List of sentences containing uncertainty words in the answer section, by date



1999-01-07, 38 sentences

The total value of transactions settled was therefore almost EUR 1,000 billion.

TARGET has handled more cross-border payments than anticipated in these early days of Monetary Union and, in doing so, has demonstrated its processing capacities.

In general, this pattern of mixed evidence appears to characterise the economic situation in the euro area around the turn of the year and we shall continue to carefully monitor developments.

But, for the time being, no failure or real difficulty in the system itself has appeared and all problems which appeared so far to have been solved in a relatively short time.

The latest three-month moving average of M3 growth -LRB- covering the months September to November 1998 -RRB- was approximately 4.7%.

From that day onwards, the" Eurosystem '' - that is, the ECB and the eleven national central banks of the Member States that participate in the euro - has assumed responsibility for the conduct of monetary policy in the euro area with the primary objective of maintaining price stability.

Could you inform us about any exchange rate interventions during the last days to support the euro or the dollar?

I did not inform you about interventions, although I could easily mention a figure, the figure is zero, but then we do not have an exchange rate policy, we have a policy aimed at achieving price stability and we do not have an explicit exchange rate policy or exchange rate aim vis-à-vis other major currencies.

Could you explain more explicitly what it means.

On the one hand, downward pressures could materialise if import or producer prices were to fall further, while, on the other, wage developments would become a matter of concern if wage increases were higher than expected.

In this connection, I could mention the fall in long-term interest rates in the last couple of days to new historical lows and also the yield curve has shifted down.

Is it just a diplomatic phrase not to say that you want to say anything or could this foreseeable future end on 21 January 1999?

There has been reference to the TARGET system, but are these problems which are encountered by the European monetary market as a whole, and could we say that, if more than 20 billion has to be covered on a single day by you, is that what you mean by teething troubles, or if this does n't depend upon TARGET, if TARGET does n't really have any problems, are there other problems which have been encountered or can you say, no, there are n't any other problems.

And the causes, well, they differ.

If I may add something.

Of course, issues may appear that we have not yet discovered.

To be quite honest, the teething problems, or birth pangs, or whatever you may want to call them, were rather smaller than we had thought at some moment that they might emerge.

Of course, journalists are n't as well informed as you and there are some important questions that we did n't ask at the start of the year, so maybe you could help us now?

The cause might also have been some times in the central banking system, but mainly in commercial banks.

Harmonisation is perhaps not the proper word, but they have exchanged their calendars what they foresee to issue, to avoid as far as possible to have a lot of issues on the same day.

Money market interest rate differentials across countries were significant only in the first few hours of 4 January 1999, but narrowed quickly thereafter, indicating that credit institutions were efficiently using arbitrage possibilities within the single money market.

And the second question is, the fact that there were human errors, does it mean that the people were not prepared enough, that the technology did n't take into account the human possibilities?

TARGET has contributed substantially to the integration of the euro money market and it has made possible the consolidation of the treasury management of institutions with different activity centres throughout Europe.

However, front-loading of euro banknotes and coins is considered legally possible to credit institutions and security carriers as well as to other organisations -LRB- e.g. retailers and vending companies -RRB- if, but only if, legal or contractual arrangements can be put in place in each national legal system in order to ensure that euro banknotes and coins will not be put into circulation prior to 1 January 2002.

This result was similar to the value estimated for the three-month period of August to October 1998 -LRB- which was revised upwards from the figure of 4.5% published on 14 December 1998 -RRB- and remains very close to the reference value of 4 1/2% set by the Governing Council on 1 December 1998.

The pattern of risks to price stability has remained broadly unchanged.

With respect to the broadly based outlook for price developments and risks to price stability, financial market developments may be seen as indicating a favourable assessment of the recent monetary policy decisions of the Eurosystem, signalling that financial market participants expect the environment of price stability to continue.

Structural problems and the problems which Mr. Noyer has just indicated, the problems that there were mainly the result of human errors and sometimes human ignorance.

The operational personnel at the various commercial banking institutions has to get used to the new techniques, even to writing the new instructions to their computer, there sometimes they make mistakes which they will learn to avoid in the very near future, but which then cause hiccups in the smooth process of transferring these large payments from one country to another.

I was equally happy when yesterday the euro came down again somewhat vis-à-vis the dollar in the direction of the value it had right at the start of the conversion, and I 'm equally happy today that again the euro rebounded somewhat to a level, when we left the bank, of USD 116.75.

If you suddenly switch over to a real-time gross settlement payment system cross-boarder which, as I indicated, already within three days turns out to be the largest in the world encompassing more than 5,000 credit institutions, it is no wonder that there may be some ripples in the water sometimes but that 'll settle down.

My question is quite similar to the one before, but I 'd like to have your opinion about the forex control system that the German and Japanese government suggest.

On balance, the general environment continues to suggest that there is no significant upward or downward pressure on prices in the short term.

Order books and capacity utilisation point to a less optimistic outlook, while retail sales and the recent pattern in employment and unemployment suggest more favourable trends.

It was taken on the basis of the liquidity conditions in the whole euro area money market, while paying due attention to the uncertainties related to the phasing-in of the new system.

Hence, we continue to face uncertainties originating from the evolution of the world economy in 1999, which are reflected in a weakening of industrial confidence in the euro area over recent months.

It will be conducted as a variable rate tender, using the single rate auction procedure.

As you know, exports account for only 10 - 11% of the combined GDP and which makes the impact of exchange rate variations comparable to those in the United States or Japan.



1999-02-04, 41 sentences

A similar pattern can be observed in the decline in industrial confidence that has been apparent in the second half of 1998 in the euro area, while, however, stabilising in January 1999.

Such a slowdown is apparent in industrial production growth up to November 1998, in particular in the intermediate goods sector, which is particularly sensitive to any deterioration in the external environment.

Order books, which overall declined slightly further in December, apparently increased again in January, particularly with respect to export orders.

Capacity utilisation in the manufacturing sector, which started to decrease in the third quarter recovered again thereafter, while December data on unemployment appear to suggest that the decline in unemployment rates stalled around year-end.

I should like to take this opportunity to recall that real three-month interest rates, if measured as nominal rates corrected for current HICP inflation -LRB- as a very incomplete proxy -RRB-, stood at a level of 2.3% in January ; this is approximately 80 basis points lower than the level one year ago.

In itself, we believe that to be a temporary factor.

On the other, given current wage demands, wage developments, especially when measured in real terms, could become a matter of concern and fiscal policies would also pose a threat to the favourable outlook for prices and growth and employment prospects, if the credibility of the Stability and Growth Pact were undermined.

The fact that we are invited to take part in the discussion will certainly not lead us to leak anything of what any assessment could have been.

I am just wondering, there are some economists who think now that if the US continues to grow strongly that that could have an effect on how you, the ECB, would conduct of monetary policy.

I would really like to ask you one more question if I could?

It had the result that certain payments, large amounts of certain banks, could either not be paid or not be received, so that those institutions were compelled to take recourse to the lending or the deposit facility.

I can not think of any factor that could undermine this strong currency.

And, in that context, the ECB will not be in favour of any particular regime on exchange rates which could force it to put aside the primary objective which the ECB is pursuing, namely internal price stability.

What do you think, if there would be any factor which could endanger the stability of the euro, any challenging factor in the future undermining the stability of the euro, could you comment on that please?

Could you tell us a little more about the problems that occurred at the end of last week at Banque de France and probably about any compensation for the banks that suffered from the breakdown of TARGET?

What we could simply say is that precise execution of the Stability and Growth Pact is an important element in the global assessment by the ECB of the balance of risks.

I know you do not want to indicate any specifics, but could you just tell us what your basic feelings are about a variable rate tender.

If there was a development that would strongly deviate from the line in which governments have engaged themselves, our global assessment would have to take that into account, but we can not say more today.

One has to realise that some effects may also have come from the ending of the General Motors ' strike and, by definition, these are temporary factors.

But then we also realise that this indeed surprisingly strong performance of the US economy may, in part, be attributed to temporary factors.

It is only after they have finally bunched all their orders together very much towards the closing time of TARGET that they know precisely what liquidity needs or surpluses they may have.

Only if the euro were thought to be seriously out of line, in view of the fundamental factors, vis-à-vis other countries, might there be a need for a desirability of intervention, but I would not put a timeframe on it.

However, does the ECB really consider that the zero line on the euro and the euro basis is some kind of floor for prices or does it not consider that there is indeed downward pressure and the evidence of the last six years might suggest that this is the case?

On the interest rate moves of other countries, I can not comment, with the exception that, as the Danish Governor told me, truly, it has become possible for the Danes to lower their official rates partly as a result of the successful launch of the euro.

Presumably we will talk about exchange rates and certain regimes that one could envisage for exchange rates.

I presume that would mean that the fundamentals were out of line.

According to revised Eurostat estimates, real GDP growth remained broadly robust in the third quarter of 1998, while in more recent months activity may have slowed down.

Furthermore, the pattern of risks to price stability has remained broadly unchanged.

Although they are not considered by the Governing Council to imply inflationary risks at this juncture, in particular the developments in credit growth will need to be carefully monitored in the coming months.

On the one hand, downward risks could materialise if import or producer prices were to fall further.

With regard to the broadly based outlook for price developments and risks to price stability in the euro area, financial market indicators suggest that market participants continue to expect low inflation.

Now, what exactly do you mean by that, what euro-dollar rate would you mean - what would be roughly the rate at which you would intervene?

These developments seem to reflect, in particular, the current low levels of interest rates in the euro area.

Therefore, with regard to the cyclical situation, recent data seem to confirm our earlier assessment that there are downside risks for output growth and that production may have slowed down around the turn of the year.

And then, if we try to measure the underlying rate of inflation, the core rate of inflation - which is difficult, in the various countries it is somewhat easier to measure -, then you will come to considerably higher figures of price increases.

And if I were to answer your questions, I would be engaging in speculation, so I wo n't.

Well I would n't like to engage in speculation, is the President 's answer.

There has been some speculation this week, particularly in Italy, that the ECB might eventually tend to favour a variable rate tender.

Taking a forward-looking perspective, the general environment continues to suggest that there are no significant upward or downward pressures on prices in the short term.

In the euro area too, available indicators continue to suggest a mixed picture.

And we also have to get used to the fact that the impact of exchange rate variations on the euro area as a whole is far less marked than in the past.



1999-03-04, 65 sentences

I almost think that we are not getting close to a euro-dollar level that makes you concerned right now.

We will come back to that later on when - I am almost inclined to say when the time is right - when actual access to the euro area is about to be negotiated.

This is particularly apparent in the production of themanufacturing sector, where output in the fourth quarter of 1998 fell by almost 1% compared with the previous quarter.

The countries I was speaking of are proving to be in a better shape, i.e. countries that had negotiated a programme with the IMF some time ago and that have implemented that programme, so that first results of this policy are appearing.

At the same time, recent developments appear to have led to a reduction in some of the uncertainties surrounding the evolution of the world economy in 1999.

Is that a correct assumption?

I believe we are well on the way.

That was, yes, I believe that was two weeks ago, and I must confess that I have heard him louder through the media than in direct contact.

If the movement were to continue, there could be cause for concern.

The weakening of the German economy which has been evident over the last quarter of 1998 could, of course, have an impact on its surrounding partners, including - as you asked so specifically - Eastern Europe.

And then the second: Are you concerned that the weakening of the German economy could entail also a weakening of the Eastern European countries?

Do you see that there is a lack of confidence which could lead to an increase in the longer term interest rates?

Mr. Duisenberg, would you share the concern of the German Government that a failure of European governments to reach an agreement on the financial architecture of the European Union by the end of March could cause turmoil on financial markets and would weaken the euro?

We keep explaining that the nature of that problem is predominantly of a structural nature, the lacking flexibility of markets, both labour and product markets, and that if governments can do anything they could tackle and, to our mind, they should tackle that cause of the unemployment in the first place.

And that by itself could have, let 's say, financed the weakening of the euro or the strength of the dollar.

But what we are investigating is that there could be another related matter.

With regard to the interest rate differential, could part of the weakness be due to the fact that confidence has not yet been underscored politically to the extent needed?

The results of those efforts to measure the degree of confidence are becoming ever more positive not only in the euro area, but even in some of the" out '' countries and I could think of no means with which we could publish more than we are already doing and with which we could give more speeches than we are already delivering.

Are you concerned that the fall in the value of the euro against the pound sterling could create dangers of inflation in some peripheral countries, such as Ireland, that have a very large trade exposure to sterling?

But - to mention just one example - one of the criteria was that the inflation rate should not deviate more than 1 1/2 percentage points from the average rate of inflation of the three best-performing countries.

And, of course, the interest rate differentials may also have something to do with that.

The fall in the rate of change in services prices was mainly due to lower price increases for transport and communications ; this may have been a reflection of increased competition in these sectors.

This mainly relates to the strong performance of the US economy, but may also be due to signs of improvement in the real economies of some Asian.

This, in turn, may be explained by the low level of interest rates, which also contributed to credit to the private sector to accelerate further in January 1999 to 9,4% which is particularly notable as other indicators of the economy are signalling a slowdown in activity.

You said that Germany maybe should take some steps to remedy the economy.

Some recent wage developments in the euro area might have contributed to that.

China 's situation might not be so clear: there are some new developments.

Of course, as I said in my introduction, we will closely monitor, and keep monitoring, the exchange rate developments, also with a view to their impact on, or the impact they might have on prices, particularly through import prices.

The Greek Minister of Finance stated in an interview on Sunday that, where the rate of inflation in Greece is concerned, where its accession to Monetary Union is concerned, this criterion might be weakened.

A few weeks ago you mentioned that the ECB might react to major misalignments in the exchange markets.

Any word that you might have for the recent wage agreements found in Germany.

Perhaps this is less clear for other countries.

Yes, we are doing our utmost to underscore the confidence that the world has in this young form of money, the euro, and we would certainly hope that not only the ECB, but also politics would help us to the maximum extent possible in supporting this confidence-building process.

According to preliminary and incomplete data from national sources, real GDP growth in the euro area weakened in the fourth quarter of 1998 when compared with the previous quarter.

And if we came to the judgement that the exchange rate developments are really seriously out of line with the economic fundamentals of the various large areas in the world - Europe and the United States - then we would probably react, but I can not elaborate on that any more than I have done right now.

There was also consensus that the impact of these developments on the balance of risks for price stability would need to be examined further in the context of the monetary policy strategy adopted by the Eurosystem.

After a comprehensive and careful examination of recent trends and ongoing evaluations of the economic outlook for the euro area economy, there was consensus that some of the risks identified earlier, in particular with regard to real GDP growth, had materialised in the fourth quarter of 1998.

We still see risks, but we still see them both on the up side and on the down side.

In the euro area the latest indicators confirm that those risks which were identified earlier have now materialised to some extent.

We have carefully assessed that risk and we have come to the conclusion that there are no signs of deflation developing in the euro area as such at the moment.

One, you mentioned the recent wage developments that there was an upside risk to inflation.

Concerning downward risks, in particular the slowdown in the euro area economy is a cause for concern.

The pattern of risks to price stability has also remained broadly unchanged on balance.

Overall, with regard to the cyclical situation, recent data confirm our earlier expectations that there are still downside risks for output growth.

Not only a risk for prices.

So, of course, in my statement we say that there is a potential risk involved.

Do they especially constitute such a risk?

Risks pertaining to external imbalances, continuing risk aversion and the corresponding weakness of private long-term capital flows and real investment to emerging market economies will need to be examined closely.

And - as on earlier occasions - we, and now also the European Commission, have expressed some concern about the determination of, in particular, the larger countries to adhere to the aims of the Stability and Growth Pact and that in itself has led us to say that one of the risks we see of the upward risks is a looser fiscal position which you will find in my Introductory Statement, if you read it carefully again.

May I also take this opportunity to say that it is clear that in these countries the rate of development in exports to European countries, as compared with the development of exports to the United States, has been roughly the same over the last two years.

That is to say that, even if the US economy is seen to be more buoyant than that in Europe, one can not say that the US economy has in fact helped these countries to recover more than the European economy, because the development of exports has been roughly the same over that period.

If you take Malaysia, Thailand and South Korea, for instance, they are clearly countries in which reforms are being implemented and their economies seem to be gradually picking up.

It seems that, after all, there are good signs also coming from these regions, and from the emerging economies in general.

I have two questions please: The Economic and Financial Committee - ex Monetary Committee - which met on Monday and Tuesday in Brussels seemed to have serious doubts about the ability of France and Germany to keep the budget deficit at around 2%.

Mr. Duisenberg, I would agree that today your outlook seems as if you might be looking for scope on the downside, maybe for an easing up as someone else just said, and that maybe prices are one of the key factors you are looking at right now?

In listening to your statement, it seems as though the risks came to the fore, and I would like to ask you if you think today that the Council has shifted its stance to looking more at the risks.

Well, it does make the evaluation and the judgement more difficult, undoubtedly because developments in various parts of Euroland seem to be diverging somewhat.

On the other hand, downward pressure from energy prices on goods prices diminished somewhat.

But then I would like to add that the yield curve has risen somewhat and has already become somewhat steeper over the past few weeks.

While more precise estimates will soon become available from Eurostat, the evidence available suggests that activity in the euro area has been slowing down in recent months.

On balance, the current data continue to suggest that there are no significant upward or downward pressures on prices in the short term.

Secondly, the phenomenon that the allotment percentage of the refinancing operations is very low and has even tended to become smaller, week after week, is a matter of concern.

Against this background and in view of the uncertainty relating to special factors pertaining to the changeover to the Stage Three environment and the introduction of the euro, the Governing Council does not consider the acceleration of M3 at the start of Stage Three as a signal of future inflationary pressures.

The auction technique for the longer-term refinancing operations was reviewed by the Governing Council today.In its first two longer-term refinancing operations -LRB- settled on 14 January and 25 February 1999 -RRB-, which are as a rule conducted by means of variable rate tenders, the Eurosystem applied the single rate -LRB-" Dutch '' -RRB- method of allotment.

Monthly data on monetary aggregates can be volatile.



1999-04-08, 42 sentences

The weakness is particularly apparent in the manufacturing sector, where confidence deteriorated further.

In our current assessment of the situation, it appears unlikely that HICP increases will be out of line with the Eurosystem 's definition of price stability.

Partial information covering a substantial part of the euro area appears to confirm this picture.

Do you believe that you are now at the limit which you can justify in terms of stability policy and how long will this interest rate remain in place if economic activity in the euro zone does indeed pick up in the second half of the year?

We do believe that this rate cut, otherwise we would not have done it, will not pose any additional threat of inflationary pressures arising either in small or in large counties.

Has your decision anything to do with his resignation or could it be interpreted in another way, as a welcoming gift for the new Federal Minister of Finance in Bonn?

Those who are not au fait with the intricacies of monetary policy, by that I mean Joe Soap, the man on the street, could get the impression that Oskar Lafontaine was right in making his demands.

Second, is it indeed so that too much capital flowing to the United States at high interest rates flows could become a problem for the external stability of the euro?

Mr. Duisenberg, I just want to ask if you could elaborate a little bit on the convincing structural reforms that you said you would like to see from euro zone governments and also if you feel that by cutting the rates in such a large step that you actually reduce the pressure on these governments to make these reforms?

In your meeting today, could you describe what the mood was of the meeting and whether there was much debate about your move and much debate about the level of the move and also, whether it was an unanimous vote in the end.

But we know all the different views and so, finally, I could conclude as follows: the Governing Council decides that the main refinancing rate will be lowered from 3% to 2.5%.

Are you not facing the danger that such an obvious relaxation of your monetary policy could, instead of stimulating reform in other areas of fiscal, tax and labour market policy, reduce pressure for such reforms?

The decision taken today keeps monetary policy on a longer-term stability-oriented course and, by doing so, contributes to creating an economic environment in which the considerable growth potential of the euro area could be exploited.

The Governing Council does not regard current monetary trends as constituting a signal of future inflationary pressures, taking into account that the rate of growth of M3 is still close to the reference value of 4 1/2% and considering that it may to some extent mirror the specific environment related to the start of Stage Three.

It may be worth noting that goods prices may continue to move upwards temporarily, in particular as oil prices increased strongly from mid-February onwards.

In very parochial words, I am inclined to say - and I can not say" do not quote me '' here, I realise that - but I am inclined to say that we moved from 3% to 2.5% which is maybe a slightly, unexpectedly large fall, but I would like to add, and now you be sure: this is it.

The last time I was here, I reported that credit to the private sector was growing at an annual rate of nearly 10% ; the latest figure we have now is that it has come down to a rate of slightly over 9%.

Until now we did not speak of Kosovo, we have war here at our doors, was this war - the possible impact on economy or the psychological impact on Europe - part of your decision or part of your concerns?

We have by all means possible tried to avoid that impression.

We wanted the move to be as convincing as possible and we were afraid that a smaller move would only have led to further expectations for the future, that this would only be a first step in a series.

This largely reflected a slowdown in the high pace of growth of overnight deposits, presumably reflecting the unwinding of the influence of some special factors related to the start of Stage Three and the introduction of the euro.

Indeed, reflecting the economic environment, many projections for future consumer price increases in the euro area have been revised downwards.

President Duisenberg, with regard to risks and side-effects.

We see some downside risks from a rather subdued outlook for general economic development in the entire euro area.

We see some risks on the upside, i.e. mainly the impact of rising energy prices, but that is by definition, as it was when it was on the downside, a temporary factor.

No, we also see no risks of deflation emerging.

Can we infer from today 's decision that there were monetary risks of deflation or is it purely a growth-oriented decision that you have taken today?

You said there were no monetary risks of inflation at the moment.

In the view of the Governing Council, monetary growth is - at the current juncture - not a risk for future price stability.

We see some risks deriving from some wage settlements here and there in Europe, those are the upside risks.

It seems that the strategy of the ECB is now, in light of today 's actions, a double strategy to re-invigorate the European economy.

And what I said today is that the present situation and the prospects for the increase in the rate of inflation are such that they seem, for as far as we can look forward, also to remain well below that ceiling of 2%.

I would be very interested if you had anything to say about the exchange rate of the euro, if the central bankers of Europe seem comfortable with it.

No, on the contrary, as you know, the development of credit to the private sector has been quite buoyant over the past few months, although its bias of increase has come down somewhat.

So, in itself, that rate of growth of credit, which is already moderating somewhat, is not a cause of inflationary concern for us, and neither is the move today any inducement to the banks to be more forthcoming in giving credit.

Mr. Duisenberg, the situation in Europe at the moment, especially this latest interest rate move by the ECB, now reminds me somewhat of Japan.

After having risen somewhat in February 1999, in tandem with US bond yields, during March euro area government bond yields remained broadly unchanged.

As the February figures were somewhat higher than those observed in late 1998, the three-month moving average of M3 growth covering the period from December 1998 to February 1999 still increased by 0.2 percentage point to 5.1%.

I am not going to speculate about a potential recession if we do not see one coming.

So I will not speculate about what we would do if there really were a recession.

Mr. Duisenberg, this interest rate move has turned out to be unexpectedly large.

Such movements reflect the higher volatility of price changes of some categories of goods, in particular imported oil and other commodities.



1999-05-06, 32 sentences

So, that is what we discussed and what we decided to emphasise, which is not a change of policy, only a confirmation of policy which apparently did not come across sufficiently well.

Given the latest developments up to April, it would appear that consumer confidence reached a peak at the beginning of this year since when it has moderated slightly.

As expected, the trend towards decreasing inflation rates appears to have been reversed in March.

I assume they will be there in their traditional role, which is still their role and will remain their role, as the main economic advisor of their government and, to that extent, I have no objections whatsoever, and I have no inclination to be present either.

We believe it is too early to assess what the basic reasons are that the euro has been, let me call it, recovering so strongly in the last few days.

There is no way to define or discover, at least I could not do that, a split in thinking or differences of views which are of any significance.

A couple of months ago, you told us here that you were not worried about the weakness of the euro in relation to the dollar, but you also said that, if it continued to fall, it could give cause for concern.

Mr. President, I would appreciate it if you could comment on the wage developments in Europe, some of the wage increases, especially in Germany.

For the time being, we think that it could very well be that the allotment ratio will come up again, to a certain point of equilibrium, but it is not possible to make a final judgement.

Although the lower effective exchange rate of the euro and the rise in oil prices may lead to some upward pressure on headline HICP inflation in the coming months, the current economic situation is likely to contribute to containing this upward pressure.

As we have emphasised in the past, the monetary data in early 1999 may be affected by the special circumstances related to the changeover to Stage Three of EMU.

Just when I was entering this room, there was a statement by the Vice-President of the United States, which immediately caused the euro to lose a couple of hundredths of a percent, but then, maybe, there already is another statement which goes in the other direction.

So, I am still not concerned, but have seen with some appreciation, I might even use this term, the recent appreciation of the euro.

In the future, it might lead to a re-arrangement of priorities within budgets.

There are perhaps differences in views, slight differences of view between Duisenberg and Tietmeyer.

Industrial confidence declined further in the first quarter of 1999, but preliminary April figures from the European Commission point to a slight improvement.

For the euro area, only a few additional data for economic indicators have become available, and the assessment of forthcoming GDP developments is currently complicated by the fact that the next release will be based on revised data in accordance with the new concept of the European System of Accounts -LRB- ESA 95 -RRB-.

But it is not enough of a risk to make us concerned about the future inflationary developments.

The report assesses the extent to which technological developments have taken place and are expected to occur in the EU banking systems, the main categories of banking risks affected by these developments and the strategic responses that EU banks are devising.

At the same time, current monetary developments and other available indicators do not point to inflationary risks over the medium term.

Do you think that this is also a major danger for the euro, the fact that these reforms are just being put off, and put off, and nobody seems to apply them?

At an earlier stage we already indicated that there were instances where wage settlements seem to have been concluded well in excess of the likely rise in productivity and that itself is one of the risks we see for the future.

And in all cases in our history, which is admittedly not a long history, we have easily been able to reach a consensus about our views and, of course, sometimes someone enters the discussion with a view which may differ from the view that is being held at the end of the discussion.

Did you all make a decision to start speaking somewhat differently?

But we were somewhat concerned that it had been alluded in the European Parliament that we were following a policy of neglect vis-à-vis the euro, so that we deliberately wanted to contradict that.

Recent developments in the labour market show a somewhat decelerating employment growth towards the end of last year.

Industrial production declined at the beginning of this year, and data on retail sales volumes suggest that the pace of growth slowed down somewhat around the turn of the year, but recently there are preliminary indications of some improvement.

As regards the evolution of the world economy, recent developments tend to confirm the picture of a mild overall improvement in the external environment beyond the euro area.

While the pace of increase in overnight deposits reduced further, signalling the waning influence of the uncertainties surrounding the launch of the euro, deposits with an agreed maturity of up to two years grew at a stronger pace in March than in February 1999.

Excluding the more volatile HICP components of energy and food, the rate of increase in consumer prices in March remained at 1.1% - i.e. unchanged from the rate observed in February and marginally lower than that recorded at the turn of the year.

So, the volatility has increased.

But as for the impact on the euro, as you have mentioned it, it is true to say that the news that comes by the hour on the conflict in Yugoslavia has an impact on the volatility of the euro.



1999-06-02, 54 sentences

Are you afraid of a contagion of this slowdown in growth to other smaller countries which are almost recovering now?

these are three big countries which account for almost three-quarters of European GDP.

What happened today is simply that I was aware of the fact that it had been agreed to release the statement on interest rates for the next two refinancing tenders at 1:45 p.m. and, actually, the member of the staff who put it on the Web site apparently had his watch set wrongly, so he inadvertently, and I apologise for that, already put it on the Web-site at 1:40 p.m.

But that could be qualified as a structural factor in as far as the crisis would have lasting effects.

In the precise wording of the Finance Ministers ' decision, if you refer to Italy, it contains the explicit warning that reaching the objective of 1% of GDP in 2001 could require additional corrective measures on a larger scale than envisaged.

Did you discuss whether and to what extent the Kosovo war could be considered as an external shock, which would of course have an impact on sticking to the conditions of the Stability and Growth Pact?

Could you give us a bit more concrete picture about your expectations?

Will you accept that invitation and what could you contribute to it?

There was a reason given to the media, but I was wondering whether you could explain the drop in a bit more detail.

Regarding the level of reserves, we have recommended to the EU Council, for the time being, to double the amount of reserves, but leaving the question open whether in the future so-called" further - further - calls '' of reserves could be made.

Could I ask: was the issue of intervention discussed at the Council meeting today?

Could you elaborate on that, please?

I just wonder, if you could clarify, please.

The actual indications are that we see no reasons to differ substantially from the European Commission 's forecast.

No, we all agreed that we have to make quite an effort to speak with" one voice '' because the song we are singing does not differ at all, but we sometimes need some repetition to achieve full harmony.

First of all, the issue of intervention was discussed only to the extent, if I may disclose something of the meeting, that I asked what should I answer if a journalist asked me" have there been interventions? ''

Do you share that view that in some ways the current level of the euro is actually beneficial to the euro zone economy, that it may in some ways be a good thing?

These movements are quite normal ; they may have something to do with government purchases of military equipment abroad or whatever things have to be paid.

There may be a slight increase due to temporary factors which are, in particular, the rising energy prices that are working their way through to the price level.

But, may I repeat what I have said before elsewhere in public: if this were to become a trend across Europe, then there would be a real reason for concern.

Now, as far as devaluation is concerned, may I repeat what I said: the euro is a currency which is firmly based on internal price stability and therefore has a clear potential for a stronger external value.

This decline was accounted for mainly by a contraction in deposits with an agreed maturity of up to two years, which in turn may have been connected with some portfolio shifts towards longer-term financial instruments not included in M3.

On the basis of currently available data the picture remains unchanged: there was a noticeable slowdown at the end of last year and there is only limited evidence as yet that activity may have seen a turnaround in the course of the first months of 1999.

We may have tried to make some rough estimates - while the war is still going on - of what the cost might be.

In that way, as it may seem, it is bearable from the budgetary point of view.

Now it is a temporary factor that may temporarily lead to somewhat higher inflation, but it is our view that over the medium term - I am looking toward the end of the year 2000 at least - the average rate of inflation will remain relatively low.

The stabilisation, though to a different extent, we see in Latin America and the continued - may I add, unexpectedly - strong growth in the United States are all factors that make us conclude that the conditions for a recovery are in place.

All that we can do about this is to give statements, as we have done today, whatever the repercussions in the political arena might be.

Indeed, the euro at this level might have some advantages, because it would stimulate activity and exports outside the euro zone.

Did you really not discuss at the meeting what impact interventions might have and whether you would take them?

You might say that, to tackle the major problem that Europe has, i.e. the high level of unemployment, given that it is caused only partially and to a minor extent by cyclical factors and to a major extent by insufficient flexibility in the markets for labour, goods and services, call urgently for precise measures that differ from country to country to increase the flexibility of the labour market and to increase the flexibility of the markets for goods and services, e.g. opening hours of shops, etc..

So, I will not comment on any such possibility.

Your first question was:" do I regard it as possible that the exchange rate would reach the level of one to one to the US dollar? ''

Mr President, a few weeks ago at this press conference you were asked whether you would consider it possible that the euro could go below USD 1 and you said:" certainly not ''.

How concrete is it for Italy and for other possible candidates, like Germany or France, who have similar fiscal problems, or may have similar fiscal problems?

The Governing Council also took note that the figures for credit growth were revised downwards significantly for early 1999 and that the annual growth rate of total credit declined to 6.4% in April 1999.

Mr. Issing, the other night, was speaking at the University of Cologne and said that he saw no risk, with the euro at its current level, that inflation would be imported into the euro zone.

Looking at recent developments in the world economy, the risks seem to have become more balanced.

But, would you agree with statements like that and it seemed as though they were very different from what you said, much more pointed about being concerned.

The one I saw seemed to be in a quite happy mood.

They seem to think the currency is going to continue to fall.

And now it seems that the European Finance Ministers are not listening to you either, because they are loosening the terms of the Stability Pact.

This does seem to have something to do with the fall in the euro.

But the markets do not seem to be.

By that I mean that the crucial thing is that we seem to be achieving our aim, which is to maintain price stability.

All the other south-east Asian countries seem to be crawling out of the trough.

In addition, there now seems to be less danger of contagion effects among emerging market economies, given that economic and financial conditions have improved in a number of countries, notably in South-East Asia.

There are, of course, other factors which I did not mention, i.e. the war in Kosovo, which certainly also has a somewhat different impact on the euro than on the US dollar.

Given that there has been a relatively sharp increase in long-term interest rates in the United States, that itself has its spill-over effects in Europe, also causing long-term rates in Europe to rise somewhat, which - by itself - is normal.

Among other factors, this relates to somewhat firmer expectations that the growth of the US economy will remain strong in the near future.

I will not join in the speculative mood that seems to be vivid around the world.

This suggests that households and firms are at present exploiting the favourable interest rate conditions to finance their consumption and investment plans.

Also, we have been hearing that the ECB is preparing legislation or wants to suggest legislation that would allow the ECB to double its reserves.

These very short-term volatile movements in the exchange rate, I am inclined to play them down.



1999-07-15, 50 sentences

Therefore, while the signs of recovery are still modest and are not yet reflected in labour market developments, recent data appear to confirm the outlook for a continued improvement in the course of this year.

At the same time, household sector demand patterns appear to be broadly unchanged, as indicated by a still high level of consumer confidence.

Given the developments in industrial confidence up to June, it would appear that the trough was reached at the end of the first quarter.

Following successive declines, the level of industrial production appears to have stabilised in the months up to April.

As we have said on earlier occasions, the Governing Council believes that the euro is firmly based on internal price stability and therefore, has the clear potential to achieve a stronger external value.

I believe Mr. Hutter was also referring to something else.

We believe that this was an appropriate decision at the appropriate moment and, of course, the effects of monetary policy decisions will become evident only with a very long time lag.

We believe that the euro is firmly based on internal price stability and, therefore, has the excellent potential to achieve a stronger, external value.

But the real answer is that it has not been found, but it could not have been used, because it was not final.

Could you just very briefly tell us a little bit more about the safety features of the new euro banknotes?

You could interpret that, not as a bias, but as a bias gradually creeping into our considerations.

This was a success and we therefore agreed that the participating national central banks could release their printing orders.

It states that it can be noted that the designs which have meanwhile been published differ from the actual appearance of the euro banknotes.

Well they have differed in various Member States.

They do not always have the same printing machines, so that there may be quality differences.

All I can say is that circumstances may change and I have already answered the question about the bias, using the word" creeping in ''.

As you may remember, the Governing Council has already decided that the euro banknotes will not bear any national symbols and, therefore, will be totally identical irrespective of where they are produced.

But, if money and credit growth increases further, a re-assessment may be appropriate.

Moreover, to the extent that the Kosovo conflict may have had a negative impact on economic sentiment in a number of countries, its end has eliminated a risk to the outlook for economic developments in the euro area.

How do you regard the statements on the Stability Pact, for instance those of the Planning Council in Paris, that are placing this Pact in question, because it might curb the growth momentum.

In the Monthly Report, which came out two days ago, you were saying that a re-assessment of the fact that monetary growth is currently not threatening price stability might be in order if growth should pick up further.

It might be helpful for governments to have a number of technical analyses in looking at their own fiscal stances.

