in the world, or in the euro area. So, as regards our own position, I made it absolutely clear that we did not change our previous assessment. Namely, that we keep all our options open and we have no bias. And we did not change our assessment. What happened in the U.S. or what happens anywhere else in the world did not change our assessment.
Question: Mr Trichet, does the ECB still have the same growth projection for 2004 and 2005 that it made last December, namely 1.6% GDP growth for the eurozone as the mid-point for 2004 and 2.4% for 2005? Or have the data that you have seen caused you to alter that expectation?
Trichet: We are, as you know, pretty well integrating all information, all data, all forecasts and projections available without excluding any of them. And it is the mark of our own concept of monetary policy not to be exclusive, not to eliminate any available data or information. As I said very often, we are not the prisoner of any equation or system of equations. So all I can say is that we have exactly the same analysis as regards the balance of risks. And, therefore, the same conclusion as we had a month ago. We had new information, we had new indications, as I have mentioned on behalf of the Governing Council, we had mixed signals. The most recent ones, including the PMI, as you know, were more positive and have been noted by all observers as being more positive. And when all this is taken into account we confirm our previous diagnosis.
Question: I would like to ask you, with Mr Liikanen joining the Governing Council soon, you have a member on the Council who has experience in dealing with enterprises in the eurozone. There are not many members on the current Council who have that experience, maybe with the exception of Mr Domingo Solans. I would like to ask you: do you welcome the fact that the ECB is broadening its horizon and do you think that this will be conducive to the policy that you are conducting? My second question is on the recent rise in oil prices, you have mentioned this and you have said that maybe for the short term there is a certain upside risk to inflation -- I would like to ask you if you have had the chance to think about the new inflation forecasts which you will make next month and whether you are actually planning to change the inflation outlook for 2005 because of the rise in oil prices?
Trichet: On the first point, I would only say that we are welcoming Governor Liikanen when he comes -- I have already paid homage to Mr Louekoski and his invitation, and spoken about Matti Vanhala -- and we are absolutely sure that we will work in the best possible fashion with Mr Liikanen. As you know, the Governing Council is a group of members with very different experiences, all sorts of backgrounds, and we are a very diverse group in this respect. So I do not want to comment on the experience of any particular Council member. But what is clear is that we make a collegial assessment and a collegial decision which has a very broad basis in terms of horizons and experiences.
Trichet: As regards inflation, as I said one, two, maybe even three months ago, we expect a hump in inflation in the months to come. We are seeing this already now, with the latest information, and I mentioned that we probably would have inflation over 2% in the next months to come. But at this stage this does not change our diagnosis that inflation and price stability are in line with our definition, that inflation is under control over the medium term. From that observation and diagnosis we derive our conclusion that we will not change our monetary policy stance. We will see when the time comes whether we will change anything. It is clear that oil prices are exerting an influence. They are also very volatile. I have already said that I was expecting, as were a number of other institutions in the world, that the partners that have an influence on the price of oil would exercise their responsibilities. Because it is a matter of great importance.
Question: Most nations seem to be exporting jobs to China: do you think that there is a danger that the inflation in this high-growth area, China and India, will be exported back to Europe? With less jobs here?
Trichet: Well, these are two different questions, of course. One is how the distribution of growth the world over will operate and how the division of labour and the optimisation of the division of labour will proceed in the global economy. The second question concerns inflation. I have already said what our judgement on inflation is and how we judge the situation today. We have noted, of course, that oil prices and commodity prices represent a risk, but nevertheless we consider that, over time, we have inflation under control. We will observe everything that happens and we will introduce all the new data and information that I have mentioned into our analysis, to the extent that they change over time.