And, as your colleague had already concluded from the Monthly Bulletin, there might have been some slight change in tone that was confirmed today in my statement, and we will monitor the developments in the months to come very carefully.

I might add that the start of production yesterday was a total success in all printing works.

Yes, is there not a problem that you have often said that the relation between real growth and credit growth might have shifted and might not be so stable anymore?

Now you are saying that it might be in order if M3 growth might pick up further.

Is the difficulty in understanding your interest rate cut perhaps also a reason for the euro not having gained the confidence in the markets that it should have had in terms of its internal stability?

Do you perhaps also believe that 1:1 is easier to remember?

When looking at the upcoming situation regarding price stability, has your assessment been influenced by the possibility of the degree - however small - of imported inflation from the lower exchange rate of the euro against the dollar.

Not because there is any possible consequence, but because we have the technical knowledge and habit of doing this with the help of all the national central banks of the Eurosystem.

In countries where one of these days is not a public holiday, the national central bank will endeavour to close the national RTGS system on the day in question or, when this is not possible, will seek to limit domestic payment activity as much as possible.

Yes, we do intend to be as open and transparent as we possibly can.

More recently, however, domestic factors have probably played a more important role in the determination of domestic bond yields than was previously the case.

However, a reassessment may be appropriate if money and credit growth increase further.

But it is not pointing at certain countries in saying that there is a special risk of breaching the 3%.

But it is not pointing at a specific risk of a breach in specific countries.

So it can not be concluded from this that there is a risk in the foreseeable future.

But it does not point to any risk of such a development in the short term.

It looks more at the medium term and at the risks that may arise if a number of improvements are not pursued and if there are adverse developments in the medium or long term in, for instance, the real economy.

And that is, under the new circumstances, somewhat more difficult than it used to be in the past before the euro was created.

If the Monthly Bulletin is read carefully, one gains the impression that the Governing Council, or economists at the ECB, are taking a somewhat new look at the interest rate cut of April, because the econometric models had already indicated an economic recovery in the first quarter.

In the ultimate series the word" EURO '' will still be there in Greek letters, but it will be somewhat shadier than in those published earlier.

Somewhere in the air probably.

In addition, recent developments in economic and financial indicators for the emerging market economies suggest that a recovery is under way in South-East Asia.

At present there is insufficient experience with regard to the properties of the new ESA 95 data, in particular their susceptibility to revision, and some caution should therefore be exercised when interpreting the most recent developments in real GDP growth.

Against this background, the expectation remains that over the next few months the rate of price increases will tend to edge upwards, mainly reflecting the increase in energy prices.

The outlook has improved further, in particular in relation to expectations of continuously strong growth in the US economy and some tentative indications that the prolonged decline in activity in Japan may have come to a halt.

Was such a change to variable rate tender discussed today or on any other occasion lately?

The first one: given the current situation on the money market, a change to a variable rate may have some positive effects.

Hence the decline in the overall HICP rate was also reflected in the HICP rate excluding the two more volatile components - energy and seasonal food.



1999-09-09, 56 sentences

I do not think that interest rate policies would have an impact on the effects or the anticipated effects of the century date change.

In particular, market participants appear to be increasingly optimistic about the prospects for economic activity in the euro area.

I am not reacting to anybody 's remarks in this area and you will have noted that the word" exchange rate '' did not appear in today 's statement.

We believe that citizens and businesses can only benefit fully from the fundamental principles of the free movement of goods, services, capital and people if they are also able to transfer money as rapidly, reliably and cheaply from one part of the European Union to another, as is now the case within each Member State.

But you will remember that, when we made the choice of the monetary policy strategy last year, and we made the choice of the reference value, one of the explanations for calling that a reference value was that we were cautious for many reasons.

In the area of TARGET, as well as in the area of monetary policy implementation and liquidity management, we are also reviewing our contingency procedures to minimise any potential Year 2000-related impact.

It is worth noting that general contingency procedures had already been put in place shortly before the launch of the euro.

So, they could increase their liquidity value on any given day by a very high factor.

You must bear in mind that there are two differences between the situation, let us say, in the United States - I am just taking this as an example, and could be any other large economy - and in Europe.

Could you give us another argument, that only applies to the specific situation today, against the variable rate tender?

Indeed, the creation of this virtuous circle depends on all policy-makers playing their part.

We are not moved by the day-to-day fluctuations in economic variables as we see them, as I also indicated in my statement.

We can deal with an increased demand for liquidity that may arise.

And, having said that, you can also see that it is not related to the interest rate policy conducted, because the marginal lending facility works whatever the interest rate for this facility may be.

And it is not sure to what extent the structural and cultural shock of the introduction of the euro may itself have changed behaviour and relationships of investors and consumers across the euro area.

You may recall that on 15 July 1999 we decided to close TARGET on 31 December 1999, in order to smooth the transition not only for the ESCB institutions, but also for the other financial institutions.

But have you made any studies in regard to the liquidity impact or the changes of behaviour which may be irrational on the part of savers vis-à-vis monetary and credit aggregates, because we could be in a situation, for instance, where savers decide to liquidate assets, financial assets, to put money on accounts - you would have a clear situation in which monetary aggregates would therefore indicate very little in terms of an irrational indicator for policy.

This upward movement may be explained to a large extent by the very low opportunity costs of holding monetary assets, especially the most liquid components, but perhaps also by the gradually improving economic conditions in the euro area.

And if you are not willing to do that, maybe you can give us an indication of what you think is currently forecast, so that we know what you think, what will be then higher than - what figure?

So, from that you might derive that we are indeed not inclined to try to fine-tune the economy with monetary policy, or to give fine-tuning answers to short-term developments.

In that case, we can, through the banks and directly, handle any increased demand for liquidity that might arise.

One of the reasons was that there might have been a special shock related to the introduction of the euro.

As far as our monetary policy framework is concerned, we are convinced that it is flexible enough and has built-in mechanisms designed to deal with any level of liquidity demand that might arise in the euro markets.

There might be a shock, at least in the statistical series, and we must, of course, be prepared to deal with it.

Well, the message you might want to repeat is what I said in my Introductory Statement, namely to continue on the road to increasing flexibility in the labour, product and service markets, to take measures especially in a period when the economy and the economic outlook are brighter than we had foreseen earlier.

And I might add that this was deliberate.

You said that the GDP growth might eventually turn out to be somehow higher than currently forecast.

It 's creeping and it remains creeping - but at snail 's pace, you might say.

So we are distinctly, I might confirm this, more optimistic now on the outlook of the development of the real economy, both for this year and for next year, than we were three months ago.

So, in that aspect, you might say that we are somewhat less activist than some other central banks in the world tend to be.

Now I ask you, perhaps to prevent a myth, if you think that too.

The liquidity squeeze, or the possibility of thereof, would have an impact on your decision-making regarding interest rates.

It will undoubtedly be discussed at one of the forthcoming meetings, but what the result of that discussion will be, I can not predict.

We will see if there is a specific demand for liquidity that is clearly related to this period, that will probably show up in the last weeks of this year and the very beginning of next year.

In particular, with a view to conducting a thorough assessment of the risks to price stability in the medium term, the increase in monetary growth over recent months and the high growth rate of credit to the private sector need to be monitored very carefully.

However, we remain vigilant taking into account the upward risks to price stability.

While the outlook for stronger growth in the global economy is also supported by recent developments in other regions, notably South-East Asia, some risks remain, primarily in relation to the strength of the recovery in Latin America.

The Governing Council reviewed the outlook for price developments and the risks to price stability in the euro area, in line with its monetary policy strategy.

In its outlook, the IMF pointed out that the risks of the equity markets in the United States and in the world as a whole may be too high, and they also refer to the dollar.

The downside risks pertaining to these projections have tended to recede and real GDP growth might eventually turn out to be somewhat higher than currently forecast.

It seems to be a golden opportunity to take further measures both in the sphere of reducing the fiscal deficits and in the sphere of structural measures to increase the flexibility of markets.

It seems to achieve something that no central bank in the world has ever achieved yet, namely to keep inflation between 0 and 2% in the medium run.

Domestic factors seem to have played a dominant role, as indicated by the fact that differentials between US and euro area bond yields have narrowed further.

I would like you to put a figure on" this somewhat higher than currently forecast. ''

The transmission mechanism as such is somewhat in the dark, I admit.

We expect consumer price increases to rise somewhat further from their July levels, mainly as a consequence of higher oil prices.

Moreover, available evidence in terms of retail sales data and consumer confidence, while somewhat more mixed, suggest broadly sustained consumption growth.

There has been some speculation whether you might switch to the variable rate tender and then there have been comments, I believe of Mr. Issing, who said this might lead to an undesired increase in interest rates because banks tend to bid up themselves.

At the same time, expectations for inflation, as reflected by, inter alia, the signs emanating from index-linked bonds issued in the euro area, tend to indicate that markets still expect an evolution of consumer prices, which will remain compatible with price stability.

Mr. Duisenberg, if we were to look over the last eight or nine months of this year, we would see that other central banks in the world have tended to move interest rates more often than the ECB has done.

We tend to attach greater importance to three-month moving figures than to the volatility of one-month figures, or even daily figures.

Through the marginal lending facility, if there are unexpected needs, on a given day or at a given time of day, from the banking system that have not been covered through tenders, all the banks may immediately come to the Eurosystem and take all the liquidity they need.

Mr Duisenberg, I would like to come back to the issue of the variable rate tender.

We have the instrument available, in principle, to switch to a variable rate tender if we were to deem that necessary.

Mr. Duisenberg, last time you mentioned that the issue of variable rate repos could be discussed at this meeting and I am wondering if you did discuss it and what was the result of the discussion?

And still you pick the variable rate tender as one of your possible instruments.



1999-10-07, 37 sentences

The anticipation of an expected cyclical improvement should not lead to a weakening of efforts in this regard, but rather it should be used as a welcome opportunity to make convincing progress.

However, these data do not appear to impinge on the view that there is an upturn in growth in the course of this year.

In addition, in some Asian countries the recovery in growth appears to be taking place somewhat earlier than expected.

You have to realise that the statement by the fifteen participating central banks implied that they would limit their annual sales of gold to an amount of approximately 400 tonnes per year and to an amount not exceeding 2,000 tonnes over the next five years.

On balance, the Governing Council believes that monetary conditions, especially the sustained growth of M3 in excess of the reference value, signal a rather generous liquidity situation in the euro area.

You could do that.

I would be grateful, however, if you could answer it again.

And the second question: could this agreement be the nucleus for a central gold selling agency for euro area central banks?

And the other question is: could I possibly just ask you to define precisely what you mean when you speak about a tightening bias?

Furthermore, the gradual improvement in the real economic situation may have fostered the expansion of M3.

While it is likely that this increase is related to expectations of a recovery of activity in the euro area, expectations of increasing inflationary pressure may also play a role.

I am wondering to what extent do you think that the problems stemming from the fact that economic data may perhaps be distorted.

Judging from the statement that we heard last week, that might be inferred.

But what we do consider is that this deregulation, liberalisation and increasing competition in itself might be a process which is rather long-term in character - because it is ongoing.

But we also see signs that it might accelerate somewhat further, but we need further evidence to confirm this.

Perhaps you want to add something because you have also been quoted.

We know, preliminarily, what the Swiss authorities intend to do, but I would like to emphasise that the Swiss have never announced either when they would start or when they would end.

But before taking action we need more conclusive evidence confirming our preliminary assessment.

What are your preliminary conclusions?

I should also like to mention that the Governing Council had a preliminary discussion on EU accession countries.

Very specifically, in the English translation in the Parliament the translators used the word" probable '' in a certain context, whereas the word" probable '' did not appear in the French text.

And we will probably review it sometime ahead of the end of the five-year period.

The Governing Council conducted an intensive discussion of the current monetary policy stance in which it was concluded that the balance of risks to price stability remains on an upward trend.

In conclusion, monetary and credit developments indicate that continuous close attention must be given to upward risks to price stability.

Notwithstanding individual downside risks in the countries I have just mentioned and a more general uncertainty regarding the recovery in Latin America, the world economy seems to be set for higher growth.

The financial market seems certainly to have taken them as a very strong signal that there would be some action soon and, now, there is not any action.

The high growth of M3 seems to be related to the low level of opportunity costs of holding monetary assets, particularly the most liquid components.

I have seen that your remarks, Christian, which you made in French, seemed suddenly through the translation to adopt quite another meaning and that was a phenomenon which we have to deal with and to cope with.

The answer to the first question is somewhat more complicated.

It has gradually strengthened somewhat, to a level - as it was this morning at 1 o'clock - of about USD 1.0710.

And we are now turning our mind in our medium-term outlook to the future, realising that we have to adopt and to have a monetary policy stance which is conducive to sustainable non-inflationary growth, which is somewhat different from the accommodative stance we had in a period when we saw output slowing and inflationary expectations or tendencies even going in a downward direction.

In fact, industrial production data for the period up to July confirm the gradual improvement of recent months, and various survey data suggest that there was a further strengthening of output growth in the industrial sector over the summer months.

Developments in credit growth in August tend to confirm that the demand for loans remains strong, supported by low bank lending rates, indicating that euro area residents do not face borrowing constraints.

But the statement was intended to give some certainty, or to take away uncertainty - let me put it that way - in the gold market for five years and then we will review it.

We see a slow, although not unexpected, increase in the rate of inflation.

But what we do see - as far as inflation is concerned, insofar as we pay attention to current developments - is that inflation is slowly creeping up, but - and not unexpectedly - due almost exclusively to the increase in oil prices which is working its way through into consumer prices and which will presumably continue to work its way through.

Largely reflecting this development in services prices, the HICP rate excluding more volatile components - namely energy and seasonal food - declined to 0.9% in August, having risen to 1.0% in July.



1999-11-04, 54 sentences

The three-month average of the annual growth rates of M3, covering the period from July to September 1999, was 5.9%, which is almost 1 1/2 percentage points above the reference value of 4 1/2%.

And that 's our aim: that growth should pick up in Europe - growth is at different stages in different regions, but almost everywhere it is picking up - and at a favourable pace which does not generate inflationary tensions, because if that were to happen we should be obliged to take measures to curb it later on.

You lowered interest rates when M3 was above 5% in April and it has been above 5% almost all of the time and you had very different tones.

Euro area financial market developments over the past few months confirm the general change in economic conditions and perspectives for the euro area by also anticipating an acceleration of economic growth.

The outlook for the world economy remains positive ; this mainly relates to the sustained growth of the US economy, but also to the apparent strengthening of the recoveries in South-East Asia and Japan.

Furthermore, today 's move by 50 basis points appeared to be the best way in which to avoid uncertainties regarding the future course of monetary policy.

In some countries, I believe four, current inflation rates are over 2%.

And all governors of the accession countries - with the exception of one, I believe - will come to that seminar and we will discuss a wide range of issues which have to do with legal aspects, statistical aspects, monetary policy aspects of entry to or becoming a member of the EU.

So that if we want to see unemployment continue to fall - even fall faster - in Europe, we believe we are contributing to this end by our decision today, which supports long-term strong growth which avoids the danger of inflationary developments - although this is not a substitute for the carrying-out or pursuit of structural reforms.

Together with fiscal consolidation in the context of the Stability and Growth Pact and the necessary moderate wage developments, such reforms could make a crucial contribution towards transforming the current cyclical upswing into a process of longer-term non-inflationary growth.

What I said is that we have come to the conclusion that there is ample liquidity, I could add, very ample liquidity available in the euro area economy.

Could you tell us whether the Council was entirely in agreement on doing 50 basis points or whether there was some disagreement?

Could such an impression undermine the setting of monetary policy - even if it was just an impression?

If we were able to quickly enforce the so badly needed structural changes, as I said, in labour markets, in goods markets, in all kinds of activity in the economic sphere, then we could come to a higher potential growth rate than we are actually seeing now.

Coming back to the famous words:" That is it '' which gives much room for interpretation, could one interpret today 's decision as the end of the trend or the change of the trend from interest rates coming down to interest rates going up?

Number one: at the last press conference you said that there was still some evidence missing before you could hike rates.

We have tried to explain in advance to the public that it would not be our desire to put a stop to growth at the very moment it was beginning to pick up, but to make sure that this growth could remain non-inflationary and hence would have the best chance of lasting a long time.

And secondly I 'd like to ask you whether you could give us an estimate for a foreseeable future for dollar/euro exchange rate.

Under these circumstances, the alternative of moving by less than 50 basis points now and examining the need for an additional step later on could potentially introduce unwarranted uncertainty for the period ahead.

This deviation from the reference value has steadily increased during 1999.

It was not an issue, but it was one of the factors taken into consideration - co-determining, if I may put it that way, the size of the rate increase.

We do want to be credible which does n't rule out that, on some occasion in the future, we may be forced to surprise markets.

The size may have been a surprise.

Just as a last word: if I may repeat our leitmotiv, because in our view it is absolutely crucial: provided a number of structural reforms are carried out or pursued in Europe, inter alia in terms of goods, services and labour markets, Europe 's growth potential will be maximised and the employment benefits of growth will also be maximised.

Countervailing price movements of such a kind may possibly continue in the coming months, while expectations remain that there will be some overall upward movement in the HICP rate in the short term, which will mainly be linked to energy prices.

And, maybe later, it also means that it will end in the adoption of the euro as a currency for these countries.

We want to calm down markets and market expectations without saying anything about whether and when a next step might be necessary.

What we were sure of is that, whatever the so-called neutral or balanced rate might be, the level of 2.5% prevailing until today was below it.

M3 growth rate was a little above 5% at the time and you had said that this is not so worrying yet, but you might change your assessment if it would grow further.

And the third aspect: what will you tell, perhaps, candidate countries for accession to the EU who might want to unilaterally adopt the euro, for instance in order to improve their inflation prospects and their changes of coming into the EU?

But then I want to repeat - we do want to be predictable, to the maximum extent possible, because only in this way can we also succeed in being credible on the markets.

We want instead that growth should be sound, without inflationary tensions so that it will last as long as possible and be as strong as possible.

Concerning the size of an increase in interest rates, against the background of a fundamentally changed situation, the precautionary interest rate reduction made in April 1999 is no longer justified.

Do you now consider yourself the risks after this move evenly balanced?

We get the impression that you 've taken more account of the risks of overheating in the" peripheral '' euro area member countries than of the real situation in the core euro area economies: France, Germany and Italy.

Instead, monetary developments, together with the accumulating evidence of improved economic prospects, confirmed the view expressed earlier by the Governing Council that the balance of risks to future price stability has gradually moved towards the upside.

Overall, on the basis of prospective developments, the Governing Council considers that today 's decision will counter the upward trend of the balance of risks to price stability.

The main argument for raising the interest rates was the fact that since around the beginning of the summer the balance of risks to future price stability has gradually been moving towards the upside.

In conclusion, the downside risks to price stability have disappeared.

In fact, the economic situation in spring 1999 had given rise to concern about downward risks and had led to a precautionary interest rate reduction by 50 basis points on 8 April 1999.

However, all indicators, as we assessed them today, - and I am talking about wage demands, I am talking about producer prices, and I am talking about the liquidity situation - point in a direction that the risks on the upside are increasing and have already increased, i.e. the risk of that figure of 1 1/2% to 1 1/2% being threatened.

But, so far, the countries that have indicated that they are thinking of moving in that direction seem not to be an overwhelmingly disturbing factor for the euro area as a whole, let me put it this way.

Mr. President, given that you feel unable to say:" This is it '' which seemed the last time you changed interest rates to emphasise or to stress the durability of the interest rate.

I did n't mention it specifically, but, in assessing all the indicators we had, we paid due attention to the fact that in various regions of euro area there seems to be an acceleration in wage demands which, by itself, is adding to our conviction that it is about time to raise interest rates.

Second question: the ECB, in the last few days, seems to have gone the extra mile to prepare the market for today 's move.

It sometimes happens in practice that in the repetition it may seem as if there is an acceleration, which was not our intention, but you can not do anything about that.

You ca n't understand anything because - let me phrase it this way - in our deliberations we were very sure that, had we moved by 25 basis points, we would immediately have created the expectation and speculation in the markets that there would be another step to follow.

Today, we have both pillars suddenly pointing in the same direction, namely in the direction of an increased risk towards price stability as we perceive it.

Most recent data releases for the euro area suggest an acceleration of real GDP growth rates in the second half of this year.

The strong growth of the most liquid components of M3 is particularly noteworthy, suggesting that the very low level of interest rates favoured the strong growth of monetary aggregates.

Moreover, several indicators, including monetary growth, suggest that there is ample liquidity in the euro area.

In addition, such a move is expected to contribute to reducing any uncertainty premia potentially prevalent in financial markets and also to help to contain a possible increase in volatility in money markets towards the end of the year.

But that it is not coming from M3, but you just pack it onto M3 and that makes you a little unpredictable and it requires you in advance to say what you are going to do because otherwise we would not know.

That can vary from one month to another, of course.



1999-12-02, 49 sentences

And the figures, as our statisticians have assured us, are becoming more reliable almost by the day.

How much importance do you attach, in respect of the euro depreciation, to the intervention in Germany of the Chancellor to save an almost bankrupt company, or to the importance of hidden parallel accounts for the biggest German party which was in government here in Germany for sixteen years?

My second question: you have given the forecast or anticipated growth rate as 3% in the forthcoming year and in the year after that, or as just under 3%, and the rate of inflation as below 2%.

The exchange rate - and I can apparently not repeat it often enough - is one of the main indicators forming part of the second pillar of our monetary policy strategy.

Indeed, the global economic outlook remains positive, and the view that the world economy is set for higher growth appears to be shared by the major international organisations.

This decision was taken on the grounds that the components underlying the derivation of the first reference value in December 1998, namely the Eurosystem 's definition of price stability and the assumptions for trend real GDP growth and the trend decline in M3 income velocity, have remained unchanged.

So, for example, the forecasts that were published by the European Commission, although the underlying assumptions were sometimes slightly different from ours, their outcome was virtually identical.

We do believe - if we get that message across and we will continue to do so - that that in itself will underline, as I have already said, our feeling that the euro has a strong potential to appreciate.

Could you tell us whether some progress has been made or what has been decided or discussed?

So we could argue that you have to increase the interest rates again, because the exchange rate level is too low.

If indeed the structural reforms in the labour market, in the good markets, were finally to be implemented throughout the euro area, then we could have a potential growth rate, or a growth rate, that is significantly higher than that currently perceived.

Could I ask you: obviously the euro does have a bit of an image problem and is not proving attractive to investors today.

Is there anything you think you could do to improve that image, to make it clear that the euro is a better currency than it looks today?

Could it not be said that it is very positive for the European economy and can it not contribute to the recovery of economic growth in the euro area?

Against this background, the Governing Council wishes to emphasise that the trend growth potential of the euro area could be considerably enhanced by structural reform in the labour and goods markets.

On potential growth, if I remember what I said and was reported correctly, I did not say that the potential growth was higher, but that it could be higher and could become higher than the trend rate of growth which we observe, which we put at the figure of 2% to 2 1/2% for the euro area as a whole.

Mr. President, do you see any signs that the growth of M3 could slow down a little bit in the foreseeable future and could you elaborate a little more on why you left your reference point at 4.5%?

Could that be possible?

However, the actual developments will very much depend on the behaviour of a number of factors, and in particular on wage developments remaining in line with price stability.

So, I would point out that the European Commission also forecasts average inflation in 2000 and 2001 to be 1.5%, and we see no reason to deviate from that forecast.

But we do, of course, have this Y2K effect which may cause some hickups in the development of the figures.

And, whatever I may say to the German Government, I would rather say to the German Government directly.

All I want to say about the recent intervention in Germany - in the company market, may we call it like that - is that it does not enhance the image which we want to have of being an increasingly market-driven economy across the euro area.

As you may know, we do not have an exchange rate target.

On the one hand, the exchange rate is regarded as the outcome of the entire economic process and - may I add - the psychological process on both sides of the Atlantic.

As you may be aware, interbank liabilities are not subject to reserve requirements.

And what might the motives behind that be?

Yes, I think so - to continue to pursue a policy that is oriented to price stability in the euro area, and with success, I might say.

What is your gut feeling about whether it will be a full year before you look at M3 again or might you have a look at M3 a little bit earlier on next year?

What might the motives be?

Do you think that the financial markets might be exaggerating?

That might - but it will take time for it to materialise - lead to a smaller growth of M3 in the future.

So, I am perhaps best advised to stop saying anything, although, for once, you have not exaggerated.

You said that there was perhaps a good case that the potential growth has risen, or the rate of potential growth has risen, and is not necessarily reflecting the trend of the last two decades.

Did you - in reviewing the reference value for M3 - also discuss the possibility of introducing a corridor around the reference value that - as some economists argue - could have helped to stabilise expectations?

We, of course, also compare those forecasts with our internal preliminary forecasts, which will ultimately be published in the course of next year, as I have often announced.

Now, what I added today is that if - indeed, also in response to the first question - if potential growth were to rise in the course of time, and if there were convincing evidence that this was happening as a result of structural reforms in the functioning of the various markets, if the potential rate of growth were thus to go higher, then that would also be a reason to reconsider our reference value.

The Governing Council also conducted its regular review of the outlook for price developments and the risks to price stability in the euro area, this time including a review of the most recent forecasts and projections.

In line with its monetary policy strategy, the Governing Council will remain vigilant with regard to any risks to price stability arising either from domestic or from external sources and act in a timely manner.

Because some people seem to be thinking that it is a disaster.

And the other thing is: did the fact of the approach to euro/dollar parity, which seems to be happening in the financial markets, have any bearing on that?

As to whenever and wherever and how we are going to use it, I will not speculate.

Well, let me say what I say ever more often: as a central banker, the one thing I have learnt is not to speculate on anything, but rather to fight speculation wherever I can.

Would you excuse me that I will not join in the speculation on interest rates for the future?

So, I will refrain from any speculation - also on this aspect.

In particular, production growth in the industrial sector saw a further upturn in the third quarter and various survey data suggest that this will continue in the final quarter.

Forecasts available suggest that price increases will nevertheless remain below 2% in the course of 2000 and 2001.

In particular, this was signalled by the continued decline in long-term government bond yields and the immediate substantial reduction in market uncertainty regarding the evolution of future long-term interest rates.

In addition, our assessment has to take due account of prevailing uncertainties.



2000-01-05, 32 sentences

Now, the fact is that the market participants have been more cautious and asked for less.

Generally speaking, we would hope that any wage settlement going in excess of the rate of productivity increase could be avoided.

I wonder if, after a year with the ECB at the helm of monetary policy, you could give us your general feeling about how it has gone so far and if you can pinpoint any areas, any challenges ahead for the coming year, anything that you think the ECB should be working on to build credibility in the currency?

I think we have reason to be satisfied, that we have demonstrated that this new body, the Governing Council of the European Central Bank, could take decisions in time, in an effective way and in anticipation of future developments.

Are you afraid that the London financial community could pressure Mr. Blair not to go any further in his movement towards the euro, i.e. are you afraid that Great Britain could stay out of the euro for a long time to come?

Could you give us a rough indication of the mark at which a wage settlement might be excessive.

And it is a process which will take if not decades, well, then maybe even longer.

Some of you, maybe, or other commentators have said so.

Do you think that might have anything to do with the extra liquidity that all the major central banks have been pumping into the market, and with the withdrawal that is happening now?

Are you concerned, or pleased, or whichever, by the fact that some formal fiscal competition might develop between different euro countries in the sense of lowering taxes also with the purpose of attracting investment?Herr

Did you study if there is a possibility to use it this year?

Last year you said that the ECB would study the possibility to use a variable interest rate tender for its main refinancing operations.

Can we infer from that that if it really will develop like that in the coming months, that it will stay below 2% and then decline a bit, that this is taken care of by your precautionary move and would not give you a reason to raise interest rates again?

As you will be aware, the ECB took some precautionary measures to ensure against any problem in the transition to the year 2000, including the provision of sufficient liquidity in the money market during the period around the century date change.

In November, when you raised interest rates, you called it a" precautionary move '' and, it seemed, because of the rising trend in inflation.

It probably has to do with the phenomenon of the completely free single market in goods, services, people and capital.

In particular, note was taken of the fact that activity in the world economy is continuing to gain momentum as projections for world output growth have been revised upwards recently.

When discussing the risks to price stability, the Governing Council recognised that, in the short term, consumer price developments are expected to remain subject to further upward pressure.

In conclusion, the available indicators confirm our previous analysis and assessment on the overall situation as regards the risks to price stability.

The associated risk premium in short-term interest rates had already declined in the last week of December 1999 and had completely disappeared by the time the markets opened on 3 January 2000.

The Governing Council today conducted its regular examination of the current outlook for price developments and the risks to price stability in the euro area.

Well, I can not quantify how serious the risk is.

Mr. President, you have constantly warned against excessive wage settlements, in view of the inflation risk.

How serious do you think that risk is and how long do you think before it is apparent how big the risk is?

It seems so far that your estimate at that time, your forecast, has not changed and is developing as you expected.

What we had proposed to the market in a very transparent way was the size that, for us, seemed to be consistent with the immediate return to what I call a ` neutral liquidity situation '.

Your report seems to suggest that everything in your garden is rosy, with the exception - perhaps - of the fact that the euro continues to slide along the floor round about parity with the dollar.

But I will never exclude that sometime this year, or next year, we will use it.

I was somewhat surprised, although it is explicable, that the exchange rate then went down further - let 's say - through the level which had persisted throughout 1997 and 1998 and came close to so-called parity with the dollar.

And then, when I say we were somewhat surprised - with the benefit of hindsight, of course, one can explain everything - it is not really surprising that the very different cyclical situations prevailing in Europe and the United States did cause the exchange rate to move in the direction it did.

Before the switchover to the year 2000, it was said that uncertainty over the liquidity situation during the switchover somewhat limited the room for manoeuvre for monetary policy.

Financial markets all over the world have been very volatile recently, shooting up in December and correcting now.



2000-02-03, 40 sentences

The rise in the annual rate of change in the overall HICP from 1.5% in November to 1.7% in December 1999 was almost entirely due to an annual increase in energy prices.

Overall, consistently acting in line with these responsibilities appears to be most conducive to maintaining price stability at the domestic level and to ensuring robust growth.

At the end of January the nominal effective exchange rate of the euro stood approximately 11 1/2% below its level in the first quarter of 1999.

So you can assume nothing about efforts on our part to try to spend them.

I believe we have prepared markets well enough in their, as it so happens, justified expectation that something would happen.

We did and we do believe that the euro has a strong upward potential, for the reasons which I have given to you so often.

Well, I believe that, regarding our last move of 4 November last year, we deliberately, let me say, massaged the markets in that direction between 15 July and 4 November.

The main factor is still, I believe, the different cyclical situations in the euro area compared with the United States, which make it quite normal for the exchange rate to move as it has.

Mr. President, why did you not believe it advisable to wait a little longer to see whether the increase in interest rates of November leads to lower M3 growth rates?

Could it be partly political, such as the diplomatic situation with Austria within the EU or the financing scandal in Germany?

The other question is: do you have any concerns that the euro, which fell more than most people expected, could have an effect on public confidence?

Could you please comment on this?

Could you just comment on this?

Of course, that is an influence with which we have to cope, but - as I indicated in my introduction - we have the feeling that we are rapidly getting into step with the US economy and that could, and it even should, lead to a - let me call it - more balanced development of the exchange rate as well.

Could you tell us if there was any discussion today of making the increase a 0.5 percentage point increase?

But, of course, as I indicated in my introductory remarks, in our decision today, we carefully looked at the recent developments in the exchange rate as one of the main indicators which could have a lasting effect on future price developments and which we wanted to counteract.

If you listen carefully to or read the statement I made last Monday, the statements the Vice-President and some of my colleagues made in the weeks before that, even the statement we delivered together a month ago, then there were many signs that you could expect something.

Considering the prolonged deviation of M3 growth from the reference value of 4 1/2% throughout 1999, as well as the ongoing strong expansion of credit, monetary and credit developments observed remain an important factor contributing to the upside risks to price stability.

But, looking at the whole of the euro area, I doubt whether your prediction will come true.

Again, with the benefit of hindsight, we are now of the opinion that that period may have been on the long side.

But there may be some months in which we could have more than 2% inflation?

The size of the increase - I do not know how you want to qualify it - but you should not see it as a bias in any direction you might think of.

We hope to underscore public confidence by our actions and by an appropriate policy to preserve the people 's confidence in their currency to the maximum extent possible.

In order to maintain price stability, monetary policy needs to act in a forward-looking manner, counteracting external and domestic risks in a timely fashion.

These developments are indicative of upside risks to price stability in the medium term.

As for the second pillar of the monetary policy strategy, price and cost increases - including oil and non-energy commodity prices as well as producer prices - have been larger and more protracted than foreseen earlier and hence indicate risks of" second round '' effects.

Such risks, which are of a more enduring nature, are further increased by the fact that the international environment is showing continuous signs of improvement and the prospects of a cyclical upswing in the euro area are very strong.

Inflation rates are now approaching higher levels than expected earlier, and larger and more protracted commodity and producer price increases are heightening the risk of second round effects.

These decisions were taken on the basis of an assessment of the risks to price stability in the medium term in the context of the Eurosystem 's monetary policy strategy.

It is all the more important to take such risks into account given that the outlook for the world economy has improved further.

Now you see price risks.

If we had waited, we would have run the risk, honestly, of being forced to do more than we are currently doing in the future.

If you are convinced that all indicators, as well as the two pillars on which our monetary policy strategy is based, are already now pointing towards increased risks to price stability - and that does include recent developments in the exchange rate, which can not be ignored and which is one of the main indicators we look at - then we were afraid to wait.

Given both the magnitude and the duration of this development, import prices can be expected to rise further, thereby increasing the risk that upward pressures on consumer price inflation might materialise in the medium term.

Timely and appropriate monetary policy adjustments should ensure that these risks are kept under control, so that risk premia in financial markets will be diminished.

And it does not seem to me that they got your message.

Mr. Duisenberg, it seems to me that there is a danger here - and the big picture is - that the euro area could have its policy mix dictated by what is going on in the United States.

As higher oil prices are working their way through and as import prices are higher due to the exchange rate, we do expect inflation in the coming months to continue to increase somewhat and to taper off a few months later, so as to remain - on average - well below the maximum of 2% in the year as a whole and in the next year.

But, clearly, you were somewhat obscure, no more or less than Mr. Greenspan, because - following the ECOFIN meeting in Brussels - the Ministers of Finance thought that there was no risk to price stability and they thought there would be no increase in interest rates after that ECOFIN meeting.

To the outside, what you did convey was a little of the impression of uncertainty, of not really knowing.



2000-03-02, 50 sentences

Economic conditions and perspectives in the euro area appear to be better at present than at any time in the past decade.

We have already said it 100 times, namely that the Monthly Bulletin, which is issued approximately one week after the Statement of the President, i.e. a statement of the kind the President has just made, is not sending and will never send messages differing from that in the Introductory Statement.

You are talking about Italy, I assume.

I would not dare to give a precise figure, but you can not simply base assumptions on the difference between the actual outcome of M3 at the end of 1999 and the reference value, because there were special factors at the beginning of the year.