Trichet: As regards the question of the division of labour and of the comparative advantage in the sense of Ricardo, I would say that we are living through a period of time when a large part of the emerging world and of the world in transition is catching up. It is of course what we have wished during the last fifty years. We wished that the so-called developing world would progressively improve its position. It is now improving, obviously, and when we look at global growth, we see that the emerging world and the world in transition are improving and are growing rapidly. This is good for global growth, it is good for the entire world. Of course, it also calls for adaptation in the emerging world and in the industrialised world, and this is the reason why we mention the importance of structural reforms, which would permit our economies to be more flexible and precisely to adapt more efficiently to these new opportunities. Because global growth is an opportunity, and we recognise this. Growth in the emerging world is an opportunity, and it calls in the industrialised world for flexibility and the ability to adapt. We all agree on that. Because as you know, the Lisbon agenda is based on a consensus. We all agreed on the Lisbon agenda. Executive branches at the level of heads of state and government approved it. And of course the Commission presented diagnosis and the ECB has always backed it.
Question: Mr Trichet, you have mentioned that oil prices have risen strongly and you have noted that they are nudging up price pressures. How concerned are you that oil prices also pose a serious risk to growth at a time when the recovery is still quite weak in the eurozone?
Trichet: At a global level -- because we have to analyse this at a global level -- I would say that the overall consensus is that we are experiencing an episode of rapid and confirmed growth, and of course this diagnosis has not changed with the most recent events. That being said, I have mentioned -- and I am not the only one to have done so -- that each partner has to live up to its responsibility. And this responsibility is not to be neglected as regards the price of oil. That is clear.
Question: Let me change the subject. I understand that the ECB keeps track of the quota which the countries would like to have under the new gold agreement. So far we have Germany and France. Would you be so kind as to give us the quotas and the names of the other countries that would like to sell gold?
Trichet: No... I would say that I am very happy that we have this gold agreement, which has certainly been very, very useful at a global level. As you know, it is up to each particular national central bank to say what they want to say. There is a collegial, collective commitment which has been made public by the signatories of the accord and it is up to each of them to say what they want to say. So, as you have been mentioning, perhaps the Bundesbank said something, perhaps the Banque de France said something. But it is not for me to describe their position. What is sure is that the market, external observers and the entire world know what the ceiling is for the sales of gold year after year, period of twelve months after period of twelve months.
Question: A follow-up question about oil prices. You talk about the risks of oil prices. But I would like to know whether the Council is more concerned about the possible negative effects on inflation or about the effects on growth, which could be lowered by high commodity prices.
Trichet: Well, again, I do not want to comment on the day-to-day evolution. It is not the way we operate. So, we will see what happens. I only wanted to mention that as a risk, but the level of oil and commodities prices that we have observed during the last weeks does not change at all the assessment that global growth is very robust, as I said, and is helping the economies of the entire world to be in an environment which is favourable to growth. It does not hamper in any respect our analysis or our confidence that inflation is under control. It is a risk. We analyse that risk. And, as I said, every partner has to live up to its responsibility, but I do not want to comment any more on that. Again, our diagnosis is clear and it incorporates the price of commodities and the price of oil.
Question: What kind of primary criteria would you demand from the Commission in order to keep the Stability and Growth Pact criteria? Could you even sue them?
Trichet: Well, each institution in Europe has its own responsibilities and we said publicly that we would support the Commission in its very difficult task. And today I delivered our judgement on the various threats that we see. We follow what happens extremely closely and we back the Commission 's analysis at this stage. We will continue to watch what is happening. We of course encourage all governments and parliaments concerned to embark on the appropriate measures necessary, in our view, to maintain and improve confidence of economic agents in general. In particular, confidence in the household constituency.
Question: I would like to change the subject once again. Our country -- Latvia -- and the Baltic States recently expressed a desire to adopt the euro as soon as possible. But the Baltic States are running very high current account deficits. Could that prevent us from adopting the euro when we want and would like to do so and at the exchange rate that we would like?