Indeed, whereas most forecasts still point to average inflation of below 2% in 2000 and 2001, they are based on rather favourable assumptions and generally seem to imply a pattern which is characterised first by decreasing rates of inflation in the course of this year and then by more fundamental upward tendencies later on.

Since last December, I believe you have been sending warning signals about the wage deals that were and are under way and so did Mr. Noyer and practically all of your colleagues.

What we are strongly interested in, what we do believe is that - may I paraphrase my American colleague - a strong euro is in the interests of Europe.

And I think there is some confusion even today.

There has been major confusion in the markets when members of the central bank comment on your policy - whether you are looking backwards to explain or whether you are looking forwards to prepare the market.

Could you give us a percentage in relation to the whole aggregate?

And there was strong urging from all sides in the Governing Council that we should see to it that - if we could not speak with one mouth, preferably with one mouth, we should at least let only one voice be heard.

Do you think strong intervention by the European Central Bank could push up the euro?

So that could not be held against Sweden in any way.

And there are signals, at least in the demands, that the contracts could be excessive.

Overall, the prolonged deviation of M3 growth from the reference value of 4 1/2%, especially when seen in conjunction with the dynamic growth of credit, indicates that liquidity conditions in the euro area remain generous.

That is why I say that there can not be any doubt in anybody 's mind as to the direction of future monetary policy.

Well, I do not think that my statement of today - as I have said before - can leave any doubt about what we have been doing.

Well, let me say this: on the basis of the statement I have just made, there can be no doubt in anyone 's mind as to the direction in which monetary policy will be moving in the near future.

And then a question for Mr. Noyer, if I may?

And all the members may elaborate on that, give explanations in their own words, but the message is the same.

So, there you see once again, it is the same message, which may be interpreted differently in practice.

And there is rumour that Mr. Tietmeyer may be put forward.

So, I am sorry for not being able to answer, but what is important is that it is not as simple as it may look.

As to the moves Mr. Tietmeyer may or will make, passively or actively, I will certainly not comment on this.

Well, it may have been said that the Bundesbank intervened, but I can say that the Bundesbank did not intervene.

If I may add, much the same to what you have just mentioned for" Le Monde '' also appeared, if I remember correctly, in the" Handelsblatt ''," Les Echos '' and probably in other sources.

But it may well be that, if the supply increases, the upward movement in oil prices could be reversed.

Now, have you changed your mind or might it just...

And if, perhaps, there is a feeling that the ECB was afraid of being perceived as acting on a weaker exchange rate.

And I have to wonder why the ECB did not, perhaps, move today.

And the third question is whether you see - relating to asset prices, to equity prices, in particular - whether you see a bubble there that is about to burst, possibly?

As of today, regularly updated information, including a preliminary programme, will be provided on the ECB 's Web site.

It was probably not on Monday, but on Tuesday.

The risks to these forecasts are increasing.

As to your argument that you have never heard me so hawkish: well, the signs are increasing that risks to price stability are growing.

In Europe we have an economy that is picking up strongly due to the oil prices and the exchange rate itself, with some indications that the risks for inflation are on the upside.

Remaining vigilant to counter upside risks to price stability and pursuing structural reform is the foundation for a sustained period of strong economic growth and a lasting process of job creation.

First, developments in monetary and credit aggregates will need to be analysed continuously in order to assess upward risks to price stability.

While it is likely that annual inflation rates will fall again in the course of 2000, owing to base effects related to the price of oil, monetary policy-makers need to look beyond developments over the next few months, i.e. policy will need to focus on the risks to price stability in the medium term.

Their upward impact on import prices is having a negative effect on the price climate and is thereby increasing the risks to price stability in the medium term.

These upside risks will need to be monitored and assessed continuously in order to ensure that timely action can be taken, if and when required.

The Governing Council also concluded that the balance of risks to price stability in the medium term remains on the upside.

But I would just like to give the warning that the risks seem to be increasing.

We did notice that we were widely reported - as reflected in the last but one question - as seeming to create diverging views and confusion in markets.

Markets speculated that, maybe, the ECB was intervening in the markets.

We know that one party in Tokyo was in the market, precisely at lunchtime, and that caused some turbulence, but it was not a central bank, I can assure you.

The strongest level of performance is currently being recorded in emerging market economies in South-East Asia, while the broad outlook in Japan remains uncertain.

But when the image presented is one of disunity, of uncertainty, of a lack of strong and unified will, that is never good for a currency.

Well, whenever there are uncertainties and risks for a certain currency area - in this case Europe - that have the tendency to weaken a currency - and this goes for the United States and for Europe - there could certainly be a political impact.

Excluding the more volatile components, namely energy and seasonal food, HICP inflation in January increased slightly to 1.1% on account of somewhat higher price increases for non-energy industrial goods.



2000-03-30, 21 sentences

What we do think is that - I want to repeat what I said earlier - the period ahead of us gives all governments, and I am inclined to say the French Government is certainly included, a golden opportunity to speed ahead, faster than anticipated, towards fulfilling the requirements of the Stability and Growth Pact.

The annual rate of change in the HICP in the euro area rose from 1.9% in January 2000 to 2.0% in February 2000, reflecting the anticipated upward pressure on consumer prices stemming from oil price and exchange rate developments.

With regard to the exchange rate: as I have said, the exchange rate has not moved very much since our last meeting, but it has stayed around the level already reached two or four or even six weeks ago, which is a level that the Governing Council firmly believes does not adequately reflects the potential for growth and the current situation of robust economic growth with unemployment slowly falling in the euro area.

Sir, could you please tell us, what you have been analysing with regard to the OPEC decision on price evolution in the euro area?

Could I say the same?

And a related question: could you give us your precise position regarding the latest budget measures of the French Government?

Could you please explain how this has to be evaluated in the light of inflationary risks?

For the first time this year, the major economic blocs may grow strongly.

The experience of all larger currency areas shows that some differences in regional price developments and also in regional output growth may exist.

Intermediate regimes, such as adjustable pegs, may suit the needs of emerging market economies, depending on their specific domestic and external conditions.

We now think it may even continue to be somewhat higher than in Europe.

This would not have been possible without a strong willingness to co-operate on the part of the actors involved.

The move to the single currency and the introduction of the euro were based on a degree of convergence towards price stability in participating countries that few observers would have predicted some years ago.

At this juncture, probably the greatest challenge for the euro area lies in speeding up structural reform in order to reduce the high level of structural unemployment.

The Governing Council has, over recent months, raised ECB interest rates in three steps, in total by 1 percentage point, as a response to signals from both pillars of the Eurosystem 's monetary policy strategy that upward risks to price stability were increasing.

They seem to have gone along with your advice not to go through excessive settlements, but what do you think about it?

And they do seem to indicate that the social partners, in Germany, too, have taken their responsibility for their future, and for their country, very, very seriously.

It is true to say - amazingly, I must say, basically, also for the US authorities - that the US economy seems to be continuing to grow at a pace which - we thought earlier - might be similar to that in Europe.

Well, first of all, we are not joining investment banks in speculating on what either stock prices or interest rates will be doing in the near future.

The Council has briefly discussed the phenomenon of asset price volatility and the fact that we are extremely hesitant, or reluctant, to pass any judgement or normative judgement on these developments.

Rather, as seen in the last ECB Monthly Bulletin, on page 41, I would like to know whether the Governing Council has anything to say about the high volatility on the stock markets and, in particular, the high volatility of technology assets and utilities?



2000-04-13, 47 sentences

Well, apparently it was not.

Now it appears from a whole range of forecasts, including those of the IMF and the Commission, that the United States will once again outperform the euro area economy in terms of growth this year.

In nominal effective terms, the euro was around 4% lower in mid-April than at the beginning of the year and approximately 14% below its level in the first quarter of last year.

So it can be assumed from today 's discussions that it was really only about timing and presentation, rather than about substance or direction of the policy.

This has been in line with the assumption underlying currently available economic forecasts, namely that the oil price increases which we observed until March will partially unwind in the course of the year.

Let me put it this way: we share the optimism on economic growth, as it has been expressed by the Commission, in that we also believe that growth in 2000 and 2001 will be well in excess of 3%.

On the other hand, all the indications we have given - and I will repeat them again today - are such that I believe that there can not be any doubt in anybody 's mind as to the direction in which the next move will go.

If I could, I would not tell you.

I could not agree more.

For example: could you imagine a Governing Council consisting of about 30 members?

Obviously, there is a feeling in some central banks, as we could read in the press in the Netherlands, for instance, that the co-operation between eastern Europe and, let 's say, the euro area is going at too high a speed.

Is there any thought of, let 's say, changing the legislation in connection with Article 109 so that non-member countries, too, could join ERM II?

And I doubt whether anybody else would take an initiative to that effect.

Mr. Duisenberg, you have just made clear again that there is no doubt about the direction of the policy.

Whether the high figures that the Commission quotes will materialise gives us some reason for hesitation or doubt.

And, if I may, a second short question...

Thus such countries may participate in ERM II with a CBA as a unilateral commitment augmenting the discipline within ERM II.

And this may take a period - well it differs from country to country - of, say, up to 30 years.

But, then, one has to remember that the structural reforms necessary in the labour markets, in the product markets, in the goods and services markets, in government finance, in social security systems, may - and do - differ from country to country, and from region to region.

No, it is true and, if I may take this opportunity, what you are referring to is the recently published World Economic Outlook of the IMF in which it was said - as far as monetary policy in Europe is concerned - that, admittedly, monetary conditions were ample, but - given the economic situation and the likely development of inflation - there seemed to be no need to tighten monetary policy.

... by optimistic, you mean a little bit too high on the growth side and maybe a little bit too low on the inflation side?

Mr. President, a few days ago the American Vice-President, and maybe the next President of the United States, said that the euro is not going to be any threat for the role of the US dollar until the euro countries have separate fiscal policies, until there is no single fiscal policy in Europe.

... maybe just a short question: do you realise that a lot of citizens in central Europe hold large amounts of Deutsche Mark, which - because they are not certain of what is going to happen in 2002 and for how long they could exchange them into euro - they are now changing into US dollars.

Have you also discussed any institutional changes that might be required with respect to the decision-making bodies of the ECB?

Accession countries which have operated a euro-based CBA deemed to be sustainable might not be required to go through a double regime shift in their strategies to adopt the euro.

And, whenever we come to the publication of forecasts, we do want to supplement it with, you might say, an educational explanation of what forecasts mean and what they can be used for, making clear that they are certainly not the only determinant underlying certain decisions to be taken.

We will not be surprised - on the contrary, to the extent that oil price and exchange rate developments work their way through in the coming months, we do expect, for a brief period in the coming months, that the figure might even slightly exceed that of 2%, before dropping back to 2% or less, so that, on average, we are somewhat less comfortable than the Commission seems to feel.

And you repeat this at nearly every press conference.

And, therefore, they think there is no real reason at the moment for a tightening of policy and that you should allow output to grow, perhaps not least with a view to the unemployment problem.

But perhaps the President would like to add something.

Perhaps, there is some suspicion you might have been influenced?

Against this background, the possibility can not be ruled out that the figure for annual HICP inflation will slightly exceed 2% in the spring of this year, before falling back to lower levels.

And, third, again years later, there will be the possibility - provided all the convergence criteria, both quantitative and qualitative, have been met - of entry into Monetary Union and also of adopting the euro as their currency.

Only when labour markets are more flexible and competitive pressures are high will it be possible to prevent bottlenecks from triggering upward pressures on prices at a relatively early stage of an economic recovery.

So, the exchange with banks in the private sector will be possible for a period of approximately one to two months.

But I am not a prophet and I can not predict precisely when.

Well, they contribute to the upward risks to price stability, together with the prolonged period of high oil prices.

And it is that factor - if those upward risks become stronger or if they do not abate - that would induce monetary policy reactions, not the exchange rate as such.

I can repeat it again: the position, the level of the euro, as it has now been for a rather prolonged period, is a position, which - over time - contributes to the upward risks to price stability.

The Governing Council today conducted its regular examination of the outlook for price developments and the risks to price stability in the euro area.

Until reversed, this development will put upward pressure on import prices and will continue to affect the risks for price stability in the euro area.

The Eurosystem will remain vigilant in assessing upside risks to price stability and will take appropriate action if and when required.

A forward-looking monetary policy which responds to risks to price stability before they materialise will avoid the need for a costly stabilisation of inflation at a later stage.

Second, sometimes years later, there will be the required entry into the European exchange rate mechanism.

And they sometimes diverge.

Many things are happening, but sometimes at a very slow and - occasionally - at an even disappointingly slow pace.

With regard to economic developments in the euro area, following strong growth of real GDP in the second half of 1999, most recent production and survey data suggest that the economic expansion also remained strong in early 2000.



2000-05-11, 47 sentences

First of all, as far as structural reforms are concerned, almost day after day and press conference after press conference we urge the people, the social partners and governments of the euro area to continue to carry out and implement further structural reforms in the labour and product markets.

This is almost too complicated for me.

I have read those rumours, just as you have, and I am inclined to do the same as the markets are apparently doing, i.e." shrug them off ''.

Is there anything you could do to" shut them up ''?

I was also wondering whether you could give us some kind of guidance on how you can stop the different European ministers from saying something different about the euro.

Many people thought that this could challenge his future position as President of the European Central Bank.

And the other question I have is: could you tell us a little bit about the conversations you have had with the US authorities about the exchange rate?

Mr. President, could you please elaborate a little bit more on Greece and the position the EU is taking on the membership of Greece in the Eurosystem?

Do you think that could challenge the compromise that was arrived at in May 1998 and, if there were to be a change, would that change your own personal plans?

We have studied a number of tools that could permit us to rule out any excessive developments in the same direction.

We are monitoring the situation very closely and we are developing tools that could be used in due course, if necessary.

First of all, without actually going into detail on the meetings with your American colleagues, could you just say whom you met with, if that is possible?

That depends on how long it lasts.

Mr. President, looking at the differing remarks of Mr. Fabius and Mr. Schröder lately about the euro, there seems to be a vision at the heart of Europe about how to treat this question.

It will be denominated in euro, there is no doubt about that.

Well, if the current exchange rate is compared with the exchange rate for the euro over the period - let us say - two years before the euro came into existence, a period in which growth forecasts, unemployment figures and inflation figures were far - I do n't want to say" worse '' - less good than at present, then the fact that the exchange rate has clearly fallen below that level for some time now indicates to me that it may well be that the markets have overshot the level which would be appropriate for an economy which has such a strong growth potential, which is actually realising that potential, which will realise a healthy balance of payments surplus for the foreseeable future and which is realising a climate of price stability - in terms of price increases in the foreseeable future, i.e. over the next two years - which will remain below the ceiling we have defined as the limit for acceptable price movements, namely 2%.

First of all, I am not prepared to take any blame for the decline in the euro, although I realise that markets may do so.

Well, the most important question, if I may call it that, is the first one, of course.

And, as long as the ECB is there - may I say, as long as I am there - there will be no danger.

It may take another decade before we can speak of one large European capital market.

We are concerned, but may I ask Mr. Noyer to express our concern

We are, in fact, concerned - not about a certain level, but about certain developments which have occurred and about the fact that there may be fewer automatic stabilisers in that respect than may have existed in various financial centres before.

Mr. Duisenberg, as you are aware, I am sure, there were a lot of rumours in the market yesterday that you may switch to a variable rate tender.

Do you think or maybe agree that there is a connection or correlation between the current weakness of the euro and the lack of economic reform in Europe?

It just occurred to me that, perhaps surprisingly, no question has yet been asked about interest rates.

Will this be a consideration for you in the near future or should you perhaps take a stronger stand against Greece?

With the euro hitting some new lows, there have been some calls - not too loud - for you perhaps to step down.

Interventions are always a possibility and the only time you will hear me speak about interventions, and the deliberations concerning them, will be at the time we intervene.

Have you spoken about it and is this a possibility for you?

We have obviously not done so today and I will not exclude, as I have said before, the possibility of our switching to that technique at some time, some day.

Is that a possibility?

Or is it not possible to go into the markets?

And would you kindly reiterate the basic stance of the ECB in order to explain when and under what conditions you basically think an intervention is possible?

First, the Governing Council has decided in the near future to publish a comprehensive description of the statistical information collected and compiled by the ESCB, mainly in the areas of money and banking statistics, securities issues, interest rates, balance of payments and financial accounts, with pointers to possible developments in these areas.

Or is it possibly true that the current exchange rate does reflect, beyond GDP forecasts, the prospects for the euro area?

Second, the Governing Council has adopted a revised Guideline and a revised Recommendation on" the statistical reporting requirements of the ECB in the field of balance of payments statistics, the international reserves template and international investment position statistics ''.

In this respect, the depreciation of the exchange rate of the euro, until it is reversed, will increase the risks to price stability in the medium term.

These risks have to be taken seriously in the light of the current strong upswing.

The Governing Council conducted its regular examination of the outlook for price developments and the risks to price stability in the euro area.

Given the political implications, all the risks seem to be greater than the economic ones.

The markets do not seem to be very much in favour of Greece entering the Eurosystem.

All available indicators and forecasts seem to point to a phase of continued economic growth, following the upturn observed in the second half of 1999.

Somewhere I have said that we are remaining very vigilant.

Industrial production rebounded in February and this, together with further increases in capacity utilisation and industrial confidence up to April, suggests an ongoing strengthening in industrial activity.

I was wondering, because of the nature of that statement, in that it was directed to the public, to the citizens of Europe, whether you had any conversations with the constituent national government leaders before releasing that statement on what its content should be or, indeed, did they suggest to you, perhaps even pressure you - however gently - to make this statement at this time?

What I merely wished to do was to convey the feeling to the citizens of Europe that they should not be concerned about these exchange rate developments, as they increasingly tended to be in view of the value - the intrinsic value - of their money, the euro, and of the intrinsic value of their savings and pensions.

Why we have not done so today is due mainly to the fact that in the very volatile and virulent markets we are experiencing these days we did not want to instil a new element which would again increase uncertainty or volatility or virulence.



2000-06-08, 74 sentences

It is purely inspired by the worsening situation in the bidding process, whereby the last two allotment ratios were less than 1% each, at 0.88% and 0.87% respectively, which made it almost ridiculous.

The euro has depreciated over the last 12 months at a steady, almost continuous pace - there is nothing yo-yo about that - and that trend now seems to have reversed.

But, in a normal stance, where there is no great anticipation in one or the other direction - for very technical reasons, but you may already have seen that with the fixed rate tender - money market rates are normally on average - that does not mean every day - a few basis points above the rate at which the central bank provides liquidity.

And third, how do you see this evolving into price anticipation of consumers, given many of the commercial interests which mean that falling prices tend not to be passed on to the consumers as quickly as rising prices?

It appears that you will, in a way, have an American auction system from 28 June onwards.

On the external side, the upturn of growth in the world economy appears to be stronger, faster and more broadly based than was expected at the end of last year.

For the fixed rate tenders, we started with the idea that we should be able to provide the market with approximately the liquidity that we thought it needed.

Mr. Noyer, am I right in assuming that, with a minimum bid rate you signal the market that the rates should go up and, with a maximum bid rate, you would signal the market that the rates should go down?

On the contrary, we believe that the interest rate move of today creates the conditions for a sustained period of non-inflationary but high growth.

And the reversal which started about two weeks ago still leaves, I believe, some potential for further appreciation.

For the purpose of giving some clarity to all market players, it is our intention, when we announce the tender, to signal what we believe the liquidity needs to be.

We believe that, with this move, combined with the moves we have made since November last year, we will avoid that danger.

Could you detail that a little more?

Could you go a little more into detail now?

And, for the Vice-President: summing up the refinancing procedure that is starting at the end of this month, could you say that it represents a decisive shift in favour of letting the market influence the interest rate more than the central bank.

Mr. President, in the past, as recently as some testimony that you gave earlier this year in Brussels, you said that a half-point move by the European Central Bank could signal a hiatus in future moves.

Or where do you think there could be a problem?

Is that something you could adjust to?

It is the market forces that bring them down, it is not a target in the sense that you could say the Federal Reserve has a target.

To answer the last question first: I said the exchange rate, in my opinion, has - in the past, in recent months - clearly overshot a level which could be regarded as being more in line with the fundamentals.

Could you tell us exactly how unsatisfied you are?

Now, does that mean that over 3% economic growth at the moment is the reason why inflation could be above 2%?

And, if we could give you a ratio, a mathematical ratio between the weight of the first and that of the second pillar, then we would also be in a position mathematically to reduce the two pillars to one.

So it is just that the signalling effect - even if, theoretically, it could be provided by both systems - works well only with a minimum rate system.

And the main one is that the higher than expected import prices as a result of higher than expected oil prices, other raw material prices, and the prolonged, depressed state of the exchange rate will work their way through more than could be anticipated two or four months ago.

That depends on the global amount we want to provide.

M3 growth deviated from the reference value in 1999 and growth rates increased further in early 2000.

This change does not in any way rule out the option that, in the future, the main refinancing operations of the Eurosystem may be conducted in principle as fixed rate tenders.

Admittedly, we may not be 100% successful, but to my mind, we are increasingly successful in speaking with one voice - both ministers and governors.

I know that the exchange rate of the euro, even after the recent appreciation, does not yet reflect the fundamentals, whatever they may be.

Well, I do not know what financial markets will expect, but we think with this move we have cleared the horizon, although it may be a moving horizon.

The previous hikes in interest rates may have had an effect on the turn-around in the sentiment about the exchange rate.

But there still is under-utilisation of capacity - the output gap may be closing, but I would not say that we would want to cap growth in any way at this stage and at this rate.

At the marginal rate, the ECB may allot either 100% or less.

So you may conclude that we did not intervene.

If I may answer the question first.

When oil prices come down, you will - after a while - also see petrol prices coming down for the consumer, and you even saw that happening by a few cents this week and, when they go up, you see with a lag - which may be several months on average - that these prices work their way through to the consumer price level as well.

And the futures indicate that the oil price may at some point fall, but they have already done that for a long time.

I have a question for each of you, if I may?

What ministers can do, and may do at some point, perhaps, is to give general orientations.

I think that, very theoretically, maximum bid rates can only work in a situation where there are strong expectations that the central bank might wish to cut rates.

So, whatever difference there might be between the average rate of a tender, the marginal rate and the minimum rate, it should be considered in exactly the same way as you would consider the difference between overnight or one-week/two-week rates, as compared with the fixed tender rate.

And these are the monetary indicators: the forecasts made by others, the development of the exchange rates up until two weeks ago, the development of oil prices - there has been some decline, but an immediate rebound after that - all make us increasingly concerned that, over the medium term, inflation might - if we did not act decisively - exceed the 2% limit which we have set for ourselves.

Perhaps, on the basis of some forecasts, it could even go over that average figure.

However, I should also add that this switch in no way rules out the possibility that we may, at some point, return to the fixed rate tender system.

Well, there are many possible technical devices.

Mr. President, was there anybody at today 's meeting among the 17 members who thought that the rise would be possible by just going up by 0.25 basis points rather than a whole half percentage point?

So, by implication, that means that we hope these extra revenues, as they come in, be they from privatisation or licensing of GSM features or from cyclically higher tax revenues, will be used to the maximum extent possible to strengthen the process of consolidation of the public finances, in other words, to reduce the deficit and to reduce the burden of debt.

I should like to remind you that from the outset we had said that we had two possible tools.

Now, finally, we have found out that the best possible way to use it would be relatively close, in terms of signalling procedure, to the fixed rate tender, so that we could shift from one to the other without blurring market players at all, i.e. a combination of the variable rate tender with a minimum bid rate.

The European finance ministers are expecting huge revenues from auctions of mobile licences, and privatisation, and possibly also higher tax incomes.

There probably is, but not for the central bank.

In fact, most inflation forecasts have been revised upwards over recent months.

I was wondering whether the ECB is just mirroring the Fed and also whether there is a risk that this sort of rate rise is overkill, given that there are still 18 million unemployed in Europe?

So you risk losing money.

Over recent months the risks to price stability in the medium term have clearly continued to increase.

As for the second pillar, in a phase of strong growth upward risks to price stability currently relate mainly to the spillover of rising import prices to consumer prices, owing both to the lagged effects of the exchange rate depreciation and to rising oil prices.

Today 's increase in ECB interest rates is a decisive step to address these upside risks to price stability and it will contribute to the continuation of non-inflationary growth in the euro area.

Taken together, such developments would clearly point to upside risks to price stability over the medium term, if not counteracted in time.

This is particularly important in those countries where there is a risk of overheating.

At the same time, the Euro-11, through its declaration of 8 May 2000, seems to have influenced the level of the euro exchange rate.

This has been much simplified, but I hope it clarifies matters somewhat.

Laurent Fabius suggested making proposals at the end of the month or the beginning of July to reinforce the Euro-11.

And I have actually asked the same question you have just asked me: I asked my colleague from Saudi Arabia that question last weekend, and I got an answer which was as vague as that which I am giving you.

Let me start by commenting on the reasons for this rise in interest rates, before the Vice-President says a few words about the move to a variable rate tender procedure.

Starting from the operation to be settled on 28 June 2000, the main refinancing operations of the Eurosystem will be conducted as variable rate tenders, applying the multiple rate auction procedure.

Now, it is a fact, of course, and it is the experience of many national central banks which used different types of variable rate tenders before the euro, that market rates normally come close to the minimum rate.

Vice-President, why did you not add up the full allotment in fixed rate tenders, instead of deciding to switch to variable tenders?

One was fixed rate tenders and the other was variable rate tenders.

And I would like to reiterate and re-emphasise that this switch to the variable rate tender procedure in no way implies a change in monetary policy stance.

Let me now give the floor to the Vice-President to say a few words about the decision to implement a variable rate tender procedure as from the main refinancing operation to be settled on 28 June 2000.

The switch to variable rate tenders in the main refinancing operations is not intended as a further change in the monetary policy stance of the Eurosystem.

For variable rates, by contrast, we had said from the beginning that we wanted to have that tool available and we have studied the various possible features of this variable rate system for many months.

The yo-yo - no - the volatility is very high, even in the course of a trading day.



2000-07-06, 27 sentences

One thing is almost as certain, namely that we will publish forecasts, probably towards the end of the year.

We now all appear to be - sort of - in that situation again.

And, second, I would like to ask you, where the exchange rate is concerned, whether the euro 's recovery on the foreign exchange markets appears to have faltered, or are you expecting to see the euro exchange rates recovering further in the coming months.

Do you regard the Japanese economy as being stable enough already to conclude such a step and, secondly, I would like to know - assuming that Japan lifts its policy - how would it affect the euro exchange rates?

We believe that our decision of 8 June 2000 to raise interest rates was and still is appropriate in the light of the circumstances and the economic developments as we see them and as we evaluate them.

We believe - or rather can observe - that this phenomenon has disappeared, and in the first two tenders where market expectations were not moving in any particular direction, the effective rates and the marginal rates have stayed very close to the minimum bid rate.

However, if I already knew the forecasts now, I could just as well publish them now.

Over the coming months the rate of increase in consumer prices could continue to be affected by lagged effects of the increase in import prices.

Finally, I should like to stress that a pro-cyclical loosening of the fiscal policy stance could also add to upward risks to price stability.

This deviation of M3 growth from the reference value, combined with the strong growth of both M1 and credit to the private sector, indicates that liquidity conditions continued to be ample in the euro area through May.

Developments in import prices, which are influenced by the evolution of the exchange rate of the euro and the price of raw materials, may affect the outlook for prices in the period ahead.

The reason for changing to this new system, as you may know, was the practice of ever-lower allotment rates, which we had to accept, which made the whole system assume grotesque features.

The French President, the other day, called for the appointment of what one might call an alternative" Mr. Euro '' to co-ordinate the economic policies of the Euro 11.

Did he mention his referendum project about the so-called EU sanctions against his country and are you afraid of the possible consequences of this referendum on the exchange rate of the euro in autumn?

That is also going to be the time, probably, when the Governing Council establishes the reference value.

On the other hand, it affects the competitive environment in which banks operate, as well as their risk profile.

At the same time, the accumulated depreciation of the exchange rate of the euro remains a cause for concern and has to be taken into account in the assessment of the risks to price stability.

The Governing Council conducted its regular examination of recent monetary and economic developments and their implications for the risks to future price stability in the euro area.

But all the data that have come out also confirm our assessment that the risks are on the upside, rather than on the downside.

And it is one of the reasons why we still think that the risks to price stability are on the upside, rather than on the downside.

And, looking at the developments of the past few weeks or even months, I would not go along with your statement that the recovery seems to have faltered.

The increase can be attributed to three main factors: a higher than expected figure for national banknotes in circulation, which forms the basis of estimates of the launch stocks ; a higher forecast for the use of low-denomination banknotes ; and a somewhat slower than previously expected development in the use of electronic money.

All indications are, indeed, that developments in the United States are slowing down somewhat, but I would certainly not qualify this as an external shock, because all indications are that the US economy is in for what we had all hoped for, namely a soft rather than a hard landing.

But I do not know them yet, so I can do no more than answer your question in these vague terms, and certainly not in quantitatively precise terms.

They are based on certain hypotheses regarding so-called exogenous variables or exogenous factors.

Mr President, we have seen two variable rate tenders and we have gained first experience therewith.

First of all, we are extremely satisfied with our experience of the first two tenders of the variable rate type, combined with the minimum bid, which we allowed and announced.



2000-09-14, 51 sentences

This is common practice, almost daily practice.

But, apparently, that happened.

These concerns are compounded by the fact that the exchange rate of the euro does not appear appropriate when looking at economic fundamentals.

That meeting had been widely publicised and it is true to say that my name appearing on the invitation as the discussant had, indeed, attracted quite a number of, may I say, important representatives from the financial and political community in North America.

I believe I can not be clearer than that.

Now, it would have been, I believe, the 50th ECOFIN meeting I had attended.

A few years ago, in the United States, the Fed used to believe as you do, that the sustainable growth rate was below 3%.

I believe I have already made those comments in my introductory statement and I have nothing to add to it.

And I felt that I could not breach that commitment, of which I informed the Presidency immediately after I became aware of the forthcoming ECOFIN meeting.

He kept monetary policy loose and accommodative until he could see clear evidence of inflation actually accelerating.

If I could just return briefly to the question of oil prices.

Well, if there is the perception in Denmark that there is an image problem for the euro and that this could have an impact on Danish opinion and on the ultimate outcome of the referendum, I would be happy to try to convince the Danish people that the outlook for the euro area is a very positive one.

Could you do something to change this development?

And could you describe for us your policy stance, for instance.

Could you comment on your assessment of the monetary conditions in the euro area following your 31 August decision to raise interest rates?

Governments also have to play a role in order not to convey the false impression that the costs stemming from the increase in oil prices could be avoided by relaxing budgetary policies.

I would be very grateful if you could answer them plainly just to get away from the economic jargon, which quite frankly is confusing me a little bit today.

The decision on when to do so depended very much on market conditions and on technical and tactical considerations.

I should also like to reiterate that the prospects for a stronger potential for growth in the euro area will depend very much on progress made in enhancing the flexibility of labour and goods markets in the euro area.

At the same time, the average of annual M3 growth rates for the period from May to July 2000, at 5.5%, continued to deviate on the upside from the reference value of 4 1/2%.

Overall, longer-term bond yields in the euro area have shown a very high level of stability in the course of this year, with fluctuations being contained within a relatively narrow range.

You may recall that the ECB published a report on this subject a year ago, calling on the banking industry to improve the unsatisfactory service level for cross-border credit transfers before January 2002.

Second question in the middle: you have to be aware that many central banks - may I say, in this particular case, including the Deutsche Bundesbank - are in the habit of regularly selling, and have already sold, their net accruals of foreign reserves stemming from their investments in US dollars or yen.

When you answer this question - and I see you are smiling - may I remind you that you promised to give honest answers.

I can always fully understand - but that has nothing to do with my job as a central banker - that governments may be inclined to alleviate the burden for some and make it even heavier for others or to find room in their budgets by cutting expenditure in order to take countermeasures on account of the weakest categories in society.

We do think that in the course of the coming two years the growth performance of the euro area will not stay below, and may even go beyond, the growth performance of the United States, remarkably and admirably high as it is.

Our expectation - based on an analysis of what we are seeing around us - is that it may indeed have proven to be the peak, but we can never be sure.

However, next Monday you will have another price index figure and our expectation is that you may indeed have seen the peak.

As for your third question as to whether the sale of our interest income from foreign exchange has something to do with pressure from financial circles or finance ministers to start interventions, I should like to point out that I can not imagine that you can conclude that the fact that these pressures were there is something of the last few days or maybe the last week.

That I leave to the principle of subsidiarity, that is to say I leave it up to the national authorities to come to their own conclusions and maybe even to make these public.

And describe for us, perhaps, whether you feel that they are still accommodative.

Now, is the liquidity to accommodate possible second-round effects already there?

As long as there are no so-called" general orientations '' being issued by the Council of Ministers, which is possible according to the Treaty, albeit that the Council of Ministers said at the Luxembourg summit three years ago that the issuance of such general orientations would only be considered in very exceptional circumstances.

Currently available forecasts predict that growth will remain above 3% next year.

How high do you think the probability is of that?

Forecasts of world growth have consistently been revised upwards over the past few months.

Given that the protests are being staged by some groups which are being affected more than other groups in society, fishermen, hauliers and farmers, are you saying that in your revised version, or at least in the clarification of your answer, that you can in fact understand why governments would wish to respond to what appears to be an injustice to these people facing a greater burden and that, in effect, it could be appropriate for governments to take action to shift this burden?

Attempts to shift the burden of this loss within the economy will risk endangering the continuation of a non-inflationary growth process.

The Governing Council will continue to remain alert to emerging risks to price stability.

In the context of the robust expansion of economic activity, continued ample liquidity conditions would constitute a risk to price stability.

The Governing Council of the ECB today conducted its regular examination of recent monetary and economic developments and their implications for the risks to future price stability in the euro area.

The risk that the current pressure on the HICP might spill over onto costs and prices determined in the domestic economy must be taken seriously.

The reserves of both the ECB and the NCBs are entirely and exclusively in the hands of the national central banks themselves and I am inclined to ignore advice such as that which seems to be coming from the German banking community.

Now I take issue with the statement that the US economy seems to be stabilising at a rate of 4%.

As to whether it is the full explanation, as you seem to be implying, there I have my doubts.

With the benefit of hindsight we can sometimes identify those factors.

Is it that the Anglo-Saxon financial markets are really against this new currency and are speculating against it because they are saying that political integration is not good enough and that there is going to be further enlargement?

The pronounced expansion of credit to the private sector up to July also suggested that households and firms continued to regard financing conditions in the euro area as favourable.

In fact, recent indicators suggest that, following the period of acceleration, the economic expansion may now have settled at a high rate of growth.

You are asking governments, as I understand it, not to relax fiscal discipline and I would like, therefore, to know what you think about the tax cuts which the French Government has decided to make and which tend to promote demand rather than supply.

Those estimates vary from 0 to 1 percentage point.



2000-10-05, 43 sentences

It is almost as though the impact has been very small, despite the fact that we have had a number of interest rises now?

So today 's interest rate move was in no way influenced by developments in the exchange rate, except that past developments in both oil prices and exchange rates were longer and more protracted than we had anticipated earlier andthey do work their way through orthey threaten to work their way through, both of them, into domestic inflationary expectations.

Well, the good of interventions becomes apparent if the results you have achieved are satisfactory.

What value does the publication of these forecasts have, given the fact that you apparently have to revise them every four to six weeks?

As had been indicated earlier, in August the preparations of telecommunications firms to transfer the funds due in early September to purchase licences in the German UMTS auction appeared to have a temporary upward impact on M3 growth.

And we do believe that the best contribution to maintaining the current climate of robust, even strong growth throughout 2000 and 2001 and even beyond that is to preserve the climate of price stability.

We do believe that the monetary policy stance we have adopted today is appropriate to current circumstances, including our assessments of inflation-area developments for the medium-term future.

So, do you think that the budgets for 2001 at the national level are not in any sense, on a procyclical course or do you believe that they have already overshot the markets?

On the contrary, we do believe that this rate hike and this monetary policy stance create the best conditions for the robust growth which is going on - and with which we do believe that the euro area has more or less reached may I call it" cruising altitude '' after the acceleration - and for preserving that cruising altitude for the medium-term future.

Is it more or less neutral now or could we expect something more in the future?

Mr Duisenberg, I wonder if you could tell us if we are any closer to that condition of neutrality on the ECB 's monetary policy stance than we where before today 's move to 4.75%.

I heard what you said, but I could not follow you.

I could repeat it, but I can not say different things.

Could I ask you, you keep raising, you keep putting up interest rates, you keep tightening monetary policy, but it does n't seem to be having much impact because there are a lot of factors that are beyond your control, whether it is governments, which are loosening policy through fiscal policy, or the exchange rate, which has been falling.

This assessment is based on the protracted deviation of M3 growth from the reference value since the start of Stage Three of EMU, coupled with the still relatively high growth of loans to the private sector.

It is particularly important that this message be understood in an environment in which oil price and exchange rate developments may lead to HICP inflation rates remaining above 2% for a more protracted period than earlier expected.

The only surprise that markets and media may have perceived is the timing.

We will judge that when the time is ripe and the time may be a long time off.

In addition though, I do not deny that the two actions are, maybe you can say," consistent '' with each other.

Mr. Duisenberg, I am sorry, but I have a maybe very stupid question.

Well, such exceptional circumstances have not arisen and, therefore, you might justifiably conclude that both the initiative for the interventions and the action itself were fully in the hands of the Governing Council of the ECB.

As you are aware, the recent movements in the exchange rate of the euro gave rise to concerns, which the ECB shared with the governors and ministers of finance of all the G7 countries, that it might have adverse implications for the world economy.

And my other question is: 25 basis points versus 50 basis points - in the past, you have said that 50 basis points might mean that there will be a pause in the tightening cycle ; 25 basis points might mean that there is more to come.

Perhaps you can explain it to me ; I really do not understand your argument.

You do not want to tell us whether you took a vote today or not, but perhaps you could tell us if there were dissenting voices with regard to this move on exchange rates.

May I interrupt you - perhaps the answer may prevent your second question.

The Maastricht Treaty provides for the possibility of the Council of Ministers giving so-called general orientations for exchange rate policy.

While the possibility can not be ruled out that the increase in oil prices as such may temporarily dampen growth dynamics over the short term, the forces underlying solid growth in the medium term remain in place.

But I can assure you that there was the maximum possible degree of consensus of today 's decision that is imaginable.

What about predictability and accountability?

And the effects that forecasts will have, which will have to be revised almost continuously, whereas we will not publish them continuously, is a normal fact of life.

It is important to address these risks adequately in order to preserve steady GDP and employment growth in the medium term.

Hence, risks to price stability stemming from monetary developments remain on the upside.

The low external value of the euro has heightened the risks of increases in import prices gradually being passed on to consumer prices.

And the final question: Given that you have acknowledged that the full effects of the previous rate hikes have yet to be felt on economic growth, are you not taking risks with economic growth by hiking again so soon today?

Mr. Duisenberg, in the recent past it seemed if the European Central Bank was specifically insisting on surprise effects.

Taking this special factor into account, short-term developments in monetary aggregates seem to be more moderate than the August data would suggest.

Sometimes surprises can not be avoided.

As my colleague, Alan Greenspan, has said," sometimes surprises can be an element of policy '' and they have to be.

But the simple fact that the interest rate differential between these two great economic areas, as from today, has narrowed somewhat should be a factor helping this development.

In my remarks about fiscal policy and the budget in general, you can indeed derive from them, but to various degrees for various governments, that we are - to say the least - somewhat critical of the procyclical stance that seems to appear from many budgets that have been brought to our attention either confidentially or openly.

We have not come to a decision on that, so that I will not speculate.

Mr. President, there are speculations that the US Federal Reserve was only willing to participate in the intervention if the ECB in turn would hike interest rates soon.



2000-10-19, 47 sentences

In addition to commenting on more recent developments, I should like to take the opportunity offered by this special meeting to make a few remarks on where we stand almost two full years after the start of Monetary Union and where we see the main challenges.

But now, given the recent further surge in oil prices, if these prices persist the period will be rather longer than we anticipated only three months ago.

We think that it will take rather longer than we anticipated only three months ago, when we already knew that there would be a period in which the actual inflation rate would exceed our 2% maximum limit.

That was pretty arbitrary, you could argue, it could have been 2 1/2%, it could have been maybe a little less than that.

Still, we do believe that the monetary policy stance that we chose to adopt on 5 October is the appropriate one in the present circumstances.

We have - I believe, in one of our last Monthly Bulletin - given an account of structural measures that have been taken here and there and everywhere.

So, I believe we are being listened to, and governments and social partners can be certain that we will not be silent for a long time.

We do believe this to be a temporary shock to confidence, the significance of which should not be overstated.

I can only say that we strongly believe - and in our discussions this morning it was repeated and repeated, and in my introductory statement and also I repeated it - that the euro is undervalued, that there is a misalignment in the currency markets and that there will come a moment at which that will be corrected.

And we do believe that the recent hesitation in the confidence figures, if I may call it that, has to a very large extent been influenced by the incidents, the blockades on the occasion of the rise in energy prices that many European countries have experienced.

Yes, we believe that it is in the interests of a central bank to be transparent, especially for a new institution, and thereby to be as predictable as possible.

What kind of move could you make?

One could say that what happened in 1999 was also a number of investments from the euro area to outside the euro area.

The implication of that definition is that we have to explain why there could be external shocks which temporarily bring the actual rate of inflation to above this figure, which can at times happen and which we have always foreseen could happen.

If the euro were to fall below 80 euro cents per US dollar, could you envisage drawing the conclusion, that your mandate has been a failure, has not satisfied the markets and would you pass your mandate on to someone else, possibly to Mr. Trichet?

What we would consider before the end of the year would depend on the new data that will become available before the end of the year.

But they do not - given the much smaller energy dependence of the euro area economy compared with 20 or 30 years ago - have the impact that would make us change the assessment that we are experiencing, and we are looking forward to experiencing, a period of robust economic growth.

If I may add, it is more than that.

So there has been a dramatic change in global capital flows, whatever the details of the evaluations may be.

As I also said at our last press conference, it can not, by definition, always be excluded that there may sometimes be surprises.

And is reaching cruising altitude or the slowdown something that you would not have expected to occur so early, maybe just a few months ago?

Have we come to a little downward revision of the growth rate and a higher inflation rate, and maybe something like a crash in the asset market?

Maybe I could just say that the team that we make up, namely the monetary team of seventeen that met under the chairmanship of Wim this morning, is profoundly and unanimously united behind its President.

I think that this is the main indication that something might reverse.

When do you think you might consider acting and what would be non-inflationary?

The undervaluation of the euro is giving cause for concern that it might have adverse implications for the world economy, including the risk to price stability in the euro area that it entails.

And, secondly, do you think under the circumstances, given that the core inflation rate is actually still fairly well-behaved, that there is perhaps not that much reason to respond with further interest rate rises, given that inflation is oriented rather more to the supply side than to the demand side?

Can I take it from your comments that perhaps you will no longer be giving interviews to the wider press and that you will restrict your comments to press conferences, following the events of this week, or do you intend to maintain the determination of the Bank to be open and transparent and to be available to the press for interviews such as the one we will not mention?

Mr. President, it is quite clear that, over the last few months, people - your colleagues in the Eurosystem - have perhaps not been on the same wavelength regarding expectations, the publication of forecasts on growth and inflation matters which your Bank is making.

Given our assessments of all the forecasts we have available, both internally and from the outside world - from many, many institutions, both national and international - we do expect economic growth to continue at a rate above 3%, both in this year and next year, perhaps even in the year thereafter.

Mr. Duisenberg, a while ago you said you wanted to be as predictable as possible.

Do you still want to be as predictable as possible?

It is in our interests to be as open and transparent as we possibly can and are capable of being.

Now, if you study this very, very carefully, you will probably discover that - when you take into account all flows, not only FDI, but also portfolio flows - we are in a slightly better position than before.

The question is: are you envisaging revising this target?

Monetary policy will ensure that risks stemming from import price developments will not translate into more permanent inflationary tendencies, thereby also helping to preserve steady GDP and employment growth in the medium term.

How great is the risk coming from the oil prices and, on the other side, from the stock markets?

Do you have a risk scenario for this kind of thing?

It seems to me that getting overall co-operation for an intervention would be a little bit difficult at this time and I wondered what you are looking at in the medium or long term.

So I am only referring myself - and it is absolutely right to say that, it was a remark which we made - I am only referring to the accounting of FDI and it seems to me that it is quite factual.

Before coming down somewhat, oil prices had surged again as markets were concerned about the impact of political tensions in the Middle East.

While these indicators have weakened somewhat in recent months, overall they remain at high levels and underlying forces for continued robust growth remain favourable.

The impact of the recent further surge in energy prices leads us to the conclusion that, if they were not to come down quickly, the period during which the actual inflation rates would be over the 2% limit, below which we want them to remain, will be somewhat longer than we anticipated earlier.

We are fully confident that - also taking into account what you said about core inflation, although this is not a concept that we gladly use, but the truth is that, while core inflation has been creeping up somewhat over recent months, it is still well within the range of below 2% and that, in the circumstances, we are having a temporary transgression of actual inflation rates, which may last, as I have said, for some time yet - our monetary policy stance, as we chose it to be on 5 October, after seven successive increases in interest rates, is the appropriate one for the present circumstances.

I have seen much speculation about that, also in recent days.

I would only mention the fact that foreign direct investment -LRB- FDI -RRB- was - as you have suggested - strongly negative in net terms in 1999, but, according to the present figures, -LRB- although of course we have to remain very cautious -RRB-, there has been a reversal in net flows of FDI since the beginning of this year, so that there is an inflow - a net inflow - of foreign direct investment into the euro area.

As mentioned at our last meeting, some uncertainty about short-term growth dynamics stems from oil price developments, as is reflected in survey or confidence data.



2000-11-02, 33 sentences

You have almost closed the interest rate differential vis-à-vis the United States.

In particular, the pace of growth in industrial production appears to have declined somewhat and some survey data have also indicated that there has been a certain degree of moderation.

And the second question is: what impact do you believe the outcome of the US presidential election will have on the exchange rate between the US dollar and the euro?

And I believe that they are right, as markets almost always are.

Will it be a conditional forecast and will it be a forecast of the Governing Council or of the ECB staff?

Mr. Duisenberg, could you please tell us whether there have been any interventions by the ECB alone or together with other central banks since 22 September?

And could you tell us why there have not been any interventions over the past few days?

Or is there something clearer that the President could say?

Could you elaborate on that, please?

Could you elaborate on that?

And the exchange rate as such could only have an impact on that mandate if, over time, the exchange rate itself were to be one of the factors undermining our efforts to maintain price stability.

However, by contrast with previous periods of strong and prolonged increases in oil prices, the world economy is less dependent on oil today and inflationary pressures are still being contained.

But they are signalling - let me call it - no further deviation from the reference value, but rather some movement in the direction of the reference value.

In particular, as far as the decline in real GDP growth in the United States in the third quarter of 2000 is concerned, this may be seen as the first sign of an orderly slowdown towards more sustainable levels, in line with the projections currently available.

Well, we have always been convinced that the euro will play an increasingly international role over time, but it may be a slow process.

Nonetheless, the fact that this is happening illustrates that we may have been right in our expectations.

Now that that differential may be declining, there is every reason to believe that that undervaluation may, over time, also be gradually corrected.

So, although in the beginning I may have been a bit sceptical about the significance of such a dialogue, I must say I increasingly appreciate it as a golden opportunity both to hear and to tell our, may I call them our political counterparts, what we think of them and what they think of us.

Now that we have had still further and sustained increases in oil prices and a prolonged or protracted period of a relatively weak euro, which is not in line with the fundamentals, we have come to the conclusion that it may take somewhat longer than the two to four months I mentioned earlier before price inflation comes back to levels at which we would want them to be.

The developments of the euro exchange rate over the last two weeks have - may I call it - been gratifying and have somewhat - but not yet totally, of course - corrected the strong undervaluation of the euro, as we believe.

As I mentioned earlier, inflation rates may remain above 2% for longer than was expected just a few months ago, owing to unexpected developments in energy prices and the past decline in the euro.

Well, if anything has changed, maybe it is the experience of working together with the Eurogroup, that is the 11 - now already 12 - Ministers of Finance, of engaging in a very constructive dialogue about all our policies, both monetary as well as economic and financial policies, once a month.

Maybe there have been interventions that we do not know about.

Well, originally, about three to four months ago, we thought it would only take perhaps two to four months for the higher oil prices and the weak performance of the euro to peter out and gradually disappear from the figures.

We are still working hard on the possibility of publishing forecasts in the future.

Some monthly indicators which extend into, or cover, the third quarter of this year point to a possible moderation in growth rates.

These have clearly lost touch with economic fundamentals and this is posing risks to the world economy.

Is there a risk that slower economic growth in the United States will to some extent cause a slowdown in economic growth in the euro area?

At the moment, do you see any risk that these second-round effects may emerge in the coming weeks?

I remember that only one or two years ago you seemed to be a bit dismissive of this group.

That means that the extraordinary growth rates which we have seen in the United States for a prolonged period of time and which we and other authorities did not regard as being sustainable in the very long term are coming down from annualised rates of 5 1/2% or even close to 6% per quarter in the direction of lower rates for what seems - to me - to be a normal and to be expected - may I call it - soft landing in the United States, which is in the interest of the entire world.

The EONIA seems to drop considerably before the end of the reserve period every month, indicating excess liquidity in the market, and the recent research paper by two of your economists seems to suggest that this may be a systematic issue that the Eurosystem is providing too much liquidity to the market.

More generally, the extended period of rising and high oil prices has increased the uncertainty surrounding the sustainability of recent growth trends.



2000-12-14, 53 sentences

If I reflect on the past year, I am always inclined to reflect on the period since the birth of the euro, i.e. a period of almost two years.

- because that is basically your question - extensively almost every two weeks.

We therefore anticipate that a growth rate in the order of 3% per year will be maintained in the euro area for at least the next two years.

By the end of 2001, the ECB will therefore have approximately 1,100 staff members.

A question, Mr. President: if in Euroland you see a potential growth of between 2% and 2.5%, and if you assume that economic growth is over 3% this year and will probably be over 3% next year, and perhaps in 2002, the simple question is: are there going to be bottlenecks?

With regard to the assessment of trend potential output growth, there is still no decisive evidence that measurable and lasting increases in productivity growth in the euro area would warrant a significant upward revision in the assumption for trend potential growth.

This decision was taken on the grounds that the available evidence continues to support the assumptions underlying the initial derivation of the reference value in December 1998 -LRB- and its confirmation in December 1999 -RRB-, namely those for trend potential output growth and the trend decline in M3 income velocity in the euro area.

Is there any reason to believe that Europe would not be able to withstand that slowdown as well today as it would have in June.

The enabling clause itself has - as do all other decisions - to be ratified by all parliaments of the EU Member States and this is expected to take some time - I believe that it is expected that the ratification procedure may take up to two years.

This change could then be enacted by a decision of the EU Council in the composition of the Heads of State or Government on a recommendation of the Governing Council of the ECB, which would, in that case, have to be made unanimously and after having consulted the European Commission and the European Parliament or on the recommendation of the European Commission after having consulted the European Central Bank and the European Parliament.

The first one is: could you please elaborate a bit on the added value that you think the publication of the projections will bring about in terms of transparency.

So, could you say something about this point please?

In June you said that the US slowdown would be a weak wind that you could easily withstand.

On that basis, I am filled with a feeling of satisfaction in many areas, namely the smooth introduction of the euro, the rapid development of a single money market in the euro area, the rapid developments - which are still going on - in the capital markets in the euro area, and I could go on and on with phenomena like that.

A follow-up on that, Mr. President: could you tell us the extent to which Alan Greenspan 's statement has indirectly had a soothing effect on Euroland.

As regards the second question, could you, Christian, say something on this...?

And what could these countries do to try to keep inflation under control?

Could you expand a little on your second question?

In the same vein, fiscal authorities should control expenditure growth, as it could otherwise fuel upward pressures on prices.

The Governing Council also wishes to emphasise that potential output growth could be strengthened by further structural reforms in the labour and goods markets.

Over the medium term, the upward pressures from energy prices are expected to disappear gradually, while HICP rates of inflation will increasingly depend on domestic forces.

And, in the case of Greece, the oil dependency or energy dependency of the economy is significantly higher than in other areas or in the rest of the euro area.

However, taking into account the protracted upward deviation of M3 growth from the reference value of 4 1/2% and the still robust growth of credit to the private sector, caution continues to be warranted with regard to the upside risks to price stability stemming from the monetary side.

Thus, the projections will be based on hypotheses which, to be honest, will in all likelihood not turn out to be true in the future.

I mean, the issue you may have in mind has not yet been decided.

We hope it will come, we may even think it will come, but it has not come yet.

Are there going to be capacity bottlenecks and do you think that this may have a negative impact on price stability?

But as different as the circumstances of their respective economies may be, I can not really see any difference in the actual behaviour of the two central banks.

He said," Do not worry - we may reduce interest rates if there is too quick a slowdown in the United States. ''

Two questions, if I may: my colleague introduced the question.

Do the decisions that have been reached there have any bearing on your thinking or maybe even decision-making process or on your own institution and the decision-making process in the Governing Council, since the situation seems to be similar to the situation in the European Commission, for example?

This clause would make it possible in the future, if the number of members of the Eurosystem - not of the European Union, but of the Eurosystem - were to increase significantly, to change the procedures of the decision-making bodies of the Eurosystem.

Here in Germany there is a discussion among academics on the redistribution effects of the seigniorage and when Mr. Welteke was asked about this issue he answered that, yes, negotiations are already under way with regard to the redistribution effects after these three years, i.e. after 2001, in order to alleviate these effects for another period, which is possible under the Treaty.

So, this is probably a question which should be raised at a later occasion, once we have new evidence.

This, of course, also included the risks of a hard landing and the outlook for the world economy as a whole.

And the other question I have is: how serious are these upside risks to price stability?

The main thing I said was that the risks, as we see them, are on the upside rather than on the downside, but I can not quantify the degree.

What risks do you see in this situation in the long run?

Mr. Duisenberg, in the light of your decision to leave the M3 reference rate unchanged and also in the light of the comments you have just made about the risks to price stability, do you think that there is any danger that, in the minds of the markets, you will only serve to underline the differences between a very activist pro-growth Federal Reserve and a more conservative, more price-orientated European Central Bank?

The Governing Council will continue to counteract any risks to price stability in the medium term by responding in a timely manner.

On balance, the Governing Council judges the risks to price stability still to be on the upside.

On the second question, I can not quantify how serious the upside risks are, but there are always risks to price stability - in one direction or another.

That feeling of dissatisfaction has disappeared now that the euro seems to have turned the corner.

So we are still looking, but it seems that it would be feasible to at least largely overcome that problem, if it were to arise again, with the available solutions.

I also wanted to ask about the following: there does seem to be some slowdown at least in the reversal of capital flows between the United States and the euro zone and, since you were trumpeting this some time ago, I wonder if you could comment on this issue.

We sometimes feel that it has arrived here and there, but, taking a euro area perspective for the euro area as a whole, on all the available evidence we can not as yet conclude that a decisive shift in the trend rate of productivity growth is discernible.

And, as I had said in my introductory statement, all available evidence is pointing towards the fact that a period of robust economic growth, be it at a somewhat slower pace than we have seen in recent months, still lies ahead of us in what we regard as the foreseeable future.

I will not deny that, in the past, I have been somewhat dissatisfied or - how should I say that in English - disappointed with the actual development of the exchange rate of the euro.

And I would also like to know whether, at the Council meeting today, there was anybody at all, any Council member, who ventured to suggest that trend potential growth was in fact higher than 2-2.5% in the euro zone?

This notwithstanding, the uncertainties surrounding estimates of the medium-term development of potential output growth in the euro area have become skewed to the upside.

As for key indicators related to the second pillar, the assessment is currently complicated by increased uncertainty.

The establishment of such a common long-term calendar was deemed necessary in order to reduce uncertainties for financial markets.

But, as a central bank we will never, as some other institutions do, create expectations or formulate certain hypotheses about underlying variables which are crucial to us, like the exchange rate or short-term interest rates.



2001-02-01, 35 sentences

So I do not share the judgement that, over time, we have permitted a tightening of monetary conditions to become apparent.

But I also understand that the latest news about this issue is that ties apparently will not be totally severed.

If the tone of my statement today is perceived by you as you describe -LRB- as being more neutral -RRB- then apparently we have managed to strike the right tone.

This would appear to have, de facto, tightened monetary conditions in the last couple of months.

So, by not changing interest rates you appear to have allowed conditions to get tighter at a time when there is actually a mild slowdown in the pace of growth.

In that respect, everything is not equal for all countries, but we continue to insist that political endeavour to achieve that situation should remain intact and we believe that that is not the case in all the countries we are observing.

I believe that, although it is true - as you say - that Ireland is without doubt the most, or at least one of the most successful economies in the euro area, the budgetary plans of the Irish Government were clearly out of line with the broad guidelines they had agreed to earlier.

That is a model that at least I - I believe I can say" we '' - would greatly prefer over the model that is now being suggested in this country - if it is all true - of severing the ties between supervision and central banking.

And could you tell us if the decision on rates today was a unanimous one?

Could you elaborate on that?

Caution still needs to be exercised, however, given the continued dynamics in credit growth to the private sector and the upward deviation of M3 from the reference value in the past.

World real GDP growth, which in 2000 posted its strongest performance for many years, may therefore moderate in 2001 but will still remain at an acceptable level.

This assessment may also have been reinforced by the recent moderation in oil prices and the movement of the euro exchange rate in the period since the end of October 2000.

It may therefore take some time for HICP inflation to move back below 2%.

And so I do have - if may I say so - full understanding for the judgement that has been reached and formulated, be it in very difficult circumstances.

President Duisenberg, I wanted to come back to the euro, if I may.

But, in general, what we are looking at, of course, is not so much the cyclical developments which may influence decisions on budgets as primarily the structural developments which are desired.

Over the near term, this process may be slowed down by the delayed impact of past import price increases and possibly also by some transitory further food price rises caused by the current health issues associated with beef consumption.

And the other issue connected with Ireland and why it matters: is there a danger that, if Ireland is allowed to do what it wants, then that might set a precedent for other countries in the euro zone in future.

If Ireland does not fall into line, other countries might then decide they can do what they want as well?

This might strike some people as being ultra cautious.

Factors which might pose upward risks to price stability in the medium term are still present and as such will be subject to ongoing close monitoring.

It goes without saying that, to fulfil that mandate and also the mandate to guarantee financial stability in the system in practice, it is much easier if the ties between supervision and the central bank - and here I mean the national central banks, which are our natural channel of communication to the markets - are as close as possible.

To the extent, however, that the authority for supervision would be taken further away from the national central banks - this is one aspect of the plans - if true, this would be of the greatest possible concern to all central banks, including the European Central Bank.

This, of course, will lead us to reassess the outlook for the future.

In as far as we already have results of such reassessments available internally at the ECB, we expect that the period of robust economic growth - i.e. growth in excess of what we would call long-term potential economic growth - will remain on the cards, so to speak.

Hence, while downside risks to real GDP growth exist, growth is very likely to continue at a reasonably robust pace.

Therefore, after the recent slowdown in monetary growth, the risks to price stability from the monetary side have become increasingly balanced.

The decision to keep interest rates unchanged reflects the Governing Council 's assessment that the risks to price stability in the medium term now appear more balanced than at the end of last year.

Notwithstanding the assessment that the risks to price stability are now more balanced, there are still factors posing upside risks which therefore require continued attention.

There seems to have been a very careful dilution of the tone of your statement that introduced the meeting here today.

While, as recently published data show, real GDP growth slowed somewhat in the second half of last year, the level of business and household confidence has remained high, supported by, inter alia, high degrees of capacity utilisation and ongoing unemployment declines.

Is your 3%, let 's say," weak '' or is it somewhere between 2.5% and 3%?

President Duisenberg, do you expect to maintain your monetary stance for the foreseeable future or do things these days just look too uncertain to say something like that.

As regards economic activity, uncertainty concerning the external environment for the euro area has increased, mainly related to signals that the slowdown in growth in the United States may be more significant than earlier expected.



2001-03-01, 25 sentences

By virtue of the fact that we are taking no action at present, you can assume that we are not perturbed by the present state and development of the exchange rate.

When I said that we are confident that we will reach and achieve our mandate of an inflation rate of less than 2% within the next few months and stay there for 2001 and even 2002, that assessment is based on the assumption that interest rates will remain unchanged.

So, we believe that the market has understood that well and that the problem has been overcome by the banking sector.

But there was no way we could technically resolve the problem in its entirety, in other words avoid an increase in the interest rate, unless we had been active on a daily basis in the market by way of fine tuning operations.

Is there a new crisis looming that could spill over into the euro area?

There is a special statement here saying that the price index could be justifiably increased.

I imagine that the BSE crisis could develop into some kind of shock, have effects on prices and general demand.

Do you think there could be some signals from that Summit which could be helpful for the economy and also for the single currency, that governments are prepared to take action?

And the second question is: we noticed an important gap between France and Germany, two of the main members of the euro zone, especially in the last quarter for growth and also inflation, and I would like to know what could the ECB do to achieve more convergence between its members and what could the Member States maybe do themselves?

But it could have some temporary upward effect on inflation rates, which you might interpret as an external shock, as was the increase in oil prices last year.

I wonder if we could just have it confirmed that your monetary policy stance has not edged even a tiny bit away from neutral to possibly an easing stance.

As I said, it may be another couple of months before we are there again, after the disturbance which was caused last year by the increase in oil prices and the depreciating tendency of the euro.

We do not see signs that the very gradual slowdown of M3 in the direction of the reference value might be interrupted in the near future.

We have not come to the conclusion that it might be so significant as to warrant any emergency measures.

Taken together, these factors might prevent consumer price inflation from falling quickly below 2% for some months to come.

We did provide the Governing Council with an analysis of the events in Turkey and the possibility of spill-over effects to the euro area, which concludes that such spill-over effects are not to be feared.

The HICP, however, will probably remain at 2% for quite some time.

In particular, the indications from M3 growth over recent months point to a gradual decline in upward risks.

Do you see any risk that the slowdown of the growth rate of M3 will come to a stop in the coming months and that the average rate will be over 4.5% for the whole year?

Overall, for the medium-term outlook for price stability, risks appear to be more balanced than in late 2000.

Are you still looking at roughly close to 3%?

This notwithstanding, an element of uncertainty with regard to the outlook for euro area growth continues to be the world economy and its potential impact on euro area developments.

Did you discuss stopping the minimum bid rate, that is, giving up the minimum bid rate and returning to the real variable rate tender?

And my third question concerns the variable rate tender.

Oil prices and the euro exchange rate in January and February 2001 were subject to some volatility.



2001-04-11, 49 sentences

Mr. Duisenberg, almost every day there are stories about the unforeseeable future of your presidency.

Of course the persistent - let me call it -" hesitating '' performance of the euro, which is keeping it more or less stable at a level which is lower than the level which we assumed, on which we based our forecasts, in itself increases the chances of it working its way through to inflation.

And as I said, the exchange rate itself is not a target for our monetary policy so if you want to know what the difference is, I believe I have very quickly explained that.

I can not say that too often, I believe.

Beyond the short term, the abatement of domestic upward pressure on HICP inflation remains conditional on the continuation of wage moderation, and wage developments remain an upward risk to price stability which needs to be closely monitored.

First of all, two weeks ago, the situation in the markets was such that we thought it advisable to explicitly co-ordinate our thoughts and statements about the monetary policy situation and monetary policy decisions so that we had an agreed statement which all of us, and I mean all the members of the Governing Council, could use so that we would indeed speak with one voice.

Could I ask you two questions.

We have always emphasised that if actual growth was developing at a higher rate than what we call the" trend potential '' growth, then we could of course accept the development of M3 being higher than the reference value.

Could you take that one Christian?

For the time being, we have come to the conclusion that it is neither advisable with regard to the operational part of our work, nor for the monetary policy implications it could have, to change the schedule of our meetings at this time.

President Duisenberg, since you mentioned two statements in connection with the term of your office in this interview, could I just ask again: Just after the spectacular summit in Brussels you said, on the sidelines of the International Banking Day a couple of kilometres away from here, in the evening, when asked whether you could stay for the whole term of office if you wanted to, that you could.

Because that depends not only on the likelihood that it will be under 2% but also to what extent it will be under 2%.

Also, I will not evaluate what the impact is of statements that are fluctuating on either the euro or myself personally.

Over recent months, the energy component has again been affected by fluctuations in oil prices and the exchange rate of the euro.

In other words, you may say that we have kept interest rates on hold based on the considerations I have outlined to you.

But still, may I have your opinion about all those stories?

If at a certain point in time you have very strong expectations in the market and fixed interest rate tenders, you may have the same kind of problems on the day of the auction.

The developments at the last refinancing operation may induce us to do more intensive fine-tuning whenever that may be necessary again in the future.

Maybe this time it was more like a" canon '' than" in unison '', but the sound was the same.

Is there a consensus maybe?

Does it do any harm to the image of the ECB and maybe you personally?

Maybe this was not clear enough in your statement, because exactly two years ago in April you reduced interest rates to fight against risks that seemed to be smaller than the risk that exists today.

You might say I hear but I do not listen.

The United States defends its strong dollar policy by claiming it helps investment in the United States - by the same logic the euro 's weakness might also explain why investment is pouring out of the euro area.

And so you might also say that as far as monetary developments are concerned, with our policy of gradually increasing interest rates, which began in November 1999 and the last move of which was made in October 2000, we have achieved what we wanted to achieve, namely moderation in monetary growth and hence the disappearance of inflationary risks over the medium term.

When we look at the precise figure, I think we have signalled three times in the Monthly Bulletin that we were working on the limited, but still possible, revisions of money figures because of one or two factors, mainly the importance of money market instruments owned by non-EMU residents, which should not appear in M3.

The continuous contribution of social partners will be essential to prevent temporary inflationary pressures from possibly translating into longer-lasting effects.

It is likely that the figures will have to be revised slightly towards the end of this year.

I quoted, in my introductory statement, a range of forecasts - effectively - and not the German ones in particular, which, if I look at the forecasts as we know them - they have not all been published yet - of the IMF, of the OECD and of other international organisations, they all revise the expected growth in the euro area and will, and they will also revise the euro area downwards.

Starting with the external environment for the euro area, forecasts for world growth have been revised downwards, and the uncertainty surrounding these forecasts has increased.

All in all, the information from the first pillar is signalling that upward risks to price stability have diminished over the past few months.

Today, as I indicated, the information from the first pillar indicates that upward risks to price stability have diminished over the past few months.

I have difficulties in understanding your statement, because if I listen to your presentation I have the impression that interest rates will be decreased because inflation risks have gone down and external risk has increased.

But fundamentally the answer to your implicit question as to how to deal with the risk of underbidding lies with the whole framework that we have designed: we have this corridor with the deposit facility on one side and, in this case more importantly, the overdraft facility on the other side, so that there is no risk that the banking sector will be short of cash.

As regards the second pillar, upward risks to price stability have also diminished somewhat over the past few months, but they have not disappeared.

In addition, as I said, the second pillar signals that upward risks to price stability have also diminished somewhat over the past few months, but they have not disappeared.

If, as the President just said, conditions seem to warrant at a certain point in time special fine-tuning operations, we can always conduct them, but in most cases the framework we have is enough.

So the liquidity conditions and the financing conditions for private agents do not seem to be tight or to have any consequences for economic developments.

First of all, if I read you correctly, the way you talk about both inflation and growth for the next few months we ca n't expect any change in the monetary policy, because you seem to suggest that they are both - for various reasons - pointing to the current" wait and see '' stance.

You are always criticising the fact that fiscal discipline in Member States has been relaxed somewhat.

At the same time, however, available forecasts suggest that actual growth will be in line with, or above, trend potential growth.

Second, the OECD suggests a reduction in the number of meetings of the Governing Council to reduce market uncertainty.

While this indicates that the external environment is less favourable than it was up to autumn 2000 and is marked by high uncertainty, there are no indications of a risk of a global recession.

I have a similar question for the Vice-President: Mr. Noyer, I remember last year when you announced and explained the changeover from a fixed rate tender to a variable rate tender with a minimum bid rate, you said that other central banks have used this format and have had good experiences with it.

I am not aware of which other central banks have had a variable rate tender with a minimum bid rate and I wonder how they dealt with that problem if the rates were going down?

I was aiming with my question not so much at the comparison between fixed and variable rate tenders, but at variable rate tenders with or without a minimum bid rate.

So the choice of a variable rate tender, at least the variable rate tender as we perceive it, which has the very strong signalling effect of the minimum bid rate, does not help.

Also if these most volatile components are excluded, there has been a broad upward movement in HICP inflation since the summer of 1999.

Short-term price developments are indeed subject to volatility, owing to energy and unprocessed food prices, in particular.



2001-05-10, 39 sentences

It is almost a fact of everyday life in statistical series that there will be revisions and refinements from time to time.

This has been a very positive factor and lends support to those forecasts which assume that current inflation rates will not spill over into future wage negotiations.

Well, if we had waited... Let us assume we had waited four weeks and we had moved then, and in the meantime we had made public the information as we are making it available today, and more extensively in the Monthly Bulletin of next week, then I am sure that in two weeks time your question would have been" what is new?

This makes us believes that, although before we thought we were approaching the reference value, now we know that, in fact, we have already been under the reference value of 4 1/2% for quite some time and increasingly so.

Well, I hope to have made it crystal clear in my introductory statement, and I repeat now for the second time: we do believe that with our move today we have reached a level of interest rates which is appropriate for the given situation.

We will publish our second forecast, I believe, in the June Monthly Bulletin.

And as far as the Governing Council is concerned, I believe it is true to say that they were not yet aware of that.

An abatement of domestic cost pressures on HICP inflation remains conditional on the continuation of wage moderation.

I could repeat the answer I gave to the previous question that, psychologically, the most difficult thing is not to resist pressure, but to take action when action is needed on the basis of your own assessment of the situation and developments, despite any pressure in whatever direction.

I could put the question the other way round.

Because you could have waited a little more just in order to make the decision expected.

In your view, do you think that there is a danger that these negotiations could send out the wrong signals for price stability in Europe?