Trichet: I think that, first of all, this is an occasion for me to celebrate the recent accession of ten new countries to the European Union. The ECB 's Governing Council has already had an opportunity to say that it was an historic event which was of utmost importance for all of us, for Europe. Our vision of the accession is a positive one and we trust that it is an opportunity for everyone, for the ten new Member States and for the 15" ancient '' ones, and we are extremely positive about that. We also noted that all of these economies and countries entered without an opt-out clause. So they all intend to join the euro area when the time comes. We have also made it clear, and I trust that each of the ten national central banks and certainly each of the ten countries shares our view, that preparations for this must be carried out very professionally. This is, of course, not only in the interests of the economies concerned but also in the interests of the euro area as a whole. This is so that all of the criteria laid down in the Treaty can be met -- not only as nominal criteria, but also on a sustainable basis, as the Treaty says. And again, it is in the interests of everyone: both all the economies concerned and all the countries concerned, because when you enter the euro area it is for eternity. So you have to be sure that sustainable convergence is there. I am very confident and trust that, together, we will -- because it is a multilateral decision-making process, of course -- find the appropriate way forward. I do not want to mention any kind of time-frame for this. We will see on a case-by-case basis how best to optimise the entry of each individual country into ERM II first and then into the euro area. Again, this process must be carried out very professionally, in a very serious manner, and I trust that we all understand very well that it is in the interests of all of us.
Question: Two questions, if I may. The first one regards potential growth rate. A number of observers are starting to scale back their expectations or their forecasts of potential growth in the euro area, particularly regarding Germany. Has this been discussed by the Governing Council? And if so, have you revised back your forecast to below 2 to 2 1/2%, which is where I understand it was? And the second question: given the recent rise in inflation and your optimism following the recent data releases from the real economy, would you say that the markets are correct in assuming that there is now less likelihood of an interest rate cut than there was, say, two or three months ago?
Trichet: First of all on the growth potential of Europe. As you know, the reason why there is a consensus in Europe on structural reforms -- and we are very keen to communicate this element of the European consensus -- is precisely because we trust that those structural reforms will permit an increase in the growth potential of Europe, which is below what could be observed if we had the structural reforms. It is also below what a number of other industrialised economies are displaying, including the U.S. And then a complicated series of analyses because -- as you have mentioned -- not all institutions, not all academic circles have exactly the same analyses on the present level of growth potential in the U.S. or growth potential in any other industrialised economy or growth potential in the euro area. I would not comment on any recent change in our own analysis in this respect. What is important is to observe that we have ample room for improvement and that the recipe for improving is simple to explain and to list. Perhaps less simple, unfortunately, to deliver for obvious reasons.
Trichet: As regards market expectations, I would only say that we keep all our options open and we have absolutely no bias. And this is today exactly the same assessment as the assessment we had a month ago. It is up to all of us to observe what market observers or economists are thinking. But our position is crystal clear.
Question: Given that nothing has changed over the last month, could you comment on how balanced the risks are now to growth and price stability?
Trichet: Again, with the mixed signals that we have, including the most recent ones, which have been more positive -- I have mentioned the PMI -- we have not changed our assessment of a gradual recovery, which is materialising and proceeding under our eyes and your eyes. From this and all other elements and inputs that we had, we came to the conclusion that the risks to price stability were balanced. And that is the reason why we say that we keep all our options open and we have no bias.
Question: Some of your colleagues on the Council have questioned the link between interest rate cuts and spurring domestic demand in the first place. Would you agree with the idea that it is a questionable link between the two or, likewise, would you say that having no bias means that you disagree with that view? In other words, do you think that an interest rate cut could have a stimulating effect on domestic demand at this point?
Trichet: I think it is a very good question which permits me to remind all of us how we proceed according to our concept of the monetary policy strategy. We have an objective, which is price stability. We have to deliver price stability and we have to be credible in delivering price stability. This is not only our mandate as defined by the Treaty, but it is also something that is fundamental to the favourable financial environment of Europe as a whole. As I have already said and I emphasise the point, we have a yield curve today for 306 million inhabitants which is the best yield curve that was available in the euro area before we merged the various currencies. And this is necessarily based upon inflationary expectations and price stability expectations that are the best expectations which were available in the euro area before the merger of all currencies. So, as I speak today, we are very credible on delivering price stability, according to our own definition of price stability. This is proved by the market rates that we have been and are observing on a two-year, five-year, ten-year or thirty-year basis. So, by having the needle of our compass pointing to magnetic north, which is price stability, we not only are implementing our very clear mandate but we are meeting the necessary conditions for creating and pursuing a very favourable financial environment for all maturities of loans. And that is a major contribution to growth and job creation in Europe.