My question was that early on in the history of the ECB there were some doubts expressed about the reliability of the M3 data and concerns about the first pillar, and that is why you have a second pillar.

Would you say that there are any residual doubts now about the information that you get from M3?

And also because, as I said, it is not only the absolute magnitude, but also the change in size of this phenomenon - if I may call it that instead of a distortion - that has monetary policy implications.

Under the first pillar, we have this new phenomenon of correcting the, may I call it again, dynamics of the M3 developments.

But they do lead us to conclude that, whereas we thought earlier that we would already be under the 2% limit in August/September of this year, for example, it may take us somewhat longer.

No, we are, may I say, as uncertain about the precise future development of the US economy, which is of crucial importance to the world, as maybe the US authorities are themselves, and with that in mind, we have revised our expectations downwards in line with all forecasts available on the outlook for growth for the euro area.

If it were to steepen again, maybe these distortions would disappear.

Maybe you can tell us again.

We are continuously in touch, you might say.

The first is based on something you have just said, namely that you revised your growth forecast for the euro area downwards.

I do not mean in terms of pressure, but are you less convinced today of the strength of the US economy and more convinced that downside risks exist internationally?

So from both pillars we concluded that the risk to price stability had, if not disappeared totally, as the first pillar indicates, then at least, looking at the second pillar, diminished.

Taking into account these upward distortions, as well as all information from the first pillar, it can now be concluded that there is no longer a risk to price stability over the medium term emanating from the first pillar.

As regards the first pillar, also taking into account the latest available information, monetary developments no longer pose a risk to price stability.

As regards the second pillar, upward risks to price stability over the medium term have diminished somewhat.

And a further question: is there any scientific way of explaining why two or four weeks ago, despite the fact that nothing much has changed since then, you seemed to assess things differently.

The dynamics of M3 corrected seem to be less that we thought earlier.

In mathematical terms it seems that the first derivative of the distortion is positive.

So, not only speaking in mathematical terms, it seems that we have to - if you look at the curve - both bring down the line of the curve and reduce the angle.

Inflation seems to have been edging higher recently in Germany, Italy and Belgium.

And the second question is: I am a bit surprised that in just one week you seem to have changed the idea of the risks coming from inflation, which were on the upper side one week ago and are now slowing down.

You said that it is not in your policy to surprise the market, but it is sometimes unavoidable.

And if you quote me about one week ago, I think you should quote me about two weeks ago - or at the last press conference we had - when we gave statement, or in the G7 context when we gave similar statements ; new facts lead to new assessments and they sometimes lead to new conclusions, and that is what has happened.

Sometimes this is unavoidable.

This reduction is to be seen as an adjustment of the level of interest rates to somewhat lower inflationary pressure over the medium term.

He suggested that a debate should be held on whether or not you want to keep it as it is, at 2%, or maybe, as he even suggested, you would want to change it to around 2% to give you more leeway.

Notwithstanding the high uncertainty surrounding the outlook for external developments, forecasts suggest that actual economic growth will nevertheless be broadly in line with trend potential growth, supported by domestic demand.



2001-06-07, 35 sentences

Mr. Duisenberg, there is now almost a daily stream of criticism of the European Central Bank from economists and from the financial markets.

Did n't I hear you say many times that the impact of this slowdown for the European economy was not going to be strong because this is a closed economy, or rather an almost closed economy?

So we do not expect and do not anticipate that the conversion itself will have a significant impact on inflation.

In this context, it appears particularly important that wage setters fully understand that current price developments are strongly affected upwards by factors which should only have a temporary impact on the inflation rate.

Do you think this constant criticism, and it does appear to be almost daily, is undermining the work and the image of the European Central Bank at all?

The phrase I used about the euro, that a strong euro is in the interest of the euro area, is indeed nothing new, but I believe I can not repeat it often enough.

And, knowing this, I believe that in my explanation today of the considerations and assessment in particular by the Governing Council of the medium-term economic outlook, in terms of both growth and prices, you will find a suitable justification and explanation for the interest rate move we applied a few weeks ago.

I can not answer that question, but I do not believe in" complots ''.

And I believe that the fact that it led us to anticipate that growth this year and next would come down somewhat from the - I am inclined to call them -" exceptionally '' high levels recorded in the year 2000 to a level broadly consistent with the maximum range of the trend potential rate of growth, that is around 2.5%, represents a scaling-down of the growth forecast, which justifies my use of the words" limited impact ''.

And as such, I do not believe - although I can not comment further on forecasts which still have to be released - I do not believe that they are already now too optimistic.

Could you give us a little bit of background on why you felt it was necessary to slip that phrase into today 's communiqué?

The second question was: Could you give me the reasons for the weakness of the euro?

Could you explain what kind of assessment the ECB has made and how wide the deviation is from stability programmes?

For the 3 hundred million citizens of the euro area, could you perhaps put a figure on how you and the European Central Bank currently assess future growth in the euro area?

Some investment banks estimate that in the weak euro zone countries the deviation will be some 0.5%.

Part of the explanation is, of course, the outflow of capital from Europe in the form of both direct investment and portfolio investment, in particular to the United States which, according to our judgement and analysis, may not be inspired by exchange rate speculation but possibly by a phenomenon of strategic importance.

Must we expect, once you can come up with a figure, that this might have an impact on your policy decisions again?

Close attention needs to be paid to factors which might entail a resurfacing of upward risks to price stability, including, in particular, wage developments, energy prices and recent movements in the exchange rate, which is an important indicator to be taken into account under the second pillar.

Is it not possible for the two of you to get together and to sort out a common way of expressing things?

Well, we are doing everything possible to counter it by continuing to explain our monetary policy actions over and over again, as I am doing today.

Do you have any reason, when looking at the information from the national central banks, to think that cash amounts, for example in Deutsche Mark, in eastern Europe are being converted into dollars before the conversion to the euro - possibly including illegal earnings?

In addition, as was also explained earlier, there are preliminary indications which suggest that holdings by non-residents of the euro area of other negotiable paper included in M3 may have contributed half a percentage point or so to the annual growth of M3 in recent months.

First, if we thought that the risks to price stability today were lower than they were one month ago, I would not have said that we regard the monetary policy stance which we have as appropriate.

Mr. President, two quick questions: on balance, including all the latest available data, and irrespective of your decision today not to change interest rates, do you think that risks to price stability over the medium term are lower now than they were one month ago when you last changed interest rates?

Mr. President, would you please comment on the risks for price stability out of this conversion?

Nevertheless, there is a need to remain vigilant as regards future developments affecting the balance of risks to price stability, although weaker economic growth than that currently expected might reduce inflationary pressures.

So, there seems to be, at least this year, an interruption - although we do hope that it is temporary - in the ongoing movement towards the ultimate goal to be achieved over the medium term.

Mr. President, the recent success of your statisticians to quantify the impact of the holdings of money market funds by foreigners seems to have had quite an impact on your monetary policy decisions, although you - or the ECB - had already known and told us about the scale of this impact.

And, therefore, your question seems to run counter to that statement.

You seem to be saying that they do not really understand now what is the driving policy of the European Central Bank.

And, in the third place, I have to say that sometimes schedules do not fit quite well with each other.

Oh yes, well, we have to say it sometimes.

We have one monetary policy for the entire area and regional monetary policy does not exist, and we have a mandate as a monetary authority which is somewhat different from mandates that other big central banks have, namely to maintain price stability as the primary goal of the ECB.

And I am not inclined to speculate on the impact.

When looking beyond this year, the outlook for real GDP growth in the euro area is subject to uncertainty with regard to the global outlook for growth.



2001-06-21, 30 sentences

If you believe that inflation will fall below the 2% mark next year and if central banks are supposed to look forward, why not cut interest rates now?

It is true that for, I believe, 40% of the period for which we have been working, inflation has been in excess of that figure.

No, we could not, Mr. Barber, because the German Government has now finalised its draft law on the Deutsche Bundesbank, on the structure of the Bundesbank itself, but has postponed for a few months bringing the draft law on banking supervision or" Allfinanz '' supervision to the Cabinet - and subsequently to the Parliament, after having received advice on that from the ECB.

Mr. Duisenberg, you did not mention the currency in your opening statement and I wonder if you could tell us whether you are worried that the longer the euro stays weak, the greater the threat is that it will be inflationary as regards imported inflation.

And we are already considering how that decision-making process could function if the decision-making bodies reach a rather unwieldy magnitude.

I already indicated earlier that I regard it as not unlikely that now, in May, we have reached the peak from which inflation could come down.

The Nice Treaty included a so-called enabling clause saying that if the number of countries belonging to the European Union were to exceed a certain number, there could be an abbreviated procedure to change the decision-making process also at the ECB.

Mr. Duisenberg, could I ask you something specifically in relation to the issues that you raised about divergent economic policies and best practices, some of which would be a concern?

Does the Irish Nice Treaty vote cause you any concern in relation to your plans to organise some changes in respect of the way the ECB works in the future, or could work in the phase of enlargement?

But as for the time at which it will come down, that could be rather volatile.

Looking back over the first two and half years since the start of the single monetary policy, there can be no doubt that macroeconomic developments in the euro area have been very favourable.

Mr. Duisenberg, Mr. Reynders today made some comments to the effect that he would like you to personally attend the future meetings of the Eurogroup in Brussels, or wherever they may be meeting between now and the end of the year, the implication being that the ECB is in some way not well represented if you are not there.

The European Central Bank - if the EU is enlarged - may have 27 central bank governors sitting around its table.

Rather, real GDP growth may differ, and there may be differences in unemployment rates or other important economic variables, i.e. there may be regional differences, as is the case in all large economic and monetary areas of the world.

And would you not perhaps - given the way the economy is going - now favour the US model whereby you have to support growth as well as keeping an eye on inflation?

So perhaps your target zone is too low?

While there is no way for the single monetary policy to take responsibility for such national developments, just as there is no possibility for national authorities to adjust nominal exchange rates within the euro area after having adopted the single currency, national economic policies must contribute to avoiding a situation which would subsequently require painful adjustment.

Would you say that it is possible or likely that inflation peaked in May in the euro zone?

I do hope that we will one day achieve the goal of having a single currency for as large an area as possible, certainly encompassing all members of the European Union.

Mr. Duisenberg, I was just wondering: you have been predicting for some time that inflation rates will start to come down.

So we are not in a position to predict precisely when we will reach the magic 2%.

We feel no need to revise our own intentions or targets.

We will continue to remain vigilant as regards future developments affecting the balance of risks to price stability, including - in particular - monetary developments, real GDP growth, price setting behaviour and wage developments.

Mr. Duisenberg, how great is the risk of a recession in the world and especially in the United States?

As you know, legislation proposed by the German Government is on the table right now and on the face of it, it would seem to be at odds with the ECB 's position, and indeed the Deutsche Bundesbank 's.

There were speculations this morning in one of the German newspapers about your future as President.

Concerning the second pillar, recently published data on real GDP growth in the first quarter of 2001 as well as on industrial production in April 2001 pointed to a moderation of economic activity in the euro area, and the latest information on global economic developments continues to suggest significant uncertainty.

First of all, regarding the chances of recession, I said that we live in a global environment of very great uncertainty.

The first pillar assigns a prominent role to monetary developments in the euro area and the second pillar encompasses a wide range of other economic and financial variables - again exclusively with a euro area-wide perspective.

And those" base effects '' have been very volatile in the course of 2000.



2001-07-05, 45 sentences

The fact that there are inflation differentials between the various regions in the euro area is - as we have explained many times, and, I am almost inclined to say - normal.

At the current juncture economic developments appear to be particularly influenced by special factors.

These developments appear to be related to the less favourable external environment as well as to the weak growth of domestic demand.

But these projections are based on the assumption that you cut rates by half a percentage point.

I can not be clearer than that, I believe.

Well, I believe that you should address those questions to the American authorities.

And I believe that in my statement of two days ago and in today 's statement, which is basically a statement by the Governing Council, I have been as open and transparent and forward-looking as I possibly can be.

Could you please tell us?

Mr. Duisenberg, could you tell us how you react when you read reports that American officials urge the ECB to do more to help global growth?

If I could add another related question: you and Mr. Reynders have had a lot of dialogue outside of the formal meetings.

Have you started to make any indirect contact with these G7 Finance Ministers in view of the meeting in Rome so that a consensus could be achieved if there were to be any questions on the euro or on the global economy, since the global economy is supposed to be one of the main topics at that meeting?

The fact that in the Netherlands, and fortunately to a lesser extent in Ireland, inflation has reached the figures they have, is in itself a cause for concern, particularly for the Dutch and the Irish authorities ; and, to the extent that they could have spillover effects on other countries, it could also be a concern for us and the Governing Council.

Well I thought that I could not be clearer than that, but perhaps I should repeat what I said two days ago.

I doubt whether we would also see less speculation and guesswork in your circles.

It may have struck you that I used the same language today as I used at the last press conference, namely that output growth is expected to be broadly in line with the trend potential growth.

We can not deny that it may have some impact on the exchange rate as well.

And again, part of that small part may then be converted into other assets, which makes the conclusion justified that the monetary impact of these moves in the run-up to the cash changeover is very limited indeed, if not negligible.

I recognise that the selling of Deutsche Mark circulating in particular in central and eastern Europe and in Russia may partly have an impact on the exchange rate.

Second, I should like to inform you that the Governing Council has decided that euro area national central banks may frontload euro banknotes to central banks outside the euro area as from 1 December 2001.

But as I have said on various occasions, mainly because of the base effects of the development twelve months ago which, month after month, will fall out of the figures, the road to the level under 2% may be a bumpy one.

There may be months in which inflation stabilises or there may even be months in which it shows a further rise.

If no further unfavourable shocks occur, it is likely that annual rates of inflation will start to fall and reach rates of below 2% in 2002 - although the decrease from current levels over the months to come may be subject to some volatility.

Do you consider the ECB to be an institution which is ready to have a prime minister, or maybe an ex-prime minister, as its president?

We might even see more of this were we to have fewer press conferences.

We are concerned that the current negative environment might reduce the impetus in various countries to reach the goals to which they have agreed in the context of the Stability and Growth Pact.

Many countries might not meet the goals contained in the Pact or have been urging that it should be a topic at the next Eurogroup meeting.

And secondly, perhaps you will be...

We are faced with the dilemma of, on the one hand, being as open and transparent as possible, and on the other hand, with what we would see were we to have fewer press conferences.

An additional factor is that we are seeing, in particular, a drastic decline in the circulation of large-denomination Deutsche Mark -LRB- and Guilder -RRB- banknotes coming possibly from the black economy.

President Duisenberg, two questions: on balance, how would you say that the risks to price stability balance out?

Of course, we shall continue to monitor closely future developments affecting the balance of risks to price stability, including - in particular - monetary developments, real GDP growth, price-setting behaviour and wage developments.

The main risk related to this outlook concerns second-round effects having an impact on wage negotiations this year and early next.

Now, today, you seem to be very optimistic.

And all the factors that we have mentioned in the past explaining the depreciation of the euro now seem to have reversed.

Mr. Duisenberg, again in your speech two days ago you seemed to have signalled today 's decision.

I said the same thing as I said at this press conference, namely that our monetary policy stance seems appropriate in the current circumstances.

Concerning the second pillar, given the circumstances, it seems particularly important to recall the forward-looking nature of our assessment.

But sometimes a surprise is unavoidable.

Let me elaborate somewhat on our assessment of the information provided under the two pillars of the ECB 's monetary policy strategy.

As has now been confirmed, overall economic growth in the euro area moderated substantially in early 2001 and both survey and confidence indicators suggest a pattern of continued growth moderation for the second quarter of the year.

And for that particular preparatory meeting, no central banker will be present or has been invited, and that also means that I have made no contacts of the kind that you suggest.

So, if we were to change that in the direction in which you suggest, we would in all likelihood not reach that goal.

In recent months, your communication policy has been criticised by a number of observers and most recently by the OECD which has suggested that there are perhaps too many press conferences and that formal transparency is not effective transparency.

Now, the current slowdown in economic growth would suggest that there are decreasing risks to price stability in the medium term in all four areas.

In our projections the monetary policy stance or the level of interest rates is a so-called exogenous variable, so we do not assume any change, strictly for - I am almost inclined to say -" scientific reasons ''.



2001-08-30, 21 sentences

The information we have today, which we have only just received, supports what I just said about the fact that the slowdown in economic growth emanating from the slowdown in the United States is larger, deeper and more prolonged than had been anticipated earlier.

This is particularly apparent from the information under the second pillar of the ECB 's monetary policy strategy, while that related to the first pillar remains consistent with a favourable outlook for price stability in the medium term.

I assume you refer in your question to the exchange rate and not to the colour.

I am very satisfied with the development of the euro, but I continue to believe that, in the future too, the euro has, given the performance of the European economy and of the US economy, strong potential to appreciate.

-- in June, I believe, and of course we update these continuously.

And your imagination, I believe, is going too far.

We believe that the so-called core inflation rate will come down, but implied in your question is whether this will happen in the next few months: it may take a little bit longer.

We do believe that we will have to revise that figure downwards.

As it also reflects the fact that consumers needed a higher level of transaction balances to finance the past rise in energy and food prices, recent increases in M3 growth may be transitory and, hence, do not necessarily have implications for price stability in the medium term.

First, the slowdown in economic activity which I just mentioned may contribute to containing inflationary pressure stemming from the labour market.

At this juncture, I should like to express concern about the impact that slower growth may have on the determination of the governments of some countries to adhere strictly to the Stability and Growth Pact in the context of their existing stability programmes.

In addition, if such measures are not consistent with the Pact, they may undermine the credibility of the consolidation process.

But the strategy as such has not been changed, and we have -- may I say with some self-confidence -- been satisfied with the outcome of our communication over the past few months.

We obviously -- and, may I say, together with the US authorities -- tended to be too optimistic about the duration and the depth of the slowdown in the United States.

I can not forecast when another move will come, or in what direction it might be.

A concern with regard to the outlook for price stability in the coming years has been the possible emergence of second-round effects, via wages, of past increases in consumer price inflation.

However, this figure needs to be corrected for holdings of money market paper and short-term debt securities by non-residents of the euro area, which, according to preliminary estimates, have contributed around three-quarters of a percentage point to annual M3 growth.

And the second question is: are you going to revise your growth forecast for the euro zone for 2001?

Short-term discretionary measures aimed at strengthening domestic demand risk having an unwelcome impact on the economy, not least on account of time lags.

Let me elaborate somewhat on the assessment provided under the two pillars of the monetary policy strategy of the ECB.

There were some recent statements from the German Finance Minister, Mr. Eichel, which suggested some possible formal changes to the criteria on the Stability Pact.



2001-10-11, 36 sentences

Growth is slow, admittedly: slower than we had anticipated earlier, but of a recession we do not speak.

It would also appear that, based on your assessment that inflationary risks are going to recede over the coming time, short-term rates may come down further.

So, you can assume that the relative optimism was shared, but then one side remark: we do believe that growth, which has clearly slowed down in the course of this year and will continue to be very slow for the remainder of this year, will resume in the course of next year and maybe already in the early part of next year.

Now, we believe that the fact that investors have temporarily shifted their portfolio investment into more liquid assets, which are part of M3, is a temporary phenomenon -- while your question implies that it will be a long-term phenomenon -- and that people would rather spend on consumer goods, I suppose, than start investing in portfolio assets anew.

We believe that creating an environment of stable prices through a stability-oriented monetary policy in a forward-looking manner is the best contribution we can make not only to the growth of output and employment but also to the restoration of confidence within the public at large.

We believe that this is the most likely event and, therefore, we do not consider this course of the growth rate of M3 as a source of future inflationary pressures.

Mr. Duisenberg, what do you say to criticism that the ECB is a central bank that is behind the curve, so to say, and too slow to respond to a worldwide crisis to which other central banks have reacted a bit more promptly, and that today 's decision not to lower interest rates was influenced very much by tactical considerations having to do with the circumstances under which the last decision was taken, and an attempt by the ECB to demonstrate that it will not allow itself to be pressured into taking interest rate decisions, as could be seen by the bidding at the last refinancing tender.

Could you tell us what you had thought earlier on?

Advances have been made in times of high real GDP growth, although in many areas, including in labour markets, more could have been achieved.

Last month 's terrorist attacks had a negative impact on economic activity and confidence, which could delay the resumption of higher economic growth.

And as for the future, would you say that similar events could also lead you to maybe speed up your decisions in future as well?

And could you also comment on the possible leeway that you might have as far as concertation with American monetary authorities is concerned.

I did not say that, but I said that it is doubtful whether a range of rate changes coming quickly one after the other would by themselves enhance confidence rather than maybe even undermine confidence.

As I say, maybe 25 points would have helped confidence more than not doing anything?

Would you maybe not have taken that decision if the events of that day had not occurred?

To be seen to take effectively what was maybe an exceptional decision in exceptional circumstances, in bringing forward a rate cut that we had already contemplated before, applying it earlier than had been foreseen and making it larger -- within a matter of two hours, I might say -- and also earlier than anticipated, this in response to the assessment that the horrible events in the United States might have a negative impact on economic growth and thereby also cause the inflation rate to come down more strongly and sooner than earlier anticipated.

And events are still rapidly developing and we have to be very careful in using any room which there might be.

So you might say that, in view of the very high uncertainties confronting us, also in the immediate future, we prefer to" keep our powder dry ''.

A question of timing perhaps.

11 September was perhaps an exceptional one-off, perhaps not.

The other question I have is: On 17 September the ECB was praised for quick action, and I would like to know what you say to critics who will now probably point to the fact that since 17 September the Bank of England and the Fed have moved again but the ECB has not?

And they will lead us to reassess the prospects for reaching price stability ; currently those prospects are fairly benign.

For these reasons, we do not judge that monetary developments signal risks to price stability at this juncture.

However, notwithstanding all these positive aspects, we will continue to monitor downside risks to the current situation.

If this parking of money lasts for a long time, is there not an inflationary risk from this part of M3 because that money might then be used for consumption, since long-term investment opportunities are uncertain?

Governments can not really stand more, it seems, because of the Stability Pact, and as your action showed today, the ECB does not feel like it is in a position to cut interest rates.

Do n't forget, but it seems that everybody has forgotten that we lowered interest rates on 30 August 2001 and then again on 17 September 2001, and we do believe that with that level we have for the time being, barring new information on events yet to happen, new information to come in, that we have reached a level of interest rates which is consistent in the context of our monetary policy strategy with our declared aim of preserving price stability.

Let me elaborate somewhat on the assessment provided under the two pillars of the monetary policy strategy of the ECB.

But in as far as budgetary positions develop, actually for purely cyclical reasons, to develop or to produce results which lead to deficits which are somewhat higher than is in conformity with the medium-term goals, that is acceptable.

Speculation is sure to increase with each successive meeting in which you do not move.

There was a lot of speculation, of course, prior to this meeting that you might cut interest rates.

Concerning the aid to national airlines, I would suggest that you direct that question at the European Commission.

As regards the second pillar, the assessment is currently surrounded by a particularly high degree of uncertainty.

Notably the uncertainty in stock markets and the relatively flat yield curve until August have led to portfolio shifts by private investors from longer-term assets to short-term assets included in M3.

Given the high level of uncertainty in the international environment, we will continue to monitor developments very closely and thoroughly, and we will assess new information in the context of our medium-term-oriented monetary policy strategy aimed at delivering price stability in the euro area.

And the second question is: in view of the very high uncertainty you were talking about, do you think it would be unwise to have a change of leadership at the European Central Bank during the next twelve months?



2001-11-08, 41 sentences

You can almost literally quote the Treaty in this respect, since today 's move could be taken" without prejudice to price stability '', and it thereby supported the other goals of Economic and Monetary Union, such as economic growth.

We still expect, as I said in my introduction, that inflation will fall to below 2% early next year, which is, in a way, earlier than we anticipated.

Later than we previously anticipated.

This was particularly apparent from the information under the second pillar of the ECB 's monetary policy strategy, while information relating to the first pillar was also judged consistent with today 's decision.

As I explained today, we strongly believe that the strong M3 growth over the last few months has everything to do with factors which are really temporary.

Our assessment of the economic developments, especially after the events of 11 September, has led us to believe that confidence has been hit harder than we thought only a few weeks ago.

I still believe, and Mr. Eichel has confirmed this in public and in the Eurogroup meetings, that the governments are firmly committed, and remain committed, to reaching their goals as stated in the Stability and Growth Pact and in the stability programmes which they have presented, taking into account and to the extent that, for cyclical reasons, and because of the weak economic performance of the various economies in the Union, the actual nominal figures which are intended to be met are not being met.

As regards your second question, today 's move fully reflects our assessment, over the medium term, of the inflationary tendencies, and it can be seen, as we believe, that we have with this move reached a level of interest rates which is appropriate as a monetary policy stance in the light of that assessment.

Some market participants felt rather confused by Mr. Welteke 's remarks.

Could we look at today 's move as going beyond just the first priority of the ECB, i.e. maintaining price stability, and furthering the second objective of supporting growth?

First, do you see any danger that the Fed has already done too much and that the inflationary pressures together with the stimulus package on which the US is about to decide could have some back effects on the euro economy next year, once the economy starts growing again?

And the second question: could you explain a little more why you took this decision to assess the stance of the monetary policy only at the first meeting of the month.

No, it could be a signal that markets have to listen more to me than to others.

Mr. Duisenberg, last week Mr. Welteke was raising concerns that too large rate cuts could fuel inflationary expectations and, a little later, Mr. Trichet, along similar lines, asked central banks in general to remain moderate.

However, such short-term fluctuations should not distract from the medium-term trend.

While it may be perceived as more difficult to advance in these areas in an environment of weaker economic activity, the need to properly address rigidities should be much more obvious now than at times of buoyant growth.

Now, President Duisenberg, would you say that these political requests that are put to you may have a negative impact on your decision-making process?

Do you think that you maybe get a little bit nervous when you are trying to protect the ECB 's independence?

And if these concerns have, in a way, not been raised, or they have only been raised in public, is this not some kind of signal that markets have to expect misleading signals -- maybe intentionally misleading?

Does that not mean that this overhang of liquidity might, one day, lead to inflation?

If we get advice from all sides, especially political sides, to take certain measures, then one might be tempted to become stubborn.

We need two weeks per month for our work to be performed properly, but we thought that it might inspire some calm in the markets if we made it known that a discussion in the media and the markets on the monetary policy stance will only take place once a month.

Is there a possibility that all the good, well-meant monetary policy actions just have no effect at all?

Mr. President, do you exclude the possibility of two consecutive quarters of negative GDP growth in the euro zone?

Would you be concerned about deflationary possibilities if that were the case?

As part of that question, I would also put to you that a number of analysts have predicted that the headline consumer price inflation rate next year could go to or even fall below 1%.

Looking forward, inflation rates over the next few months will probably show some volatility, on account of base effects resulting from previous price movements.

Overall, despite the acceleration in M3 growth, current monetary developments do not signal risks to price stability in the medium term.

In addition, and crucial for the medium term, two factors support the view that wage developments are less of a risk than was previously the case.

Mr. President, in spring 1999 the ECB cut the main rate to 2.5% because deflation seemed to be just around the corner.

Now, deflation does not seem to be just around the corner, but HICP will be safely under the 2% limit we have set as the maximum which is compatible with price stability.

That does not seem to conform too well with the decision you have taken today.

Because this development has become much clearer, unlike what you seem to indicate in your first question, precisely over the past few weeks as many new forecasts have become available from various international institutions and private forecasting groups and as new actual data have become available.

Let me elaborate somewhat on the assessment provided under the two pillars of the monetary policy strategy of the ECB.

And on the second question: we have the impression that the bi-monthly meetings of the Governing Council also lead, every two weeks, to speculation in the markets and higher volatility in exchange rates and market interest rates than would be the case if we had a calmer rhythm of meetings.

However, the recent evolution needs to be seen as a reflection of an increased liquidity preference of investors in an environment of a relatively flat yield curve until August, developments in global stock markets and a surge in financial market uncertainty following the terrorist attacks of 11 September.

As a consequence, and also taking into account the high degree of uncertainty following the terrorist attacks of 11 September, the current environment is likely to lead to delays in investment activity and, to some extent, also to negatively affect private consumption growth in the euro area.

The uncertainty currently overshadowing the world economy should diminish, and there are no major imbalances in the euro area which would require longer-term adjustment.

The other one is the uncertainty about the economic prospects and the low level of confidence among consumers and investors.

One factor is the high uncertainty prevailing all over the world on account of the events in Washington, New York and Afghanistan.

If that high level of uncertainty diminishes over time, which is what we expect, then we can also anticipate that M3 growth will come down to more natural figures.



2001-12-06, 35 sentences

Just a small question on inflation again: inflation is apparently coming down much quicker than we thought and many analysts are already seeing a danger of deflation.

If markets were to assume in the future that if they do not hear from you, then no changes in interest rates are expected, would that be a reasonable assumption?

This decision was taken on the grounds that the evidence continues to support the medium-term assumptions underlying the derivation of the reference value, namely those for trend potential output growth of 2-2 1/2% per annum and for a trend decline in M3 income velocity of 1/2 -1% per annum in the euro area.

No, that would not be a reasonable assumption.

And in the end we do believe that it is of the greatest importance to enhance confidence among both consumers and investors if governments stick to their medium-term strategy, whatever happens.

We have taken note of the forecasts that are being prepared by the staff of the Eurosystem, i.e. the NCBs and the ECB, and those forecasts will be made public in our forthcoming Monthly Bulletin -- I believe, on 14 December -- so that I can not comment now on precisely what the forecast would entail for next year.

The Governing Council believes that the potential upward impact on trend output growth from structural reforms and technological innovation could be large.

Could you elaborate a little bit?

Are you concerned about it and could you tell us what your exact position on the revision of the Pact itself is?

One could assume that, for next year as well, we will probably underutilise production capacities and grow below trend and that, at the same time, we will be above the reference value.

And the second point: could you maybe tell us where you will be on 31 December at midnight and what you may do at that time?

My second question is related to the first: Could one say that, if it is really true that the recovery will happen during the next year, the cycle of interest rate reductions might now have reached its end?

For this reason the Governing Council made it clear already in 1998 that the announcement of the reference value does not entail a commitment on the part of the ECB to correct mechanistically deviations of monetary growth from the reference value.

Do you think the divergence between these two developments has to do with differing approaches to monetary policy in the two areas?

That differs per country.

In contrast to that, we see in the United States that the recovery may actually be quicker than expected.

Short-run movements of M3 may stem from a number of temporary factors and do not necessarily have implications for future price developments.

We are aware that there may -- by chance or accident -- be a few vending machines that may have been equipped to accept euro coins a little earlier than 1 January.

And that may be one of the causes -- the flexibility of the labour market is greater, mobility is greater -- that may be one of the causes for the euro, let me call it," failing '' to catch up with the dollar so far.

In the coming months, movements in annual inflation rates may be somewhat erratic on account of base effects relating to the relatively volatile pattern of price increases in late 2000 and early 2001.

And the third question, perhaps for Mr. Noyer: from 17 December it will be possible for some Europeans to buy euro coins which could already be used in vending machines before 1 January.

And are you perhaps more confident, now that the United States seems to be recovering faster, that Europe could also recover at a faster pace?

With November HICP coming in at a preliminary 2.1%, do you see a good chance of inflation falling below that 2% figure by the end of this year and would that give you more margin for manoeuvre?

Regarding the second pillar, recent information confirmed our earlier assessment that economic activity in the euro area has been weak in the second half of 2001 and will probably remain so in early 2002.

However, there is no case for fiscal activism, as this has often proven ineffective in the past and risks reintroducing imbalances.

Rather, developments of M3 are thoroughly analysed by the ECB, in conjunction with other monetary indicators and information from the second pillar, in order to ascertain their implications for the risks to price stability over the medium term.

This year, however, seems highly unlikely to me.

I can be somewhat more precise: I would expect the upturn in the course of the first half of next year.

I see no danger of deflation and, contrary to what you are suggesting, inflation is not falling faster than we expect it to.

Also, Alan Greenspan has suggested with regard to the weakness of the euro in the perception of investors that there is still greater scope for productivity improvements in the United States, rather than in the euro zone.

Mr. Duisenberg, the Italian Prime Minister has suggested that governments should delay the date on which they balance their budgets until beyond 2004.

The recent strong M3 growth confirmed our previous assessment that, in the phase of relatively high financial market uncertainty after the terrorist attacks on the United States, investors have shifted their portfolios towards liquid and relatively safe short-term assets included in M3.

This reflects the lower export demand resulting from the current slowdown in global economic activity and the fact that consumption and investment decisions in the euro area are being adversely affected by the current climate of economic uncertainty.

Should the current economic and financial market uncertainties subside, any persisting excess liquidity in the economy should be carefully reassessed with respect to whether it signals risks to price stability.

However, annual inflation rates are clearly on a downward trend and, barring any unforeseen volatility in components of the HICP, they should fall to safely below 2% next year.



2002-01-03, 29 sentences

So, could you tell us something today on this issue?

Generally, could you say that consumption will get a boost because of this euro changeover just within the last few days?

Could you be a little bit more specific about which wage negotiations, what country, what sector?

No, I do not want to point to individual trade unions, however large they may be.

However, there are signs which point to a gradual recovery in the course of this year, as reflected, for example, in financial market developments or in recent survey data which indicate that the decline in confidence may have bottomed out.

We have had some mild evidence now that recovery may be on the way if we look at Ifo, the PMIs yesterday were n't probably as bad as some people had expected.

However, as has been stated several times in the past, annual inflation rates for the months to come may be somewhat erratic on account of base effects as a consequence of the unwinding of past increases in energy prices and, albeit to a lesser extent, in food prices.

A question to you, Mr. President, and to the Vice-President also if he maybe has something to add to the question.

Is there any evidence, even anecdotal, that there will be a boost in consumption maybe because things have gone so smoothly?

That moment was preceded by an upward move of the exchange rate which maybe was somewhat overstating and it has proven to be somewhat overstating the" europhoria '' that governed at that time.

Any factor which might alter this assessment in either direction will be carefully examined.

I am personally sure that it will develop, perhaps slowly, we will see.

And it was expected to be very slow, but increasingly we are getting signals that countries, especially central banks of countries, are beginning to realise the possibilities they now have to diversify their reserve holdings.

In this connection, the possibility of some short-lived upward movements in the annual rate of inflation can not be ruled out, but this should not be a cause for concern.

Do you expect a wider use of the euro as a reserve currency of central banks outside the euro zone as a denomination for bonds, especially corporate ones, or do you think it is possible that all will be paid in euro instead of dollars one day and, if so, when?

Mr. Duisenberg, you predicted throughout much of last year that falling inflation, lower energy prices would boost domestic demand, consumption and so on, and you suggested last month to the European Parliament that you expect the recovery to be domestically led.

But I can just confirm that this move that we expect is not an objective per se, but that what we expect to happen will probably take place in all fields.

Regarding the second pillar, recent information has confirmed our earlier assessment that economic activity in the euro area was weak in the second half of 2001 and will probably remain so in early 2002.

The other question I have is, you said that factors affecting prices in either direction will be examined and I wondered what that statement meant in terms of the balance of risks to price stability, where they stand.

I would like to say: pretty confident, but there is a risk and that is that we are quite uncertain about the external developments, in particular in the United States.

Contrary to what you seem to indicate, we expect the first quarter of this year, in which we now are, to be pretty much the same as the last two quarters of last year.

You have said that the economy of the euro countries is expected to revive sometime this year.

I will not speculate further.

But I do n't want to ask Mr. Noyer to speculate about the" when '', precisely if I assume he knows as much as I do.

I am here to fight speculation rather than to add to it.

All in all, available data remain in line with a recovery of the euro area economy this year, while the timing and strength of this upturn remain uncertain.

But we are still very uncertain about the precise timing and we also think that it will be a very gradual process, as I said in my introduction.

These high levels of the growth rate of M3 over the past few months reflect a particularly marked preference for liquid holdings by euro area investors in an economic and financial environment characterised by exceptionally high uncertainty worldwide.

There is simply uncertainty around and that does put a downward risk on my confidence.



2002-02-07, 43 sentences

Would n't this summer have been a perfect time to step down considering it is half way through your term and the euro introduction is almost finished, as you said already?

The recent increase in inflation was to a large extent due to exceptional and short-lived factors -- such as particularly adverse weather conditions in some parts of the euro area, which led to increases in food prices -- as well as to the anticipated influences of indirect taxes and base effects resulting from developments in energy prices.

This assessment appears to be reflected both in recent improvements in survey data and in financial market developments.

There is reason to assume that the physical introduction of the euro banknotes and coins will strengthen competition, thereby supporting the maintenance of price stability.

If wage moderation is maintained, as we currently expect and in any case consider warranted in order to foster employment growth, and assuming that other determining factors also develop favourably, annual inflation rates should fall safely below 2% this year.

Mr. Duisenberg, you have named a day for your retirement, but is it remotely conceivable that you might be persuaded to go earlier if that would ease the path of your presumed successor, Jean-Claude Trichet?

You said that the European Council could request you to stay longer if that is necessary.

I wonder if you could also make some general comments on the surplus from central banks being paid to governments?

And a small question for Mr. Noyer as well: Mr. Duisenberg said that he could, if necessary, stay on longer.

As for the second question, how could governments react to that, well, I would say:" Thank you very much and we will do our utmost ''.

Legally speaking, if he wanted to he could continue of course.

Mr. Duisenberg, could you please elaborate a little bit on the reasons why you want to resign in the summer of 2003, and could you please give us your professional opinion on Mr. Trichet?

However, a continuation of strong M3 growth could call for a reassessment of monetary developments, especially if there is further evidence of a recovery in the euro area economy.

When the Maastricht Treaty was signed, many doubted whether Economic and Monetary Union -LRB- EMU -RRB- would ever amount to more than the solemn words of a Treaty or a laudable objective to be reached at some point in the distant future.

So nobody can doubt that any longer.

The letter to Secretary General Solana which was written in December last year was a purely administrative and, may I say, usual affair.

President, with regard to the debate on the Stability Pact, two questions, if I may.

I personally happen to think that in Europe we will see more definite signs already in the first half of this year, maybe towards the end of the first half of this year, but in any other respect, we have not changed our assessment for a gradual recovery which might take -- and now I am talking for Europe only -- the growth rate in the last part of this year up to the potential growth rate at an annualised rate.

For that reason, Sveriges Riksbank has to have adequate capital and reserves to absorb all shocks that any central bank might face.

And I do not know what will happen in the forthcoming days, I am not talking in terms of a compromise, but if there are ways to extract certain definitive and well-defined commitments from the governments concerned, that might replace the early warning.

In other words, do you think that a recovery might come sooner and perhaps be stronger than you thought a month or two ago?

Do you think that this might be a possibility for you as well?

Mr. President, you said that there is enough time to decide on your successor, but do n't you think it would be better to decide this as quickly as possible?

Regarding my plans for after 9 July 2003, except in the case that the Council were to ask me to stay on a little bit longer: I have no plans whatsoever, except to enjoy life a little bit more intensively than was possible up until now, with my wife and in the midst of my family, possibly partly away from the Netherlands, in France.

Preliminary HICP data for January 2002 confirm this expectation but should not give rise to concerns as regards the medium term.

This assessment of low inflationary risks is also supported by the declining trend in the growth rate of loans to the private sector.

The Governing Council considers that monetary developments thus far do not indicate risks to price stability.

We seem not to have learned a lot from what Mr. Leeson did at Barings.

However, as already indicated on several occasions, annual inflation rates at the beginning of this year will be somewhat erratic.

In my letter to Prime Minister Aznar of Spain, I stated that I wanted to resign on 9 July 2003 but that I would be willing to stay on somewhat longer if that, in the judgement of the Heads of State and Government, were in the interests of a smooth transition of the Presidency of the European Central Bank.

First of all, I went public in the interests of transparency and, admittedly, I was somewhat worried about the intensifying wave of speculative statements and articles in the markets and the media about the date of my departure, and also about a possible link -- which there is not -- between my departure and the appointment of the successor to my right-hand neighbour, Mr. Noyer, which has to be dealt with shortly.

Mr. President, do you not think there is going to be a new round of speculation over who will be your successor?

Of course, there will be speculations in the future about who my successor will be and when my succession will be arranged.

Is it imaginable that all those members, who have a fixed term of appointment, not renewable, would suddenly become lame ducks in their last year?

Do you think it is appropriate to give an early warning even if you do n't have any measures to suggest?

Second question, can you say something about your plans after July 2003 if they do n't involve going to Friesland, as a colleague already suggested to you?

Although the timing and strength of the upturn remain uncertain, the overall evidence points to a resumption of economic growth.

Mr. Duisenberg, I am trying to eliminate one last bit of uncertainty.

I judged -- and my colleagues concurred -- that this wave of uncertainty surrounding the ECB and the euro was detrimental to the image and the credibility of the ECB and the euro.

But at least one uncertainty has been removed and that is about the date of my departure.

The build-up in liquidity reflected in these data occurred in an economic and financial environment characterised by exceptionally high uncertainty worldwide and should therefore be only temporary.

Uncertainty as regards the global environment seems to be gradually decreasing.

We live in a world of uncertainty and by taking away one of the uncertainties, which I have now done, I think I have made a contribution to a climate of greater quietness concerning these two important institutions, the ECB and the euro.



2002-03-07, 31 sentences

I am rather inclined to turn the thing around and conclude that apparently this -- what I am almost inclined to say -- deplorable action by the United States ' authorities to protect its steel industry may have something to do with the exchange rate of the dollar as it is being experienced by the American steel industry.

But I do admit that, inevitably, it appears to be a typically European phenomenon that these appointments are discussed across the regions of Europe given that we have different nationalities, cultures and languages.

However, the current favourable outlook for inflation fundamentally rests on the assumption of a continuation of wage moderation.

-LRB- Laughing -RRB- I could have helped you slightly on the first question.

Could you say how much of a percentage point is owed to this portfolio shift?

Could you comment on the most important tasks of the Vice-President.

First of all, we were pleased to see that the euro cash changeover went so smoothly -- more smoothly in fact than we could have hoped.

Second, after the US policy action on steel imports, do you see any signs that, as the next step, the United States may be prepared to give up its strong dollar policy?

But what you may expect at one time or another to have to attend an euro group meeting or whatever it is alone and be accepted there by the participants.

Mr. President, two questions if I may: you still sound confident on inflation, and you mentioned producer price indices as well.

As regards the second pillar, there are further signs that the trough in economic activity may have been reached at the end of last year.

While there might have been an impact on specific service categories in January, overall there is no evidence that the euro cash changeover has had a significant upward effect on the average price level in the euro area or that the declining trend in annual inflation rates has been affected recently.

I would like to hear what the President has to say on the trade dispute with the United States: what impact do you, expect this dispute to have on economic growth in the euro area, and what should the European Union do to minimise any impact it might have?

We have started working on that in case we might consider it necessary -- of which we are not yet sure.

Is there a time where you are confident you might be ready to make a proposal?

We are working hard on it, we are investigating various possibilities and we will finalise those investigations, I expect, in the course of this year -- so well before the final ratification of the Treaty of Nice by the 15 Member States.

Well, it is not exactly within the competencies of the European Central Bank, but I fully sympathise with all the efforts being made at the moment in the context of the World Trade Organisation to try to prevent, to the maximum extent possible, the world from slipping back into an era of protectionism.

What the EU Council has done in the Nice Agreement is to include an enabling clause which makes it possible, after the Nice Treaty has been ratified, to make quick changes if necessary.

According to the best possible expertise, but all this is of course disputable, filtering out the portfolio shifts could bring back notionally the increase towards 5%, close to 5% instead of 8%.

Probably most of the explanation is linked to that.

The Governing Council continues to hold the view that the information from the first pillar thus far does not indicate risks to price stability, as the portfolio reallocations which drove M3 growth in 2001 should remain temporary.

Or do you see any further risk of a double dip for internal or external reasons?

And, also, if you look at the annualised development of the last three months, you come to the same kind of conclusion -- that it seems to be progressively -- not completely returning to normal but going in the direction of more normal developments in the very last period.

It seems that Mr. Solbes now expects this to happen around August rather than May, so later than he had previously expected.

While many investors still seemed to be" parking '' some of their assets in M3 in early 2002, some moderation in the short-term dynamics of M3 could be observed around the turn of the year.

Part of the latter effect seems to have been reversed in the meantime, as preliminary data for February indicate.

This suggests that further improvements in the functioning of euro area labour markets and their ability to match labour supply and demand are needed.

So if you qualify that as reasonably optimistic, I would tend to agree with you.

While the strength of the recovery remains uncertain, there are good reasons to expect a return of economic growth to levels in line with potential towards the end of the year.

The high level of the annual growth rates of M3 is very much related to portfolio shifts to liquid positions, most of which occurred in the autumn of 2001 in an economic and financial environment characterised by high uncertainty.

It is said that capital markets are so volatile and the bond and security markets have been in an upward swing for months.



2002-04-04, 38 sentences

Would you say that it is a realistic expectation or are they anticipating too much?

Could this measure also be adopted by other national central banks?

If implemented vigorously, such reforms could increase the growth of real GDP and employment on a sustainable basis.

Nevertheless, the persistence of excess liquidity in the economy could become a concern once the economic recovery in the euro area gathers pace.

... and I would add to that: do you think, like some, that measures to achieve these 2004 goals could be avoided if they contradict the current economic impulse, if they have a negative impact for the euro zone Member States ' economies right now, that these Member States could postpone this goal?

In addition, the outlook for inflation is fundamentally dependent on wage moderation.

And the measures on the labour market that are being contemplated in various countries differ very much from country to country, but I do think it is very much of interest to restructure the functioning of the labour markets, in particular in the countries you have mentioned.

As regards the second pillar, the trough in economic activity was in all likelihood reached at the end of last year.

That may cause some -- let me call it --" bias '' in the judgement of the people, and I do hope that that effect will fade away sooner rather than later.

The succession of Ms Hämäläinen and -- may I add -- of myself is not yet on the agenda.

As far as the statement by President Welteke is concerned, I would like to remind you that he has declared that the Bundesbank may sell some of its gold stocks over the medium to long term.

Are there any concerns that the rebound in growth may be delayed or weaker than you anticipated, especially since you expect the recovery to be led by domestic demand?

While inflation rates are expected to fall to below 2% later in the coming months, this decline may possibly be less pronounced than was foreseen, and inflation rates during this year could turn out to be somewhat higher than previously expected.

I expect a proposal maybe in Oviedo or shortly thereafter.

Talking about oil prices again, are there also other kinds of slowdown for the world economy and maybe the European economy?

In your meeting in the Council today, did you talk about possible candidates that you might have to choose?

Such moderation is important not only in order to contain risks to price stability but also to foster employment growth.

Against this background, the Governing Council continues to hold the view that the information from the first pillar does not thus far point to risks to price stability.

I agree with the statement that if there are risks they are mainly on the upside.

The ECB 's Chief Economist said there were no price risks on the immediate horizon, but that, if there were, they would be on the upside.

How do I assess the risks to price stability?

Mr. Duisenberg, how does the ECB characterise the risks to price stability today and, as regards the month of May, is that still the month that inflation will go below 2%?

If the recent rise in oil prices, which has been significant, persists or even continues to rise, there will obviously be risks to both inflation and output developments.

Mr. Duisenberg, have you made any assessment of the potential risk to the economic recovery as a result of the higher oil prices?

Is there a risk that the audiences see the ECB as being too busy, too hawkish, to raise rates?

How quickly are these risks approaching and what would the main source of these risks be?

Do you agree with that view and is there a risk to consumer confidence because people tend to be cautious when they see the euro prices and especially in the service sector you can see some euro prices as high as Deutsche Mark prices were before?

Mr. President, the recovery again seems to be quite export-led.

Mr. Duisenberg, markets seemed to expect that interest rates may rise by as much as 1 full percentage point by the end of the year.

However, annual inflation rates are currently somewhat higher than was expected a few months ago, with early estimates for March pointing to a figure of 2.5%.

And as far as the succession of my distinguished colleague here is concerned, I refrain, also there, from speculating.

I do not want to speculate again about the possibility that inflation on average might turn out higher than 2%.

It is appropriate and I do not want to engage in any speculation about future moves.

To what extent and how quickly they would emerge or materialise is totally uncertain.

These shifts primarily occurred during autumn 2001, when the economic and financial environment was characterised by high uncertainty.

While some uncertainty remains as regards the precise pattern of the recovery, not least in the context of a substantial increase in oil prices, the latest evidence has reinforced our previous assessment.

And to buy equities is, let me put it this way, for many central banks not unusual.

This volatile pattern was broadly anticipated.



2002-05-02, 37 sentences

We concluded that the prospects for price stability appear to be somewhat less favourable than they were towards the end of last year.

I still believe that we will reach the potential growth rate of the euro area -- which we estimate to be between 2 and 2.5% -- towards the end of this year and that next year we will even surpass it.

I believe I can say this on behalf of the press as well.

And I do not believe that it will have, as far as it has gone now, any impact on the real economy developments, on output and export capabilities.

I believe when I stated in my introductory remarks that the outcome of ongoing wage negations in some regions of the euro area could become a matter of concern, I think those who can hear can also listen.

Excessive wage increases could create additional cost pressure with potential consequences not only for prices but also -- to an even greater extent -- for employment creation and real GDP growth.

The outcome of the ongoing wage negotiations in some regions of the euro area could become a matter of concern.

Only the timing could not be foreseen but came at a very unfortunate moment.

Could you perhaps comment on developments in Germany in particular: would you say that developments there and wage negotiations are going in the right direction?

Could you therefore please say what you had or have in mind and what would be the worst case scenario if these risks materialised?

For next year, projections for price developments depend largely on the assumption of continued wage moderation.

However, the outcome is highly dependent on oil price developments.

We have also seen that strong currencies may affect monetary policy, as in Switzerland this morning.

We have had some disappointments, may I say, but one factor that could help to attain this goal, of course, once it works its way through, is the effect of the recent strengthening of the euro, provided that it continues.

What I am concerned about is the tendencies that may emerge, and indeed may already have emerged, towards increased protectionism, as has happened in the United States in the steel sector.

Mr. President, I maybe missed it, but is the word" appropriate '' not in the statement?

Do you see it as a fleeting dollar weakness, or do you hope that this might mark a fundamental change in market sentiment?

The recent sharp increase in oil prices and perhaps a somewhat greater impact of the cash changeover on the rounding of prices has made us reconsider the outlook for prices.

He said that it would be possible to reintroduce the French franc alongside the euro, the single currency.

On the basis of current information, it is still possible that annual HICP inflation rates will fall below 2% in the coming months.

Our mandate compels us to include in the discussion of the ministers the relevant provision in the Treaty, and we try to do that by incorporating our Banking Supervision Committee in the structure that will probably emerge.

We briefly discussed it in the knowledge that the ECOFIN Council will next week probably go in the direction of taking a decision on the future co-operation of supervisory and central bank authorities.

Recently published forecasts of price developments in the euro area, developments in indicators of inflation expectations and recent trends in wage settlements neither clearly confirm nor entirely contradict the risk of such entrenchment.

Would you say that risks to price stability are then currently rather on the upside?

Are the risks to price stability now on the upside rather than on the downside?

Mr. Duisenberg, among the risks for economic recovery you mentioned existing imbalances elsewhere.

Furthermore, if there is a more rapid depreciation of the dollar or an appreciation of the euro, will this pose risks for both growth and possibly even deflation?

The main risk I have in mind is the huge and growing current account deficit of over 4% of GDP in the United States which, I am inclined to say, is a risk to the world economy.

Secondly, the April purchasing managers ' report which was released today showed the second largest increase ever in the index measuring price developments, which seems to indicate that pipeline price pressures are building up.

Just on the euro, it does seem to be showing a great deal more solidity than it has in the past now.

I am not, however, going to speculate about what would happen should this situation develop further.

I would not speculate on a more rapid development of whichever exchange rate, as you can understand.

However, there are still a number of uncertainties surrounding the strength of the current upswing, such as those related to the future development of oil prices and to the impact of existing imbalances elsewhere on the world economy

We do regard the current monetary policy stance as being appropriate, but we also admit that the uncertainty surrounding our assessment is greater than ever.

Now, in May, you are saying that the main reason for this was uncertainty at the end of last year, but this is not absolutely convincing because bond markets and stock markets have become more attractive in recent months.

At the same time, we recognised that the economic outlook remains subject to uncertainties and that price developments partly reflect the influence of specific temporary factors.

All the remarks I made do indicate that there is a great deal of uncertainty, that we have had some, may I call them," disappointing '' developments in the area of oil prices, and of services prices in general, and therefore that, added to the wage developments that are going on here and there, I would be inclined to say that the risks are indeed now more on the upside than on the downside.



2002-06-06, 55 sentences

Now, the developments in January, the weather conditions and the oil price hikes in January and February have crossed this expectation to the extent that the medium-term perspective is that inflation will later than earlier anticipated fall to below 2% or stay at 2%.

Mr. Eichel has apparently said that a higher exchange rate and lower interest rates were more favourable that the other way round.

So, it is not by chance that the word" appropriate '' no longer appears in my statement.

I assume that that will be backed up by your staff forecasts that are to be released shortly.

Can I assume that you are not exactly sure anymore whether your monetary policy stance is appropriate right now?

In no way do we believe that at the present time the exchange rate is any impediment to the further growth and recovery of our exports.

Now, we will publish -- as we do twice a year -- our new forecast in, I believe, seven days time, in the forthcoming issue of the Monthly Bulletin, and this still has to be finalised.

I do believe that the prompt and adequate reaction of the ECB to underlying developments in the outlook for price stability in the form of a range of interest rate changes has been adequate, and that the fact that we are close to but not at, admittedly, an inflation rate in line with the maximum of our stated objectives can not but enhance the credibility of the ECB.

And I have reason to believe, I might say from the highest sources, that there can be no doubt that France, as a full member of the euro area and the European Union, will live up to its commitments which it took upon itself when establishing the Stability and Growth Pact at the Summit in Dublin.

Could you please comment on this?

The outcome of recent wage negotiations in some regions of the euro area is a cause for concern, especially in view of the negative impact this could have on continued employment creation.

And is n't there a chance that this could impact inflationary expectations, which could then change the inflationary outlook?

Well they could come back again, and they could even increase and then we would react.

Could you explain why and could you explain what role this appreciation of the euro played today in terms of your decision not to move the rates?

Of course, improvements could always be possible.

Mr. President, it could well be possible that this is the third year that the ECB is going to miss its 2% average inflation target.

For that, another number of years will be required in order to fulfil the Maastricht criteria in full and it remains to be seen how quickly, and that may differ from country to country, every individual country is in a position to comply with the criteria.

What are these projections worth if you are saying that the interest rates are not going to change and that there is a higher expectation that in two or three months or maybe one month interest rates will not remain unchanged?

Are you in any way beginning to look differently at 2% and thinking that maybe it is just a fluke, really, if euro area inflation is below 2%, that it is almost unrealistic to think that inflation would be below 2% in most normal years?

To what extent would it be right to infer that maybe you are waiting to see how far these more recent benign impacts on inflation like the exchange rate, like oil prices prove sustainable and may have some fundamental implications for the policy outlook?

Is it your belief that there is still potential for the euro to appreciate, and are the euro 's levels anywhere near a point where it might dampen the prospects for growth especially in the economies where early signs of recovery are seen?

The Bank of Japan has actively intervened in the Forex market recently, selling the yen to push it down because the Ministry of Finance is concerned that, at this moment, the strong yen and weaker dollar might jeopardise the growth of Japan.

I fully understand their fear that an ever-stronger yen might jeopardise the early signs of recovery which are emerging in Japan.

While a further decline in the annual inflation rate is possible in the short run, the medium-term outlook remains less satisfactory than expected a few months ago.

And secondly, tomorrow a working group of the Convention will meet to discuss possible improvements to the Stability and Growth Pact.

Are improvements to that Pact possible or should they all go home and stop wasting their time?

These preliminary estimates show an improvement of quarter-on-quarter growth rates from -0.3% in the last quarter of 2001 to moderately positive rates in the first quarter of this year.

It is true that this probably will be the third year where we will miss or at least only come close to our stated objective.

Can you say something on how much these forecasts would probably be affected if the euro appreciation of the last weeks would stay?

I would like to ask you if there are more risks on the upside since the last press conference or if you judge them to be the same.

Given the fact that inflation came down in the last months and the euro appreciated, did these upside risks increase?

Second question, risk projections.

You responded to my colleague that upside risks had risen since the beginning of the year.

Just to follow up on that point: you said the risks have moved in an upward direction.

Well, to take the last question first, I did point to some increased risks for price stability.

So, still, upside risks remain.

Moreover, future oil price developments and economic imbalances elsewhere in the world economy remain elements of risk.

Further evidence is needed before we can fully assess the upward risks to price stability over the medium term.

How big is the risk that American share markets and the American stock exchange will collapse and that this might have an effect on the dollar rate?

The ECB 's basic message to the accession countries regarding EMU membership seems to be one of caution, of not taking things too quickly.

I 'll not comment on the" here '' or the" there '', but they seem to be adding to the upside risks.

I can not answer the last question because I do not speculate on what the" appropriate level '' is for the euro in a world that is ever-changing.

If there is a sudden collapse in any financial market that would be speculating to an irresponsible extent.

Overall, they suggest that real GDP growth in the euro area should again be in line with potential growth later this year, with a further increase expected in 2003.

I would tend to agree with that.

Despite this rather positive outlook, the assessment of the short-term dynamics of real activity is still surrounded by uncertainty.

However, the economic outlook is still subject to uncertainty.

But those uncertainties could shift back again, if the rise in the exchange rate and the fall in oil prices is sustained over the coming months?

There are many uncertainties, but the risks have moved, let me say, in an upward direction.

But as to when is completely undetermined.

There have been other shocks, too: I 'm thinking of September 11, I 'm thinking of the foot-and-mouth disease and other veterinary illnesses which have had an unexpected but upward impact on inflation and which help to explain this.

But is n't it going to be unusual in most circumstance for inflation to be below 2%?

Well, whether it is unusual, it is an ambitious target, if you want to call it a target.

In the past three years we have had an unusual accumulation and coincidence of negative shocks.

Moreover, in the first months of this year HICP inflation excluding the more volatile items of energy and unprocessed food prices has remained stubbornly high, reflecting in particular trends in services prices.



2002-07-04, 46 sentences

What I do believe are the most recent statements to this effect by Eurostat and the revisions they made to the Italian public accounts.

The other countries have taken note of this declaration that made the achievement of this goal more or less contingent on the attainment of a growth rate of 3% in 2003 and 2004 of 3%, which might be considered to be -- to say it prudently -- on the upside of the potential growth rate of the country.

Would you consider that to be satisfactory inflation performance and could you elaborate a little bit on why you see inflation in this way, hovering at this level, given the concerns you have about wages and money supply growth?

And, also, could you go so far as to say that there is a consensus on the Governing Council as regards doing nothing at this stage, in the sense of policy?

Mr. Duisenberg, could you elaborate a little bit on your concern with regard to equity devaluation.

If I could, I would.

Could you give us a few more details on that and clarify your thinking somewhat?

Well, you will have noticed that in my Introductory Statement I did not use the concept of" hovering '', but of" fluctuating ''.

Moreover, it is to be expected that overall HICP inflation rates will fluctuate around 2% in the coming months.

For the remainder of this year, we expect the inflation rate to fluctuate, or hover, or whatever you may want to call it, around 2%.

... may I answer this question first?

Now, at the end of your question there was a concern as to how these developments - that is the increase in demand by non-residents - may affect monetary developments in the euro area.

It may not be a direct relation to the ECB but it could affect the pension systems in Europe.

This development may partly reflect renewed portfolio shifts into M3 instruments, related to the recent increase in overall financial market uncertainty.

Maybe I understood the question wrongly, too.

We are in the happy position where the Eurosystem as such holds so much foreign currency reserves that it will at all times be equipped to meet any disaster which might loom on the horizon.

And the holdings place no constraint on whatever action we might want to take.

Do you think that might be an example other countries might want to follow?

I presume that there is an annual inflation rate for each month.

German manufacturing orders data today, for example, show that orders probably would have fallen if it had not been for a huge one-off increase in foreign orders for capital goods.

In the United States, it would probably be more of a problem for consumers.

Our conclusion was that while risks to price stability over the medium term remain tilted to the upside, recent evidence sends mixed signals.

We have carefully considered and discussed the risks you draw attention to.

If you wait and wait, is that not a risk for the credibility of the forward-looking, forward-oriented monetary policy?

For a couple of months now, you have been saying that the ECB 's Governing Council is concerned about the huge liquidity and inflation risks that you have under the first pillar.

Now, is n't there a big risk that two major economic regions in the world rely on demand from the United States for a recovery, and should n't the ECB be more concerned about the US stock markets ' development and their negative world effects when it decides on interest rates?

Would you go so far as to say that the upside and downside risks are reaching some kind of balance in your judgement now?

As far as the balance between upside and downside risks is concerned, we believe that the risks are still somewhat on the upside, but the uncertainties are too great to come to decisions already at this stage.

So, we do see the risks you have pointed out, but we are taking the risks deliberately.

But, as I said in my answer to Mr. Thomas, the balance of risks in this world of uncertainty is still slightly on the upside.

Now, in Europe this also seems to be the case, the recovery also seems to be dependent largely on exports.

You explained that you were somewhat concerned by the compromise reached in Seville as far as monetary policy is concerned.

Information from several surveys and leading indicators for the second quarter of this year point to somewhat higher real GDP growth rates than in the first quarter.

As I said, we are somewhat concerned about -- may I call it -- the" slippage '' in interpretation which has emerged from Seville.

I remember hearing somewhere from the ECB that you do have some quantification of the effects of the euro devaluation losing or gaining price level in the euro area.

We do not and we did not speculate, theorise or analyse about the size of any change that was not contemplated.

We do not expect sudden and quick results, but it is pretty certain that the results will come.

The two developments together suggest that there must have been some offsetting in other types of liabilities of MFIs.

Overall, the strengthening of the euro exchange rate is a new factor suggesting a potential for lower inflation rates.

How much did the recent turbulence at the stock exchanges influence your present decision to leave rates unchanged...?

As to the credibility of our attitude of, basically, waiting and seeing in these uncertain circumstances, we believe we have adequately explained why we have taken the attitude we cherish at the moment.

However, in view of recent financial market developments, the uncertainty surrounding the strength of the economic upturn -- both outside and inside the euro area -- has not diminished over recent weeks.

But at the same time, given that the recovery of domestic demand is also relatively weak, this explains our uncertainty, not about the size of the recovery, but about the strength of the recovery.

But we are living in times of uncertainty, and I assume that this uncertainty will continue.

You are pointing to facts that are unknown to me.

However, it is too early to interpret this fall as a sign of receding upward pressure on prices, given that HICP inflation excluding the more volatile items of energy and unprocessed food prices has remained high throughout the first half of this year, reflecting in particular trends in services prices.



2002-09-12, 49 sentences

In contrast to the first quarter, developments in demand appear to have been more broadly based, as activity was supported by private consumption, export growth and inventories.

Could you comment on that?

Now as the debate in Britain over whether or not we should join the euro heats up, it would be very interesting to know what your view is on whether or not Britain needs to join the ERM for a two-year period before it could join the euro, were it to vote to do so.

Mr. President, could you elaborate on the ongoing discussion in the ECB Council about the reform of the ECB Council in view of the accession countries and when do you expect this discussion to come to an end, to a conclusion?

Well, again, I will not enter into that debate, knowing that the debate is raging throughout the United Kingdom and the best thing I could do to prevent Britain from joining is to speak out about it.

Mr. Duisenberg, if I could follow up very briefly on the question of consumer feelings about the introduction of the euro.

Certain food prices could temporarily rise as a result, also due to bad weather conditions in other euro area countries, and while real GDP growth could initially be dampened slightly it may subsequently be stimulated by reconstruction.

However, the short-term trend is also dependent on oil price developments, which have increased significantly over recent months.

Eurostat 's flash estimate for August, which indicates that annual HICP inflation increased to 2.1%, is fully in line with previous expectations that inflation rates were likely to fluctuate at around 2% for the remainder of the year.

Also, how great is the danger that the acceleration in growth to its trend potential rate may take even longer to achieve, that is, later than the first half of 2003?

There is a general resentment amongst the public, and it may be growing here and there, against the perceived inflation, which is clearly higher in the eyes of the public than the measured inflation, which encompasses a much larger basket of goods, when you measure it over time.

A question to the President and the Vice-President: given the low acceptance of the euro nine months after the changeover among the population of the euro area, even in your own countries -- the Netherlands and Greece -- do you feel any responsibility that the ECB maybe has a problem with communication on the euro, or who is to blame for this development?

But then it is maybe good to know that the Lamfalussy proposals were made explicitly for the securities industry.

It is not against the euro -- the euro is maybe the scapegoat for all that -- but it is against the restaurateurs, against the hotel sector, hairdressers and so on, who may in the beginning have abused the transition to the euro by rounding, in a sometimes dramatic way, upward.

Mr. Duisenberg, I am sure that you also discussed the G7 meeting in Washington with the Greek Finance Minister and maybe already a possible stance on Friday and Saturday in Copenhagen.

I might say that I am equally worried about the inflation prospects as I am about the output prospects.

What precise impact an eventual military adventure might have on the monetary policy of the ECB or on inflationary developments depends, of course, very much on the nature and the size of the activities to be deployed, and the effects -- in particular -- on the oil market and on the remainder or the rest of the region in the Middle East, and is therefore, at this stage, totally unpredictable.

At the same time, other factors -- in particular monetary developments, but also wage trends and oil price developments -- might pose risks to price stability in the medium term and therefore need to be monitored closely.

Are there perhaps local factors also driving consumer sentiment about this?

Now, there have been, of course, some concerns regarding the perceived impact of the changeover on price changes and perhaps you are referring to this.

All that has been asked of us is to come up with a proposal, if necessary -- that has also to be judged -- to come up with a proposal as soon as possible after the ratification of the Nice Treaty.

You are probably aware that these consumer boycotts are going on in Italy and Portugal, and what I am wondering is, do you have a hypothesis as to why this was a bigger issue in Germany back in May / April and only now seems to be bubbling up in these countries?

In the second quarter of this year real GDP growth is estimated to have grown by 0.3% quarter on quarter, following upwardly revised growth of 0.4% in the first quarter.

How great the risks are to that assessment?

Well, if there is a jump in oil prices, as there has been already, in the first instance it is a danger, an upward risk for inflation.

Some euro area politicians have been talking about the high oil prices being a risk for the recovery, i.e. jeopardising a recovery in the euro area.

Nevertheless, risks to the economic outlook, both inside and outside the euro area, need to be monitored closely.

However, at this juncture, there is less risk that excess liquidity will translate into inflationary pressure, given the environment of subdued demand.

And, second, I would like to ask if a military strike on Iraq does materialise in what direction do you think that fundamentally shifts the balance of risks to inflation?

And I will not join you in making estimates of what the risks for the exchange rate are.

And how do you assess the dollar risks, especially if you consider the enormous imbalances in the current account.

Our conclusion is that risks to price stability appear rather balanced.

I am very pleased that risks to inflation seem to be balanced at the moment.

On the risk of a war or military operation in Iraq: of course, this adds greatly to the uncertainties we are confronted with and to which I referred earlier.

The trend in the growth of loans to the private sector also seems to point in this direction.

In addition, against the background of recent developments, it seems to be more warranted than ever to call on member countries to remain committed to the Stability and Growth Pact.

Moreover, services price inflation is expected to moderate somewhat, following particularly strong increases in 2002.

But what, of course, we know from the statistics is that -- although it is correct that the prices of some services and some goods have risen somewhat more, and perhaps this has been influenced by the changeover -- the weighted average of the prices of all goods, as recorded by the consumer price index, has been influenced to a very small extent.

I would not speculate on future developments which I hope will not take place.

I will not speculate on that.

And I prefer, also in this respect, not to speculate about any likely consequence or any likely reaction to what we know or what we do n't know is going to happen.

There is the increasing speculation that Germany will find itself over the3% limit imposed by the Stability Pact this year.

I would not join in the speculation about what will happen to the German budget in the course of this year.

Consequently, the strength of the upturn in economic activity has become more uncertain, both inside and outside the euro area.

But it is one of the uncertainties you and we are being faced with.

I can not quantify that uncertainty over a period of time.

We live in a time of extreme uncertainty at the moment, and I really can not quantify it.

Among this uncertainty surrounding the outlook for growth is there one thing in particular that is of greatest concern for you?

The recent strength in M3 growth partly reflects both the low opportunity cost of holding money and renewed portfolio shifts into M3 in an environment of financial market uncertainty.



2002-10-10, 53 sentences

That is confidence-inspiring, especially also in times when the economy or economic developments are weak or weaker than anticipated.

The first question is, you know every time we talk about interest rate policy, we always hear from the IMF or the OECD, which have very prestigious economists who apparently know what they are doing, that your monetary policy is far too tight and that they always demand an interest rate cut.

At the same time, loans to the private sector appear to be stabilising at growth rates above 5%, a rate of expansion which, in real terms, is in line with the long-term average.

Swift, decisive action is necessary in order to set up credible adjustment paths based both on realistic assumptions on the economic environment and on well-specified consolidation measures.

We do not believe this by any means.

I believe the authorities, both the monetary and fiscal authorities, can contribute towards eliminating the uncertainties and boosting confidence by following a steady line by inspiring confidence through their steady, determined following of the policies, as they should do.

Could I give a continuation question?

And is there a point at which the ECB has to attach more importance to stock price movements, because they could have an unwelcome impact on both prices and growth?

Are there any concerns that in the euro area 's largest country there could be such a development?

Could you just explain to me what is going on in your mind during your analysis when you say that?

These developments generally remain in line with previous expectations of inflation rates hovering at around 2% for the remainder of the year, but short-term trends could be affected by future oil price developments.

Could you just explain to me why, some months ago -- almost half a year ago -- you called an interest rate of 3.25%" appropriate '' -- and with positive growth perspectives, growth catching up in 2002 to potential rate -- and now, with these deteriorated growth perspectives, it is still appropriate?

Consequently, all factors which could influence the balance of risk to price stability will be monitored closely.

At the current juncture, aggregate demand and exchange rate developments should contribute towards easing inflationary pressure, while monetary developments, wage trends and oil price developments could point to risks in the opposite direction.

That depends on our strategy and on our mandate, on what monetary policy can do.

However, the assessment that inflation rates will fall and remain below 2%, depends on the development of oil prices and the prevalence of wage moderation.

You have to distinguish between the structural deficit and the structural measures underlying the budget position and the cyclically caused deviations from the desired path.

Mr. Duisenberg, are you worried that the current climate of doubt around European financial institutions, particularly in Germany, could risk financial stability in the euro zone or the transmission mechanisms of monetary policy?

First of all, on the -- may I call it --" robustness '' of financial institutions, generally speaking in Europe they are robust.

It may be worth recalling that since your last rate cut in November 2001 the EURO STOXX index has lost about 40%.

Two questions if I may.

The latest indications are that even in Germany the inflation rate is not falling further ; it may even be creeping up somewhat but it remains very, very low indeed.

Maybe you could give me your view on it.

And then maybe I can briefly answer your question that, contrary to what you suggested, the word" appropriate '' was not used in my introductory statement today.

But we also see no signs in these countries that this development might" degenerate '', so to say, in the direction of deflation.

Would that be possible?

Yes, I say" yes '' again... and they should start as soon as possible.

And that includes the statements made by the ministers -- I should say by all but one minister -- and the ECB that the adjustment has to start as soon as possible, that is, in 2003, to be precise.

Our position is that not only the ECB but also national central banks should be involved in all layers of the structure to the maximum extent possible or feasible.

Such adjustment paths must entail significant yearly improvements in the cyclically adjusted budget balance, and must be followed strictly and be completed within the shortest possible time-frame.

In this respect, earlier this year we pointed to an upward trend in wage growth which, according to preliminary indications, may have come to a halt only recently.

And secondly, while you have to conduct monetary policy for the euro area as a whole, it 's probably the case that you can not ignore developments in individual countries and there are some concerns that Germany may experience a credit crunch ; we have heard before that some financial institutions are in great difficulties.

In the last testimony to the Parliament you mentioned that there is no risk of deflation.

There it said:" Our conclusion is that risks to price stability are at present balanced.

You on the other hand, of course, talk about the risks to price stability and I imagine that the inflation rate is still above your target of 2%, as you said in your comments, so as a result, you would like to leave things unchanged.

Do you see any risks that the ECB is lagging behind the curve also, cutting rates too late, and are you ready to carry the responsibility if the euro zone falls into recession because of too tight economic policy or policy mix?

There are upside and downside risks to our primary objective.

Our conclusion is that risks to price stability are at present balanced.

However, given the current environment, we do not see the risk of this translating into inflationary pressure in the near future.

Well, I pointed out in my introductory statement that there are still risks but the risks are balanced.

In Brussels, you said that some of the downward risks to the ECB 's main growth scenario have in fact materialised within the last few months and inflation risks have declined.

Sources of downside risks -- including oil prices, imbalances in the global economy, financial market uncertainties and their impact on consumption, investment, and thus on employment -- will be monitored closely.

My second question goes back to your testimony in Brussels ; there you seemed to give the impression that neither monetary nor fiscal policy could spur the European economy.

Now, if outsiders, sometimes also central bankers, say we have to act more quickly and swiftly and be more determined to cut rates in the current situation, then I would like to point out that we base our monetary policy decisions on a thorough analysis of both monetary developments and a wide range of indicators related to the real and the nominal economy.

President Duisenberg, did I understand you correctly when you said that today, after a somewhat considerable period of time, you appealed to the governments and the social partners as you have always done over the years, but that it did not really lead to anything?

I guess both my questions are rather speculative, but they certainly are fair speculations.

Is there something new to suggest that rate cuts are not actually that effective in boosting confidence?

These data and results also suggest that real GDP growth in the third quarter of 2002 may turn out to be similar to that of the first two quarters, when quarter-on-quarter expansion reached 0.4%.

On the other hand, the low level of short-term interest rates has tended to stimulate monetary expansion, reflected particularly in the increase in the narrow aggregate M1.

The main problem plaguing our economies both here and across the Atlantic is the combination of uncertainties prevailing and confidence lacking.

However, the uncertainty surrounding the economic outlook is high.

At the same time, a significant degree of uncertainty has been building up over recent months owing, in particular, to the sharp decline in stock prices and their potential detrimental effects on the economy, as well as to geopolitical tensions as reflected in surging oil prices.

On the one hand, monetary trends have been influenced by considerable uncertainty in financial markets and therefore partly reflect strong liquidity preferences among investors.



2002-11-07, 48 sentences

And we also want continuity, we now have a track record of decision-making of almost five years, and it has, in our feeling been a success, that process of decision-making and we want continuity of that process.

You have been explaining M3 expansion for almost one month now by the uncertainties in the financial markets.

But of course we are taking into account the fact -- and are disappointed by the fact -- that it will come later than we originally anticipated.

Although difficult to anticipate, particularly due to the volatility of oil prices, a further increase in the annual rates of inflation around the turn of the year and a delay in the return to inflation rates below 2% can not be ruled out.

But then let me say that the utterances and the discussions about the Stability and Growth Pact are very much a thing, I believe, of the past --, of the very recent past.

And so, I believe your question should be raised in other circles.

I believe it is enough what I have said, that, after an extensive discussion, the view prevailed that we would be well advised to leave interest rates unchanged today.

The expectation of an improvement in economic activity in the euro area is contingent on a recovery of growth in private consumption, supported by a reduction in actual and perceived inflation rates.

I already mentioned" one man, one vote '', I mentioned the degree of representativeness, I could also mention the fact that the proposal has to be transparent, to be easily understood.

On the particular aspect of taking monetary policy decisions by a -- let me call it -- simple majority, which, in the future, could give rise to a situation where the monetary policy decision is taken by a group in the Governing Council, which, by the way, includes the Executive Board, which could be regarded as not representing the major part or the most important part of the European Union or the euro area.

Can you rule out that there could be a scenario in which, if there are many more countries voting on interest rates, there could be a rate decision that would not be taken in consultation with one of the biggest countries, say the three biggest?

First, could you perhaps describe the extensive discussions that you had about cutting the interest rates, and perhaps, in particular, describe what the arguments in favour of cutting the rates were and tell us how evenly balanced they were?

Second, given that you are here to serve the people of Europe, could you tell me how you would explain to somebody who has lost his/her job this month -- perhaps one of the 22,000 people in Germany who did, or somebody who risks losing their job because of the economic downturn -- why you have chosen to wait and delay cutting interest rates?

That depends on the circumstances in the future, but it is true that you have never heard me say that before.

So, this may not be a permanent change in the way in which the ECB communicates?

Well, may be for the next round.

Looking at price developments for the remainder of 2002 and the early part of next year, despite the recent decline in oil prices, some upward impact may occur reflecting base effects and country-specific developments -- such as increases in indirect taxes or specific developments in services prices.

Regarding fiscal policies in the euro area, may I expressly refer you to the Governing Council 's statement of Thursday, 24 October on the Stability and Growth Pact.

Does this mean -- if I understand you correctly -- that the projections, maybe next year, will show a -RRB- that the trend growth rate can not be achieved ; and b -RRB- that you still hope that the inflation rate will drop below 2%?

Mr. Duisenberg, if the ECB were to continue to stick strictly to its two pillar mandate and monetary rules such as the" Taylor rule '', is it not the case that the ECB should, in fact, perhaps raise rates very soon, given the high rates of M3, ample liquidity, high core inflation prices, high service prices and the threat of higher oil prices?

We hope to be able to come up with a proposal shortly, as the Heads of State have asked us to do as soon as possible after the ratification of the Nice Treaty.

It is therefore very difficult, at this juncture, to predict the timing and strength of the economic upswing, both in the euro area and globally.

However, given the current economic environment, we do not see the risk of this translating into inflationary pressure in the near future.

However, the Governing Council will monitor closely the downside risks to economic growth in the euro area.

You mentioned the risk of a downside growth rate in the discussions.

That seems to imply a very rapid recovery in the euro zone if you are going to get back to potential growth rates next year.

I just wanted to ask you about what seems to be an inconsistency in your statement.

Private forecasters, on the whole, also seem to share the same view.

With regard to the latter, there seems to be notable inertia, despite the subdued economic expansion ; therefore, vigilance is warranted.

It says nothing about the size nor the moment of a rate cut, I say again, sometime in the future.

Given all these sometimes complex principles which we take as the starting-point, it is very difficult to fulfil the requirements of another principle, that is transparency.

We have surveys, but they sometimes give, admittedly, conflicting signals.

Loans to the private sector have stabilised at growth rates somewhat above 5%, a rate of expansion which, in real terms, is broadly in line with the long-term average.

The fact that the Fed changed rates yesterday was not much of a surprise, though I was somewhat surprised by the magnitude.

First of all, I have not seen that letter, so I can not speculate on what I would answer had I seen it.

Well, we do not stick to rules like the" Taylor rule '', so I prefer not to speculate.

Concerning the second pillar, recent short-term conjunctural indicators and survey data suggest that real GDP in the euro area has continued to grow only moderately in the third quarter of this year.

Moreover, financial markets have shown signs of stabilisation in recent weeks following a period of considerable turbulence.

The continuing strong expansion of M3 should be interpreted with caution, since it has been boosted considerably by high uncertainty in financial markets over recent months.

This uncertainty is associated with geopolitical tensions, the evolution of oil prices and developments in stock markets.

Nevertheless, the uncertainty surrounding this scenario remains high.

Obviously, the hesitant pace of economic expansion and current, lacklustre confidence reflect the significant degree of uncertainty that has been building up over recent months.

In view of the high uncertainty on future growth, and its implication for medium-term inflationary developments, the Governing Council has discussed extensively the arguments for and against a cut in the key ECB interest rates.

Partly, because there is a notable preference for holding liquid assets and for portfolio shifts occurring in the light of the uncertainties in the financial markets.

It has very much to do, as I said, with the geopolitical situation and the uncertainty surrounding future developments of oil prices.

So, the climate is one of high uncertainty and there, I believe, the assessment made by the FOMC is very similar to the assessment made by the Governing Council.

Were you surprised by the Federal Reserve 's decision to cut its interest rates by 50 basis points and does the Fed 's mention of greater uncertainties stemming from high geopolitical risks change to that effect the ECB 's assessment of downside growth risks from external factors?

But the uncertainty quoted by the Fed in its Communiqué is the same as the uncertainty we feel.



2002-12-05, 41 sentences

When is this expansion inflationary, because we have had this excess liquidity for almost a year now?

When the Governing Council decides that the rates will be such and such, they are -- almost by definition -- appropriate.

This decision was taken on the grounds that the evidence continues to support the assumptions which have formed the basis of the derivation of the reference value since 1999, namely those relating to trend potential output growth of 2-2ï ¿ 1/2% per annum and to a trend decline in M3 income velocity of ï ¿ 1/2 -1% per annum in the euro area.

I am sorry to be so long, I wish I could tell you more, but to translate all this into a perfect legal text which stands, we need some time.

I know you said something on that yesterday, but could you explain this again?

Well, we hate using fixed formulas for certain situations, and despite the remarkable interpretation efforts by your colleague, Mr. Burckhardt, of every word and sentence that we say, well, as I said, we hate using fixed formulas, but we could have used the word" appropriate ''.

And secondly, could you tell us what exactly has changed since 7 November?

Second, when looking forward from now until the early part of 2003, although recent developments in oil prices have lowered short-term price pressures, there are still some factors that could keep annual inflation rates above 2% for several months to come.

I would like you to clear that up if you could.

The outlook for the euro area economy will also very much depend on visible progress in other policy areas.

But it is also explicable: part of the core inflation that remains stubbornly high is, in particular, the persistent rise in prices of services and that, in turn, is in part dependent on the fact that in Europe we have an internal market.

Moreover, deviations of M3 from the reference value must be analysed in conjunction with other real and financial indicators in order to understand their implications for price stability.

And the voting rights assigned to each group would differ.

Therefore, where competition is less, prices may rise more.

Mr. Duisenberg, I would have two questions for you, if I may.

And the second question: you said two days ago in Brussels, at the European Parliament, that central banks in Asia may have shifted a lot of their foreign currency reserves to euro in the second half of this year.

So, all those things have changed and also, if I may say honestly, if we had moved one month ago you would have been very surprised.

Two questions: the European Commission said yesterday that the economy may shrink in the first quarter.

The Governing Council will continue to monitor closely all factors that may affect the prospects for inflation in the euro area.

On your first question, I should have maybe added in the first place that our agreement also includes that the voting members should be the members of the Executive Board, of which there are 6, plus 15.

There has been confirmation of our view, and maybe even for a few more months, that inflation will be -- albeit temporarily -- persistently over the 2% limit, but that it will come down.

Maybe Market News International could repeat its question.

Do you share that view, is that possible?

Would it be legally possible that Mr. Noyer, the ex-Vice-President, would replace you at the head of the ECB?

As it is hard to predict when this uncertainty will start to abate, it must be taken into account in the more medium-term outlook for growth.

Our decision should also help to improve the outlook for the euro area economy by providing a counterweight to some of the existing downside risks to economic growth, thereby supporting confidence.

Although wage-related risks remain in place, they are judged less likely to materialise as long as the economic environment does not change substantially.

The subdued economic activity should limit potential upward risks to price stability and help to ease inflationary pressure.

Furthermore, downside risks to economic growth have not vanished.

And then there was one other principle to which we also paid due respect, that is: if you have a Governing Council which comprises countries of very different size and you limit the voting frequency of individual members over time, then you would run the risk that decisions could be taken by a number of Governing Council members that would be, may I call it, unrepresentative for the euro area as a whole if you measure it by GDP or by population or however.

You do seem to leave some ambiguity as to your stance at the moment.

Sometimes we are.

But sometimes not, and sometimes foreign central banks even make it public themselves.

Somewhat disappointed?

Yes, but I would n't speculate on any kind of shocks.

Recent euro area-wide survey data suggest that overall sentiment in the economy remains lacklustre, with business confidence improving somewhat but consumer confidence falling further.

The legal situation of Mr. Trichet is more uncertain than ever.

M3 growth has been influenced considerably by portfolio re-allocations in an environment of general uncertainty and particularly by stress in financial markets.

This disappointing picture mainly reflects the persistently high degree of uncertainty.

Since 7 November there has not been any abatement of the uncertainty I would say, rather on the contrary, more uncertainty than ever.

And in trade in services, in contrast to trade in goods, competition across borders is governed less by official rules than by culture and unwritten rules, and is thus more limited.



2003-01-09, 29 sentences

At the same time, it preserves an appropriate medium-term orientation for fiscal policy, based on realistic assumptions regarding economic developments.

Now, if, in the future, the underlying assumption were disqualified, in other words growth were less than currently officially anticipated -- that is less than 1ï ¿ 1/2% -- what attitude the Commission would then take remains to be seen.

On the other hand, the recent further appreciation of the euro, as I believe Mr. Welteke has also said yesterday or today, has no negative impact on the competitive position of Europe vis-à-vis the rest of the world.

My second question -- please forgive my indiscretion, but I have to write a story on this -- is that in the event that Mr. Trichet were delayed by legal troubles, is it conceivable that you would not retire in July and stay on until he were appointed as successor?

With regard to the appropriateness of the monetary policy stance, we were not so sure in December whether we could use the word.

Could you be more precise about what you mean by" growth-oriented consolidation '', especially in respect of what it means for tax policies?

Indeed, such reforms, which should aim to reduce rigidities in labour and goods markets, could significantly enhance the degree of resilience of economic activity to such shocks, both in the euro area as a whole and in its regions.

Due to the increase in oil prices, some renewed upward pressure on consumer prices is likely to have emerged around the turn of the year, and this pressure may have been reinforced by effects stemming from various increases in indirect taxes and administered prices which became effective at the beginning of 2003.

But that is indeed a very slow process that may take decades.

How long do you think it will take until this is increased in euro and what sort of marketing efforts are you making so that the share of the euro in the worldwide reserves of central banks increases to euro holdings of up to maybe 40%.

And secondly, would you agree that growth in the fourth quarter of last year and the first quarter of this year was probably about flat, and do you still rule out a contraction of the economy in the first quarter, as you said last time?

We do see both upward and downward risks to inflation, and the lack of certainty, the lack of confidence and the slow movement of economic activity are helping to keep inflation down.

The first is on the use of the word" appropriate '', which is back in your statement, and I wondered why, especially if downside risks have increased slightly over the last month?

Have the risks increased to the downside and, secondly, given the appreciation of the euro, what impact does that have on your growth forecasts, and would you now say that the euro is appropriately valued?

Apart from that, the exchange rate remains one of our important indicators which we take into account in assessing the risks to price stability when taking the overall decision, as we did today, to establish the monetary policy stance.

There are still, therefore, downside risks to the outlook for economic activity in the euro area, although the current low level of interest rates should help to counterbalance these.

Indeed, the increase in oil prices over the past few weeks -- besides being influenced by temporary supply constraints -- reflects the risk of more acute tensions in oil markets in the future, which, in turn, would have a negative impact on the prospects for economic activity worldwide.

At the same time, there are still risks relating to a disorderly adjustment of the past accumulation of macroeconomic imbalances, especially outside the euro area.

The fiscal policy framework, as laid down in the Treaty and the Stability and Growth Pact, provides a sound basis for limiting the risk of fiscal imbalances occurring.

While the significant risks surrounding oil price developments make any short-term prediction difficult at this stage, the most likely outcome remains that inflation will stabilise in the course of 2003 at a level below 2%.

The risks to the downside have increased somewhat, due mainly to, may I call it, the lack of the disappearance of uncertainty that is prevailing.

Would you agree with the opinion of some economists that the appreciation of the euro over the last couple of months is roughly equivalent to a 50 basis point rate increase by the ECB, which would have effectively neutralised your last rate cut in December?

I will not enter into any speculation about who will be my successor, as you can understand and as you undoubtedly anticipated.

A strong preference of investors for liquid and secure assets, in an environment of continued financial market, economic and geopolitical uncertainty, remains a major driving force behind the strong monetary dynamics.

For 2003, a gradual increase in real GDP growth rates to levels close to potential later in the year remains the main scenario, provided that the factors currently contributing to the general climate of uncertainty gradually unwind.

Although some stabilisation in financial markets has been observed over the past couple of months, investors continue to perceive a high level of uncertainty.

But the uncertainty is still prevailing and it permeates and pervades the minds of consumers and investors alike.

We had hoped that this uncertainty would gradually disappear and that is the main cause for concern.

However, at the current juncture, given that the portfolio shifts due to economic and financial uncertainty may be a temporary phenomenon, and in light of the sluggish economic growth, the excess liquidity is deemed unlikely to translate into inflationary pressures.



2003-02-06, 68 sentences

To the critics of the rotation model that we unanimously agreed on in the Governing Council and that we have presented to the European Council in the composition of heads of state and government, well I am almost inclined to say I still have to meet someone, including myself, who is unconditionally happy with the outcome.

However, it appears that compensating factors played a role: on the one hand, there was upward pressure from the recent hike in oil prices and from various increases in indirect taxes and administered prices at the beginning of 2003 ; on the other hand, the strengthening of the euro and benign base effects are dampening consumer price increases.

But you can read from my Introductory Statement that whereas, on the one hand, I repeated what I said last month that the monetary policy stance is appropriate, I also added the words" that for the time being '' we still assume that the high degree of uncertainty will decline in the course of this year.

For the time being, we still assume that the high degree of uncertainty will decline in the course of this year.

As for the projections, I can not say at the moment: the issue is in full swing at staff level and, of course, the underlying assumptions have to be changed.

And a general question on the projections: the experts will start work in March, but the previous assumptions were USD 0.99 as the euro exchange rate, an oil price of USD 26 and an interest rate of 3.25%.

On the first part we have, internally in the ECB, viewed various scenarios where you have to make assumptions: if there is a war, how long will it last?

Well, as I have learned -- as have you, I believe -- on foreign exchange interventions I will keep my mouth shut, so I will say nothing about it.

We have had enough studies, I believe.

Mr. President, could you elaborate a little bit on your projections you made in December?

Could one say that there is a loosening bias now in the monetary policy?

Mr Duisenberg, could you elaborate a little bit more on forex markets and the euro.

Mr. Duisenberg, could you comment on whether you think this is the time for EU leaders to select an alternate candidate to succeed you, given that Mr. Trichet has not yet been cleared on the trial?

Now, you could do that.

In that case, there was a legitimate fear on behalf of especially the larger countries, that they could easily -- also on monetary policy -- be outvoted by a majority representing -- in aggregate terms -- less than 3-4% of the enlarged euro area GDP.

Do you think that an additional appreciation of the euro could represent, on the one hand, a problem or a danger for economic growth and, on the other hand, could not create additional and substantial benefits to the further dampening of inflation?

There are good approaches where the decisions would depend on persons, on qualified persons, and not on small and big nations.

First of all, the euro has for some weeks now been fluctuating around a level against the dollar of around 1.08, which is still slightly below the average level of the euro in the two years preceding the introduction of the euro.

But that was not even ripe enough, may I say, to present to the Governing Council, let alone to you.

Whereas the appreciation of the euro over recent months may contribute to dampening export growth to some extent, the price competitiveness of euro area companies remains favourable in a medium-term perspective and export growth should benefit from the expected recovery of the world economy.

But if I may make one comment, I would like to emphasise that our main interest rates are currently at 2ï ¿ 1/2%.

Maybe in June when you publish your half-yearly report?

Well, maybe you have already given the answer yourself.

And if you now expand the Governing Council by at least ten members, and in the Nice Treaty it is counted on that there might be 12 extra members, which would then be 27, plus six of the Executive Board, which makes 33.

Would you say that the perception of the euro on the markets has changed fundamentally when you look at these comments and that the euro might now be able to take over some of the" safe haven '' prominence from the dollar, or is this more of a short-term thing going on?

I would not go as far as your suggestion might imply, that that uncertainty would have to be out of the way before we could do anything.

Perhaps I should add two points.

Are things not at a state of some urgency where perhaps you ought to have got it ready by now?

So why was it not possible to really find a European approach?

Mr President you mentioned that it is difficult to predict the effects of what you refer to as geopolitical developments on the economy.

And I will not be surprised if they have to be slightly revised downwards.

Given the fact that the inflation rate looks benign and that there are still downside risks to growth, which impediments do you have to cutting rates?

And just another question, do you feel that the downside risks to growth have increased compared to four weeks ago?

Turning to the downside risks, we already took these into account in our decision to lower interest rates by 50 basis points in December.

Those downside risks have certainly not disappeared since then.

The risks to the downside have increased.

Taken together, there remain downside risks to the outlook for euro area economic activity.

As for fiscal policy, the framework laid down in the Treaty and the Stability and Growth Pact limits the risk of fiscal imbalances occurring, and therefore contributes significantly to favourable financing conditions for the private sector.

In particular, investors remain risk averse against the background of ongoing geopolitical tension.

We publicly said that this step in December was somewhat larger than one could have otherwise anticipated, because of the downside risks we saw emerging then.

As far as the timetable is concerned, I read somewhere that it will be decided whilst I was still President and it would be published on the first day of the new President 's term of office.

Well, I do not like to answer speculative or hypothetical questions.

As regards the information under the second pillar, economic activity in the euro area remained subdued around the turn of the year, as suggested by recently published data and survey information.

These indications are broadly in line with previous expectations which suggest a gradual increase, starting in the second half of the year, in real GDP growth rates to levels close to potential.

What is your reaction to the criticism by ministers of the rotation model suggested by the Governing Council?

The Japanese Ministry of Finance is suggesting having some sort of collaboration in the market on a reflation policy.

Further turbulence in the oil markets could have a negative impact on economic activity throughout the world and, thereby, also on euro area employment.

Although liquidity remains ample, it is unlikely at this stage that it will give rise to inflationary pressures, given the current economic environment and the expectation that some of the portfolio shifts will be reversed once the financial market uncertainty diminishes.

Their low level should help counterbalance the negative effects on economic activity that currently stem from the high degree of worldwide uncertainty and should, thereby, contribute to a sustainable economic recovery in the course of 2003.

The continued strong monetary growth reflects an ongoing pronounced preference for liquidity in an environment of high financial, economic and geopolitical uncertainty.

At the same time, several factors contributing to the general climate of uncertainty are still in place.

From that, you can infer some increased uncertainty also on our side.

What is a curious thing, let me put it that way, is that -- when in the past there was geopolitical uncertainty as we now euphemistically call it -- the dollar was the" safe haven '' for the world.

On the first, the geopolitical situation is one of the factors of grave and great uncertainty in the world.

The impediments to cutting rates at this moment are the big uncertainties that still surround the figures that you mentioned.

And secondly, I would like to ask you to what extent the failure of European leaders to find a common position on Iraq is contributing to the sea of uncertainty that you mentioned?

As usual, these estimates are subject to uncertainty and there is no precise breakdown available as yet.

Finally, the accumulated macroeconomic imbalances give rise to uncertainty about the strength of the recovery in other major economies.

I wish as little uncertainty as possible.

Mr. President, you mention various factors of uncertainty, but do you regret the current additional uncertainty on your policy regarding your successor and the fate of Mr. Trichet in France?

The uncertainties relating to oil prices, the geopolitical uncertainties and, well, let me say this: we were afraid that if one were to cut, at this moment, it would be a drop that would drown in the sea of uncertainties.

So they are still there but they were not unexpected.

But I would emphasise that the behaviour of the exchange rate over recent months has not been all that volatile.

And we prefer stability to volatility.

Volatility is always bad.

Do you share this concern that such volatility is ultimately not a good thing for the economy?

However, given the high volatility in oil markets, short-term forecasts for HICP inflation are currently subject to a particularly high degree of uncertainty.

But that is the largest amount of volatility we have seen in many weeks and therefore, neither the speed and certainly not the degree of so-called" volatility '' -- which was not much -- is a cause of concern for us.



2003-03-06, 42 sentences

That I assume.

This baseline scenario relies on the assumption that, especially in an environment of subdued economic growth, wage moderation will prevail.

Why do you believe that now a small monetary stimulus will have an influence?

We had new forecasts, we have them four times a year, and actually I had them the evening before I attended the G7 meeting -- at which you were present, I believe, and heard me make my statement.

I do believe that the exchange rate development brings the mutual relationship more in line with the fundamentals as they develop and have developed over time between these two great economic areas.

And I believe the markets did not expect us to wait.

Finally, the outlook for the euro area economy could be significantly improved if governments strengthen their efforts to implement structural reforms in labour and product markets.

I could also say, ceterum censeo, carthaginem delendam esse.

Could you just say what they are, so that we do not have to quote the IMF in our story, and say what the ECB expects?

-LSB- laughter -RSB- So, could you clarify this?

Has the effective or mere threat of war already had some sort of impact on the euro zone economy that you could determine?

The prospects for the euro area economy will depend very much on measures taken in other policy areas.

Depending on further developments, the Governing Council stands ready to act decisively and in a timely manner.

The forecasts we have available now do not, basically, differ from those which were published by the IMF.

On the contrary, in our expectations, there is little likelihood that it will come down in the course of this year, and for next year, we are also very uncertain about it.

In addition, some base effects related to food prices may have contributed to the renewed increase in annual inflation in February.

And we are doing that in a, may I say, calm and unprejudiced manner.

And the implication that I think was derived from this reference to the smile is that there may exist some tensions between Mr. Issing and myself.

This may complicate sometimes the decisions in the Council on which wine to choose for the lunch.

So any conclusion you might want to draw already today is certainly premature.

Mr. Duisenberg, in nearly every press conference you ask the governments for structural reforms.

Occasionally, we do disagree: I think that sometimes he tends to prefer Bordeaux and I prefer Burgundy.

Where do you see it, do you already see some possibility of a recovery?

But as I said, both the growth figures and the inflation figures had, sorry to say it, to be revised downward and not insignificantly.

The main factor behind this change seems to be the rise in oil prices.

Mr. Duisenberg, the markets have reacted somewhat badly to this rate decision and there seems to be some suspicion that it was a rather unhealthy compromise, possibly between those that wanted to cut by 50 basis points and those who maybe wanted to cut by 25 basis points or leave rates unchanged.

And then I -- and I should say we -- can not and did not want to speculate on how the events will evolve once a war breaks out.

Would you suggest that consumers should use an alternative to bank loans, for instance by refinancing and increasing their loans in private property?

Mr. Duisenberg, a lot of analysts have suggested that, if it comes to a war in Iraq, Iraq would be defeated quickly and decisively by the Allies or the United States.

In fact, some recent indications suggest more modest wage developments towards the end of last year, but this picture would need to be confirmed in the future.

The reason" why '' is that we thought that this cut by 25 basis points was, in the current uncertain circumstances we live in, the most appropriate.

Four weeks ago I said that a drop then would be a drop in a sea of uncertainty and go by unnoticed.

Especially the geopolitical uncertainties are such and so large that it is simply impossible to make a precise judgement about what monetary policy would do and will do.

The continued strong monetary growth reflects an ongoing pronounced preference for liquidity in an environment of high financial, economic and geopolitical uncertainty.

Although liquidity remains ample, it is not expected at this stage to give rise to inflationary pressures, given the current economic context and the expectation that some of the portfolio shifts will be reversed once the financial market uncertainty diminishes.

Looking ahead, the most likely scenario is that economic growth will gradually recover once the factors contributing to the high economic uncertainty have diminished.

Monetary policy can not address this kind of uncertainty.

By now the uncertainties are so great and the developments may come so fast.

So, the uncertainty in our assessment has somewhat diminished but at the same time we thought that one drop would be better than two drops.

Mr. President, just four weeks ago you said that because of the great uncertainty a rate cut would have drowned in a sea of uncertainty.

Which elements, which variable, should this recovery come from?

The ongoing volatility in oil markets makes it difficult to forecast short-term inflation developments.



2003-04-03, 54 sentences

I am almost inclined to say: we continuously ask ourselves the same question.

On the one hand, there appears to be a broad consensus among policymakers and the public that such reforms are important to ultimately raise the euro area 's production potential, improve the flexibility of the economy and make the euro area more resilient to external shocks.

However, M3 growth appears also to have been affected by the low level of short-term interest rates prevailing in the euro area, as indicated by the strong growth in its most liquid components.

Mr. President, with regard to the beginning of the war, do you believe that the volatility of exchange rates and economic conditions overall has increased during these two weeks?

A number of scenarios, implying widely different outcomes for economic activity, are conceivable at present.

Even after the war is over, it could imply considerable military expenditure or higher spending in order to guarantee security in a number of countries, as well as in Europe.

Could you elaborate, Mr. President, on some of the remarks you have made?

It could make both their and our lives more difficult in the future.

You refer to modest and moderate growth in the second half of the year, but could you give us a figure?

In view of the difficult economic situation internationally, compounded by the war, to what degree could a rate cut affect and improve the situation?

You asked: what could a rate cut do in the current circumstances?

If the recent significant reduction in oil prices is sustained, inflation rates will in all likelihood fall below 2% in the course of 2003 and remain in line with price stability thereafter ; evidently, this presupposes that wage moderation prevails.

While oil price developments may very much influence the pattern of inflation rates over the coming months, other factors should dominate beyond the short term.

And I may add that the word" recession '' has not been used in today 's Governing Council discussion.

I may want to remind you that when you hear outsiders talk about this, they also talk about it in the light of the upcoming G7 meeting of finance ministers and central bank governors, which is to take place on Saturday next week.

It may suffice to literally repeat what I said in my introductory statement on behalf of the Governing Council, and I quote:" Our baseline scenario continues to be one of a moderate recovery associated with diminishing uncertainty, starting in the second half of 2003 ''.

Question -LRB- Translation -RRB-: Mr. President, maybe you could explain something.

Maybe that will be final, maybe we will need another discussion two weeks later -- we are rather flexible on that -- but I can assure you that I will be in a position to answer all your questions, possibly before the end of May.

What maybe surprises us is the higher degree of volatility that we observe in the markets, both in the foreign exchange markets and in the markets for financial assets.

Have you communicated this in any way to the Council and how did you respond to reports that the French might actually support your staying on for longer?

Mr. President, the war might last for a long time.

Are you afraid, Mr. President, that this might lead governments to relax their adjustment policies?

-LRB- Translation -RRB- I would also like to ask Governor Fazio what his opinion is about a possible six-month extension of Mr. Duisenberg 's mandate?

Would you be so kind as to elaborate on the possible advantages, but also on the disadvantages, of a lessening of the Maastricht criteria?

Is recession a possible scenario?

I was not sure if I actually caught your first answer regarding the possible succession question.

A change in the monetary policy stance is possible at any moment when our analysis -- which is based on a well-defined monetary policy strategy, as you all know -- leads us to decide on such a change - war or no war.

Or is an interest rate adjustment possible even before the war has ended?

In the Governing Council 's view, it is not possible at this juncture to assess what effect they will have on the global economy, and on economic developments and the medium-term outlook for price stability in the euro area.

While letting, where possible, automatic stabilisers operate in reaction to changing economic circumstances, there is no reason to pursue fiscal activism.

Has your thinking in any way evolved on the issue of how you would feel about possibly staying on for longer?

Yet it would be premature to assign specific probabilities to any such exercises, which are mainly of an illustrative nature.

I am very pleased to hear the sounds from the other side of the ocean, that the prospects there seem to be bright.

Furthermore, you mentioned that HICP is stable at 2.4%, but core inflation is somewhat lower than that.

I can not speculate on what will happen after the war, if and when the war is over.

So it would be pure speculation to go into further detail about the various scenarios which might develop, without knowing which one has the greatest possibility of being realised.

And does this now suggest that 1% growth in the euro zone this year will be a best case scenario?

A smooth transition can take anything from one week to one month, to two months, to three months -- it is completely uncertain.

I would just like to repeat one passage from the introductory statement:" In a highly uncertain environment, it is all the more essential that governments help to boost investor and consumer confidence by taking decisive action to implement structural reforms. ''

-LRB- Translation -RRB- In a highly uncertain environment, due to geopolitical tensions -- and this is an understatement -- we must rebuild confidence.

In a highly uncertain environment, it is all the more essential that governments help to boost investor and consumer confidence by taking decisive action to implement structural reforms in labour and product markets and in public finance.

At times of uncertainty we must ensure that we stay on the right track.

Uncertainty leads to cutting expenditure for investment and consumption.

The current times are characterised by a high degree of uncertainty.

This would promote confidence in the medium-term production capacity of the euro area and therefore counteract to some extent the current high degree of uncertainty.

Mr. Duisenberg, you stressed the uncertainty of the economic environment caused by the war.

Our baseline scenario continues to be one of a moderate recovery associated with diminishing uncertainty, starting in the second half of 2003.

However, the evolution of economic growth for the rest of this year is particularly difficult to foresee at the moment, given the exceptional degree of uncertainty arising from the military conflict.

As far as the second part of your question is concerned, as I indicated in my introduction already: uncertainty about future developments is so large that we have various scenarios about what will happen once the uncertainty diminishes.

And that has nothing to do with volatility.

By setting a firm framework for the future monetary policy stance, we hope to contribute to diminishing this volatility to the best of our abilities.

As for the outlook for price stability over the medium term, it is particularly important to clearly distinguish between short-term volatility and more fundamental factors.

The volatility of the exchange rate has maybe been a little bit more intensive than in the days before the war.

Given the continued high volatility in financial markets, mainly related to the geopolitical uncertainty, M3 growth continued to be fostered by portfolio shifts away from more risky assets.



2003-05-08, 77 sentences

The speed at which it is strengthening is almost equal to the speed at which it declined two years ago.

What we have discovered is that this annual review apparently causes misunderstanding and confusion.

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.

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.

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.

I believe that this underestimation of growth prospects is -- I am almost inclined to say -- a worldwide phenomenon.

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.

Forgive me, Professor Issing, if I have missed something, but what is the clarification regarding the 2% inflation reference?

What is the clarification regarding the inflation value?

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.

Today 's clarification helps to this end.

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.

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.

I wonder if I could ask.

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.

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?

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.

In other words, could we actually skip the term" pillars ''?

Could you mention a few points where it was particularly difficult to reach agreement in the Governing Council?

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?

Ex post, one could say that the policies pursued over the last four years have shown that this was indeed the strategy pursued.

The outlook for inflation will also depend to a significant extent on wage developments.

It depends on developments in financial markets, etc..

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.

That does not mean that there were no differing views.

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.

But may I refer the remainder of your questions to the second part of this press conference.

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.

However, I would ask you to postpone any questions you may have on this subject to a little later this afternoon.

Mr. Duisenberg, did you discuss yesterday evening or maybe today about the draft for the new constitution from the EU Convention.

All the reasons indicated, I might say, to still wait a while.

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.

But this might or might not happen.

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.

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.

Perhaps we have previously not communicated it successfully enough.

A yearly review in this context has perhaps led to some confusion.

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.

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.

When interpreting monetary trends, particular account needs to be taken of the portfolio shifts towards increased demand for monetary assets for precautionary reasons.

But then, as Mr. Greenspan used to say, it is very difficult to predict a bubble.

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.

Nevertheless, there continue to be downside risks.

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.

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.

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?

We have, of course, considered risks.

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

Mr. Duisenberg, the strong monetary growth of M3 is not a risk for price stability.

Is it a risk for financial stability?

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.

This still gives money a very prominent role in the assessment of risks to price stability.

And, can you tell us a little bit about how big a risk you think food prices are for inflation?

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?

We always consider risks, but there is no risk of inaction.

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.

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.

Such an assessment also seems to be reflected in recent financial market reactions.

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.

So, what information we get we get in an informal way and sometimes we respond in an informal way.

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.

Sometimes critics argue that we should combine both assessments into one single assessment or one pillar, or whatever you might want to call it.

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.

We are somewhat exhausted and need some recreation now.

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.

The available indicators suggest that labour cost growth has shown signs of stabilising in the course of 2002.

Moreover, the data for more recent months do not suggest that a process of correction has started.

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.

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.

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%.

Moreover, the recent unwinding of uncertainties associated with geopolitical tensions should contribute to an economic recovery.

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.

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.

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

Since the end of the war in Iraq, financial market volatility has declined significantly, with a notable increase in stock prices.



2003-06-05, 49 sentences

I was already very clear when I said that I was almost astonished at what the IMF has done, that is, publish a staff paper on inflation differentials and deflation in the euro area.

Lots of things are happening in almost all countries of the euro area, but admittedly this is too little and often too late in some countries, particularly the larger ones.

We are slightly less pessimistic apparently than the IMF.

Summing up our economic analysis, it currently appears that inflation rates should decline to below 2% over the medium term, following recent movements in the exchange rate of the euro and given the sluggish growth performance of the euro area.

This assessment is based on the assumption of favourable import prices, reflecting both generally stable oil price developments and the higher exchange rate, as well as lower domestic price pressure in the context of a moderate economic recovery.

We believe that the answer from Gordon Brown will actually be" not yet ''.

That question I have already answered, I believe.

I think that we are credible enough for people to believe that we will deliver what we promise to deliver.

I beg you to believe me that I have no idea how long I will be here.

As you noted in my presentation of the evaluation and clarification of the monetary policy strategy last month, and as you noted in my statement of today, we reversed the order in which we discussed the two pillars.

Since, as you know, the strategy has not changed but merely been clarified, this decision would also have been taken had we not made this clarification public.

Mr. President, could you help me understand your new strategy a little bit better?

And that in itself subtracts, one could say, one impulse for the exchange rate movement we have witnessed in the last couple of months.

Could you explain to us what the arguments of those who advocated these figures were...

Mr. President, could you elaborate a little bit on why you have not cut rates before today?

Could you tell us what was the level of agreement on the timing and the extent of this cut?

And, if you could be a little bit more precise on the GDP forecast for this year, is it now closer to 0.5% than to 1%, on average?

This could also have an impact on employment growth and thus private consumption.

Mr. Duisenberg, I was wondering if you could tell us how likely you see it, personally, that this will have been your last interest rate decision as President of the ECB, and whether the likelihood that there will be an imminent change in the leadership at the ECB had any impact on the size of the cut today -- in other words that you might have wanted to clear the air for a while ahead of a leadership change?

Mr. Duisenberg, could you perhaps give us the outlook on Germany?

Finally, the perspective that economic activity will remain moderate reduces the likelihood of excess liquidity giving rise to increased spending.

But if I may quote myself, I said," within a monetary union '' -- which the euro area is and which the United States is --" deflation is not a meaningful concept when applied to individual regions '', like New Hampshire or Germany.

But then, on the other hand, as you may well recall, I did push the door halfway open for a decision to be made at a later stage.

In the old days -- - if I may call them" old days '' now -- we always talked about the first and second pillar, as if there was a ranking.

At this juncture, it may be particularly warranted to stress that monetary policy can not by itself generate lasting and sustainable growth and employment in the euro area.

And maybe about deflation, once again.

So you might say I explained that danger away with well-reasoned arguments.

You might say that we have achieved price stability by now.

But then, as I did in my Introductory Statement, I paid considerable attention to monetary developments and I extensively explained why we do not consider the very dynamic monetary developments -- as we see them -- as a threat that inflation might again be on its way up.

To what extent did, perhaps, political pressure play a part in your decision, after all, we have had leaders like Berlusconi and Chirac calling for lower interest rates?

And, one more general question perhaps: when you lower interest rates against the backdrop of a slow economy, is it not a failure of the currency union in general, and also of the ECB, that economic growth is low and unemployment is high, especially compared with outside countries such as Sweden and Great Britain?

I can not quantify that, but you will be able to judge for yourself when next week you see our revised projections, or I should say the revised projections by the staff of the ECB and all NCBs.

Mr. President, during your last meeting with Chairman Greenspan and other central bankers on Tuesday, Mr. Greenspan said -- as far as I remember -- that inflation in his view is not the biggest risk in the next months, if not in the next years.

Is it also a risk for financial stability?

As far as the euro area is concerned, it should be recalled that inflation has been hovering around 2% for quite some time and that there are currently no forecasts indicating any deflationary risks.

Let me at this point comment on the debate about the hypothetical risk of deflation.

Notably, risks stem from the past accumulation of macroeconomic imbalances outside the euro area, and there are ongoing concerns with regard to the SARS virus.

The Governing Council is conscious of the continuing downside risks to economic growth.

At the same time, this interest rate reduction takes into account the downside risks to economic growth.

Moreover, higher monetary growth was accompanied by a much lower net acquisition of foreign equity by non-MFI euro area residents, also implying portfolio reallocations away from riskier assets.

And my second question is related again to the IMF, which seems to be responsible for spreading a lot of pessimism.

All available forecasts as well as recent financial market reactions seem to reflect a similar assessment.

Mr. Duisenberg, the statement does not say that rates are appropriate, so that there will be a lot of speculation that the door is still open for future rate cuts.

However, the survey evidence for April and May does not suggest an immediate improvement after the resolution of this conflict and is at best mixed.

By the same measure, bold structural reforms in the labour and product markets would not only increase the euro area 's growth potential and enhance its ability to better withstand external shocks, but it would also eliminate a great deal of the uncertainty currently overshadowing long-term planning and perspectives.

In addition, some uncertainty remains as to the extent of the adjustment still needed in the euro area corporate sector to enhance productivity and profitability.

Well, as I said in my introduction, certainly the end of the war -- or the actual military activity in Iraq -- has, to a great extent, removed the uncertainties that prevailed at the time, but as yet not totally.

That it does not say that they are appropriate is not unusual.

We are not inclined to give individual figures for some orders of magnitude or variants when you can not see them in the broader context of the all-encompassing projections as they will be in public.



2003-07-10, 41 sentences

In early 2004 a significant base effect related to energy prices should lead to a marked fall in annual HICP inflation rates, assuming broadly unchanged oil prices and exchange rates.

However, other policy-makers also have to assume their responsibilities.

The procedure is -LRB- and the dates are fixed -RRB- that on 15 July, I believe, the Ministers of Finance will formulate the proposal for the presidency of the ECB.

I do not believe that I will, and I do not intend to be a lame duck.

You could say that.

Could you tell us something more about the topics that were discussed with Mr. Tremonti, please?

As you know, the ECB does not depend on the budget of the Community.

The question was namely: does the regime, as set up by the European Regulation of 1999, apply to the ECB, or does that regime apply only to the European institutions and bodies that depend on the budget of the Community?

We still think that it is the valid picture, as published in the June Monthly Bulletin, and we have no reason to deviate from it.

For the remainder of this year, annual HICP inflation rates are expected to fluctuate around the current level of 2%, the rate recently estimated by Eurostat for June.

As to your second question on the strategy, I would like to point out that the evaluation of the strategy was carried out by the entire Governing Council and was confirmed by the Governing Council, including, in all likelihood, my potential successor.

Well, this may be a good opportunity to say exactly what I said when we met the trade union representatives.

No, I very much welcome it, if it is indeed the first sign that confidence may be returning.

Do you think that this is an appropriate measure to stimulate growth and are you not worried that these tax cuts may have a negative impact on inflation next year?

Although also there, there are first signs -- but they are not yet very robust -- that we may have reached the low point in confidence and may even already have passed it.

I might add that deviously they have also set a date for my regular hearing on 10 September.

The first feasible date after that decision of mid-October is -- and this is simply bureaucracy, you might say -- not the day after, but two weeks later on 1 November.

Together with the institutions of the European Communities and the Member States, we attach great importance to the protection of the Communities ' as well as the ECB 's financial interests and to efforts to combat fraud and other illegal activities that might be detrimental to the Communities ' as well as to the ECB 's financial interests.

Is this the ECB 's way of hinting to the United States that their current account deficit and their dollar policy might not be in the best interests of the global economy?

The Governing Council will continue to monitor carefully all factors that might affect this assessment.

Basically, you might also include the imbalances that exist in the world on account of the fact that the large and fast growing economies in Asia broadly speaking have an exchange rate policy which links their currency to the US dollar, despite the fact that their economic developments are sometimes very different from those in the United States.

If I refer to the most recent surveys of consumer and industrial confidence, they have at least stopped falling and there are first, albeit very preliminary, signs that we may have reached the bottom and that confidence may be returning, at last.

And is there not the risk that rising yields will delay a recovery, given that it makes it more difficult for companies to borrow?

Mr. President, you were talking about the downside risks and about the accumulation of macroeconomic imbalances in other countries outside the euro area.

I do not see that risk at all.

We are of the firm opinion that such risks do not exist in the euro area.

Would you say that there are still deflationary risks in the euro zone?

Nevertheless, downside risks to this main scenario are still relevant.

Interest rates in the euro area are low by historical standards, both in nominal and real terms, thus lending support to economic activity and helping to safeguard against downside risks to economic growth.

While concerns over the SARS virus have faded, there are risks relating in particular to the accumulation of macroeconomic imbalances outside the euro area and to the extent of the adjustment still needed in the euro area corporate sector to enhance productivity and profitability.

Mr. Duisenberg, in your final few months at the helm of the Bank, do you think there is any risk that you might be seen or regarded as a" lame duck '' President of the ECB?

Mr. Duisenberg, you did not use the words" deflationary risks '', but" downside risks ''.

My second question would be: it seems that you said last week to European trade unionists that you would retire on 1 November and would be replaced on this date by Mr. Trichet.

But I must confess that we saw with some relief that the strong appreciation which had been evident in the months before seems, at least for the time being, to have been interrupted.

At the same time, financial market developments seem to reflect a somewhat more optimistic assessment of the economic outlook both inside and outside the euro area.

We do not think so, because the yields have been rising and the differential between US long-term yields and European long-term yields has diminished somewhat in that process.

In the context of our economic analysis, the latest data and information continue to suggest that economic growth in the euro area remained subdued in the second quarter of the year, after virtually stagnating in the first quarter.

Mr. Duisenberg, your comments today and also to the European Parliament suggest that the last rate cut which we saw in June may have been it.

Other price indicators, such as developments in producer prices, tend to support this picture.

This strong growth has continued in recent months, as economic uncertainty and the low level of interest rates across the whole maturity spectrum have increased the attractiveness of holding liquid assets.

In a similar way, progress in structural reforms in the labour and product markets would not only increase the euro area 's growth potential and enhance its ability to better withstand external shocks, but it would also eliminate a great deal of the uncertainty currently clouding long-term planning and prospects.



2003-09-04, 51 sentences

This expectation is based on the assumption of moderate wage developments in the context of a gradual economic recovery.

I would like to ask you: in June you gave us an inflation forecast for 2004 saying that inflation would average between 0.7 and 1.9% next year, and that forecast was based on the assumption of an exchange rate of 1.16 for the euro/dollar exchange rate.

Now, in the future, for the future, one can make -- and I am now talking in general -- hypotheses on the basis of assumptions.

So, alternative scenarios can be contemplated on the basis of alternative assumptions concerning the evolution of economic and monetary variables.

And I believe that this is broadly in line with the forecasts and projections of other institutions and the private sector.

So I will make a general remark, which I believe to be appropriate and neutral.

And if it does, it will obviously increase the pressures and the problems associated with the excessive deficits that have been recorded in these countries and will make it more difficult to implement budgetary policies and so to bring the fiscal position in these countries closer to balance over the medium term, which -- as we stressed in the Statement and as I stressed separately earlier -- we believe is going to contribute to rather than adversely affect economic growth.

And I do not believe it is wise to make unconditional statements about the future.

Monetary policy decisions, as I believe you very well know, are taken on the basis of a mandate and in order to attain the clearly stated objectives of monetary policy.

Now, we believe that these short-term considerations should not overshadow a number of other important facts and conclusions which are widely supported by evidence.

I believe I should not make any comment that could be interpreted in any way as influencing decisions.

Having said all this, having stated these conclusions, which I believe are strongly supported by the empirical evidence and experience, I think that we can add that in our view it will be conducive to growth to implement fiscal policies in the medium and long-term perspective and not in a way that may impair the credibility of the fiscal framework of EMU.

And some more than 0.5 should be the target next year and could monetary policy give some backup to this fiscal policy?

Do you think there is substance to the argument that a further rate cut could boost confidence and help secure what is a fragile recovery?

Could you address ECB 's staff projections for inflation.

And also, could you tell us what the growth projection is for next year as well?

And if done appropriately and financed appropriately, it could help to boost economic growth.

We could expect some reversal in the future, at least a partial reversal, of the portfolio shifts observed in the past from assets outside M3 into assets that are included in M3.

I think you could infer this from what I said.

However, monetary growth needs to be closely monitored as the significant amounts of excess liquidity could become a source of concern if they were to persist when economic activity strengthens significantly.

On your first question regarding the effects of the interest rates on money demand: the situation, really, has not changed in any fundamental way because the demand for broad money depends on the whole spectrum of interest rates.

However, the final assessment depends very much on how it is financed and on this I do not have, at present, detailed information in order to be able to give you a precise judgement.

I said, more precisely, that the outcome will depend on the modalities of the financing and whether it will impinge on public finances in countries that are at present facing fiscal problems.

So the short answer is: it depends.

Mr. Papademos, how much does your positive outlook for the euro zone depend on strong recoveries in the United States and Japan?

And third, and more directly related to your question, is that the extent to which an expansionary fiscal policy can influence, can have positive effects on growth, depends a lot on the overall fiscal position of a country, as well as on the extent to which it can strengthen consumer and investor confidence.

So our projection of an expected recovery depends on both external and domestic factors, but at the same time, as I acknowledged earlier, there are downside risks and some of the downside risks are related to the strength and the pace of the global recovery.

But there is no scope for any ex ante co-ordination, if I may call it that, of policies.

In addition, high oil price levels may continue to have adverse effects on economic activity in the euro area.

Although these may not affect the short-term economic dynamics, they constitute risks over the longer run.

The Governing Council will carefully monitor all factors that might affect this assessment.

I was wondering to what extent that might also be true for the ECB and euro markets?

Until the end of the year we expect inflation to hover close to or possibly slightly above 2%, in 2004 and 2005 to fall below 2%.

In part, this is due to past portfolio shifts and possibly to an increase in monetary holdings related to precautionary motives.

The polls predict quite a stable victory for the" no '' side.

And, as we meet every month, we reassess carefully and comprehensively the situation.

Given the changes, particularly in the euro and oil, what is the revised projection?

And there are, at the same time, positive upside risks -- particularly associated with positive economic developments and prospects globally.

How strong a risk are they?

And also I would like to ask you: you mentioned oil prices as one of the risks to the economic recovery.

Downside risks to this main scenario for economic growth have declined over the past couple of months but have not disappeared.

And the increase in long-term yields -- which by the way is a very recent one -- does not seem to have had any visible effects.

Over longer time horizons, inflation expectations in the euro area seem to be well anchored at levels below but close to 2%.

I can say that for the year 2003, and taking into account developments during the first half of 2003, growth is expected to be somewhat below the middle range of the projections we published in June.

And, looking forward, although we can conclude that growth in the present year will be, as I mentioned earlier, somewhat below that previously envisaged, it does not change essentially the projected growth for the coming years.

Starting with the economic analysis, recent data confirm that real economic activity in the euro area was very weak in the second quarter of 2003, with the Eurostat flash estimate suggesting zero quarterly real GDP growth.

I would point to two statements in the Introductory Statement which suggest that, compared with two months ago -- so looking more to the past than to the future -- the risks to output growth are judged at present to be diminished but not to have disappeared.

It is an important factor, which adds to the uncertainty that exists and, depending on developments, it could either boost or undermine confidence, which is an important element in supporting the pick-up in economic activity that we are projecting at present.

These projections did take into account recent developments in all relevant variables, including the exchange rate.

So, on the basis of all these developments, but also taking into account developments in other variables, such as the price of oil -- which is an important consideration -- the decisions will be made in the future.

Well, regarding the first part of the question, I think the answer I gave a moment ago is quite relevant, that fiscal developments and prospects -- by influencing various economic variables such as demand, prices and possibly interest rates -- are taken into account when formulating our decisions.



2003-10-02, 40 sentences

So, day-to-day movements do not -- almost as a matter of principal -- influence our decisions.

Their purpose is to inform the media and the general public in detail, and on an almost" real-time '' basis, about the outcome of Governing Council meetings.

Externally, the recovery in world economic activity appears to be proceeding.

And, assuming that this is still the case, are you talking about annualised rates of growth and might this be towards the lower end of that range or towards the upper end, or in the middle?

This expectation is based on the assumption of moderate wage developments in the context of a gradual economic recovery.

We do believe that exchange rates in general should, over the medium or long term, reflect the economic fundamentals of the regions concerned.

We believe it will be in that range.

One is a follow-up to your reply to Mr Costa, I believe, about the ECB 's inflation estimate for 2004, which I believe currently stands at 1.3%.

Well, I could say even more about where the euro rate is today.

And a long-term question: how do you expect that the problem with the US current account deficit, this imbalance, will be solved, and is there a way that it could be solved without a strong appreciation of the euro?

Would you think that the recession in Portugal is experiencing should or could justify a violation of the 3%?

However, if it were to persist in conjunction with a significant strengthening of economic activity, it could lead to inflationary pressures in the medium term.

Do you agree with that, do you think that France could deserve the special circumstances for the technical recession it has apparently suffered?

Exchange rate developments help to contain short-term upward pressure on prices, while higher unprocessed food prices related to the hot and dry weather conditions in some euro area countries could imply some limited upward risk over the next few months.

Do you want to correct your article from this morning maybe?

Finally, although it might mean stating the obvious here in Lisbon, the Lisbon Strategy, which was agreed upon back in March 2000, is of the utmost importance in the process of implementing structural reforms.

We will continue to carefully monitor all developments which might affect our assessment.

In the meantime, today Mr Solbes got from the Governing Council of the ECB all the support he might need for his further endeavours, he being the guardian of the Stability and Growth Pact.

In particular, there are signs that economic activity might have firmed somewhat in the third quarter, and confidence indicators available up to September generally point to some improvement in economic expectations.

So there is a reference here to a specific value, which is not an automatic guarantee that it will be accepted as a good reason for violating the 3%, but -- as is written in the regulations -- it creates the possibility.

The position of the Portuguese government -- and the position that I have also expressed myself publicly several times -- is that Portugal should not take advantage of this possibility.

Two days ago, Mr. Solbes told the European Parliament that the possibility to apply to France the special circumstances that are in the pact was under discussion.

Turning to the monetary analysis, the strong monetary growth over the past two years has been fuelled by past portfolio shifts, precautionary saving and the low level of interest rates.

But as you know, it is also in the regulations of the Pact that if the recession is over minus 0.75% this can create a presumption that the ECOFIN Council can consider this as a special circumstance.

As you are aware, this will most probably be the last press conference following a meeting of the Governing Council that I will chair.

Do you expect this inflation estimate for 2004 to be revised upwards?

However, some risks to the sustainability of economic growth at the global level remain.

Countries are therefore continuously made aware of the risks and costs arising from any delay in taking policy action to preserve the sustainability of public finances.

I have said that the risks are more or less balanced, both to the up and to the downside.

Four weeks ago Mr Papademos talked about downside risks.

Well, that is a risk I would be very happy to take.

And a related question, is there a risk that growth next year, average growth rates for the euro area, would be more likely to be at the upper end of the range?

Is there a risk of disappointingly low growth?

The short-term risks to our main scenario of a gradual recovery appear to be broadly balanced.

... and the risks to the upside, the risk that we would have more growth than we expect...

Domestically, companies seem to be continuing their adjustment efforts to enhance productivity and profitability.

But it also seems to be very close to the rate of June when you cut the rates.

You repeated the Council 's expectation that euro area growth -- annualised rates of growth -- would begin to approach trend potential sometime late next year.

That would suggest to me that there is a change of tone at the ECB and you are now much more confident about growth.

For early 2004, there is still some uncertainty about the precise impact on HICP inflation of planned increases in indirect taxes and administered prices in a number of euro area countries.



2003-11-06, 52 sentences

Overall, we anticipate some further stickiness of inflation rates in the shorter term, while the medium-term outlook for price stability remains favourable.

Recent inflation rates, measured by the HICP, developed broadly as anticipated.

And then I have a slight follow-up: you cite what appear to be shocks -- you talk about food prices as one shock, oil prices as another, and these administered indirect taxes and so on.

When looking ahead over the shorter term, it appears that inflation rates may continue to hover around this level for several months to come and, hence, may not fall as quickly and strongly as had been expected up to the summer.

When looking ahead over the shorter term, it appears that inflation rates may continue to hover around this level, 2,1%, for several months to come and may thus not fall as quickly and strongly as had been expected up to the summer.

On the one euro banknote we have already said that we would examine this particular question when we look at the new series of banknotes within approximately one year.

This expectation is based on the assumption that wage developments will not be affected by the current inertia of inflation rates, and will remain moderate in the context of a gradual economic recovery.

This expectation is based on the assumption that wage developments will not be affected by the current inertia of the inflation rates and will remain moderate, even in the context of a gradual economic recovery, which -- as I have already said -- is our working assumption.

And in the United States, which is, I think, believed to be a more flexible economy than the European one, we have seen improvements, but not in the labour market.

Given that you believe that the Commission has pushed to the limit the interpretation of the Pact, how can the other actors in this drama fulfil their responsibilities later this month without doing precisely what the Commission has asked them to do?

As regards the European economy today -- and this is the assessment not only of the ECB, but also of other authorities, and here I am referring to the Lisbon consensus -- clearly we believe that more efforts being made in research and development, in technology, in creativity, innovation and so forth, would permit more rapid progress in productivity and would, therefore, increase the growth potential, which -- as I have said -- is probably one of the main challenges that we have here in Europe today.

Of course, we are cautious, we are pragmatic, we will see what the new data, the new facts, the new figures are.

Mr President, the former Bundesbank President Karl Otto Pöhl said yesterday that the ECB could run into stormy weather next year.

As regards recent messages, I would not quote any particular currency, if you permit me, but as you know, it was made very, very clear by both Wim Duisenberg here, and by colleagues in the United States that the communiqué which was sent from Dubai was clear, without mentioning any particular currency, that we thought that some Asian currencies could progressively, smoothly and orderly appreciate over time.

If yes, how could that be tackled?

Lucas, could you elaborate on that?

So we are introducing all the elements that could play a role on the other side.

In particular, we expressed our concerns that the envisaged reduction in the capital and restrictions on how profits are distributed and how provisions are made could have implications for the financial independence of the central bank, and also, more generally, on its institutional independence.

However, if it were to continue in conjunction with a significant strengthening of economic activity, it could lead to inflationary pressures in the medium term.

First, in the remainder of 2003 and early 2004, unprocessed food prices could imply some limited upward pressure as a consequence of this summer 's heat wave.

This anchor must not be placed in doubt.

The low level of interest rates also supported the annual growth of loans to the private sector, which fluctuated between 4 1/2% and 5% in recent months.

One question in French, if I may: many companies in Europe reject a euro that is too strong and think that, in relation to the dollar, their exports are penalised.

Two questions, if I may: you have just given a very strong message to the ministers of finance, telling them that they have to respect the Stability Pact.

Just to return to the Stability and Growth Pact for a moment, if I may.

Are you hinting that they may already have strained the credibility of Europe 's fiscal rules?

We are an institution that is already, if I may, a federal institution in the institutional framework.

Well, we all, of course, have assets and liabilities, if I may, chances and risks on the various continents, in the various big, or small, economies.

I am sorry but maybe I did not understand if you made some remarks about the fact that in one month you will deliver the new figures for your projections for next year.

Maybe we can have the last three questions.

First, inflation will come back, maybe come back because of the strong monetary expansion, and second you will have to look at some currency turbulence next year, if there is a switch from dollar to euro in the banks of the Asian countries, and so on.

The third element might be indirect taxation in a number of European economies.

I would say only that we are observing at least three factors that might explain this stickiness.

As regards the short-term evolution, we clearly see some reasons -- the very same reasons might explain -- why we would hover at that level, approximately at that level.

We will carefully monitor all developments that might affect our assessment of risks to price stability.

Perhaps a little bit after noon.

There are, I would say, pros and cons as regards this possibility and we will look at these very, very carefully.

So we have a feeling that, by ensuring price stability and by taking the decisions we have taken in the past, we are really paving the way for, I would say, the financing of growth in Europe to be as easy as possible.

This situation of persistently more liquidity than is needed to finance non-inflationary economic growth reflects past portfolio shifts, precautionary savings and the low level of interest rates.

And, secondly, how much more of an economic strengthening do you need to see before you would reassess whether or not the current monetary policy stance is appropriate?

And are you going to reconsider the restructuring of the DG-IS Information Systems department?

Do you see a risk to a sustainable recovery of the global economy?

The short-term risks to our main scenario appear to be balanced.

So the analysis of risks and preparing yourself to respond to the risks is really the rule of the game.

Is that a fair way of saying it, that you see an increasing risk that -- or can we say that you are seeing an increasing risk that the ECB may miss its inflation goal next year?

Secondly, it seems that one of the causes of global imbalances is the weak renminbi and it has something to do with the appreciation of the euro.

If I look at the long-term perspective, I would say that it seems to me that the market is convinced that we will deliver that kind of stable long-term environment that is justifying low long and medium-term market rates conducive to growth and job creation.

And it seems to me that you have all the nuances that are appropriate in such a, of course, very important judgement that we have collectively made.

First of all, on the first question, which deals with the Stability and Growth Pact, I will say that we had a very clear position in the Governing Council, among the 18 members of the Governing Council, and you have it in writing, but I will repeat it because it seems to me that it is important.

I would also like to put my question in French, which is one of the official languages of the Union, I would like to remind my colleagues, since they seem to have forgotten that.

So until then I do not think it would be appropriate for us to make any further comments and speculate about the outcome.

Second, oil prices remain higher than expected, owing to political uncertainties in the Middle East.



2003-12-04, 50 sentences

Inflation is almost the same.

Real GDP growth in the third quarter reflects the strong momentum of the world economy, which we assume will continue next year.

And secondly, I understand these forecasts assume a fixed exchange rate.

Furthermore, I should once again like to say that it is up to all partners to assume their responsibility and we firmly believe that it is important to have this concept and this Treaty and Stability and Growth Pact framework.

I have already said that we encompass absolutely all data, all information, all elements that are of importance, so I would say that we have taken everything into consideration and we made a working assumption, as I said, that the commitments that were made by the countries concerned and the commitments that were made by the qualified majority of the Council are to be met 100%... that is of course our working assumption.

We say what we believe we have to say and everybody will take responsibility for his own actions.

We say what we believe we have to say, and you are right in saying that we will not change our own vision.

At the same time, this outlook for price stability is conditional on quite a number of assumptions, such as those on global developments, oil prices, exchange rates, wage developments and fiscal measures.

Could there be a stronger development, like in the United States, or will there be a bigger difference with the United States?

However, should high excess liquidity continue to prevail once there is a significant strengthening of economic activity, it could lead to inflationary pressures in the medium term.

Do you see any danger at all that the dollar could devalue so quickly that it would become a danger to the global and European upswing?

Could you maybe explain this apparent discrepancy?

I will only say that in the analysis of the ECB, of the Governing Council of the ECB, of the full body of the Eurosystem, and of -- to my knowledge and I am speaking with the Vice-President here -- all institutions, observers and academics analysing the situation, we could improve the growth potential if we were to embark as actively as possible on the structural reforms we have mentioned.

There is no doubt that measures in these respects improve the growth perspectives of the euro area.

While annual inflation rates are likely to fluctuate around 2% over the coming months, a gradual and limited decline should take place later on.

Where should growth come from if the euro is still appreciating so much and maybe putting the brake on growth?

While technical factors might also have played a role in the movement of these indicators, and other indicators have remained broadly unchanged, inflation expectations warrant close monitoring.

I have already said that: you might remember that a month ago I used -- if I am not mistaken -- the word" stickiness ''.

Everybody knows what our benchmark is ; we give and display our definition of price stability ; everybody can see what the various data are that we might have in mind ; and it is absolutely clear that we take our own decisions on the basis of our own responsibilities.

I know that it might be a little bit boring for you when you hear us repeating ourselves but it is perhaps better to repeat when you really believe that it is important.

We will continue to carefully monitor all developments that might affect our medium-term assessment of risks to price stability.

On the first point, I would say that we consider that this inertia of inflation over the next months -- and" next months '' might in fact mean several months -- is, as you have suggested, due to factors that would not necessarily be there were a certain period of time to elapse, and we consider that over the longer run we are in line with our definition of price stability.

It is perhaps the particular responsibility of central banks always to say more or less the same thing.

Perhaps the first success of the euro.

There are no indiscreet questions but only indiscreet answers, perhaps !

And our judgement is that confidence is perhaps the most important ingredient at the present juncture, if I may say so.

The euro is going to be stronger and there is also confirmation that the European economy has a much greater possibility of developing following the decision of ECOFIN.

We also took note of the commitments made by France and Germany to correct their excessive deficits as rapidly as possible and at the latest by 2005.

And this is done by all central banks on both sides of the Atlantic, for instance, because it makes it possible to gain the confidence of investors and savers.

We are as comprehensive as possible, as you know, in our economic analysis and we are also, and this is very important, never prisoner of a particular equation, of a particular system of equations, or of a particular algorithm.

And the part for which we are responsible we try to deliver in the best fashion possible.

You have seen what we said today, which is completely in line with what we had said before, as has already been mentioned, and we are sticking to our own analysis, where we have been as level-headed as possible and where we have stated that we indeed believe that what is in the Treaty and what is in the Stability and Growth Pact is very important for all the reasons that I have already mentioned.

Turning to the monetary analysis, M3 growth has been very strong over the past two years, reflecting portfolio shifts, precautionary savings and the low level of interest rates.

We trust, as I said, that investment will now probably be observed, and we trust that the growth that we have in mind, and that all observers have in mind, will be fostered by consumption, and also by investment.

Can you give us any detail, any hint, in which direction they were revised?

Was the inflation forecast revised upwards?

Was the growth forecast revised upwards?

Mr President, in your overall assessment you said that the risks to your scenario are balanced.

It is very important to obtain this: very low risk premiums on the medium and long-term rates, in particular, and preserving or enforcing the favourable financial environment, which is of course one of the elements that is important for growth and job creation.

Therefore, elements of risk to the outlook for price stability need to be kept in mind.

Let me add that a credible fiscal framework is key not only to stability but also to growth, and is a precondition for low risk premia in financial markets to be preserved.

As we already stressed in our statement on the same day, these developments risk undermining the credibility of the institutional framework and the confidence in sound public finances of Member States across the euro area.

The risks to this scenario appear to be balanced.

What we have done until now -- and I repeat it because it seems to me that it is important -- is to permit 305 million citizens of Europe to benefit from a financial environment with objectively low medium and long-term rates that did not exist before the euro.

Overall, these views are also reflected in recently released forecasts and seem to be in line with survey data and financial market expectations.

When you went into the details you seemed to mention only upside risks, notably market-based inflation expectations and liquidity.

There were some press reports that said that there were plans somewhere in the European Commission, because there was concern about the strength of the euro, to establish some kind of exchange rate controls at some stage.

I do not see at all what you are suggesting or alluding to.

Provided that wage moderation can be preserved, which is indispensable for fostering employment, a cyclical recovery in productivity tends to dampen growth in unit labour costs, which has thus far been relatively high when judged against the weakness of the economy.

Mr Trichet, given the uncertainties in the currency market, the main fear these days could be a dollar crash.



2004-01-08, 36 sentences

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.

This expectation is based on the assumption that wage developments will remain moderate in the context of a gradual economic recovery.

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.

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.

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?

Do you think that such episodes could be better prevented if the ECB were in charge of financial and banking supervision?

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.

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.

We will continue to carefully monitor all developments that could affect our assessment of risks to price stability over the medium term.

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.

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.

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.

If I may say so, conceptually we are very close to the US in this respect.

This is not, if I may say, a scoop.

I would not like to comment further on their entry into the ERM and then afterwards perhaps 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?

Perhaps we need a little more confidence.

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.

Perhaps, I could respond to the first question and ship the second to Lucas, if he wants it.

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.

Did the Council today discuss a possible interest rate cut on the basis of the strengthening of the currency?

They are key not only to stability but also to growth, and are a precondition for preserving low risk premia in financial markets.

The short-term risks to this outlook remain balanced.

Are there any particular risks arising from these?

Import price developments in the euro area should become somewhat more favourable, thereby helping to contain inflationary risks.

Can you please tell us what the European Central Bank 's situation will be and comment on the speculation?

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.

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.

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?

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.

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?

By this I mean stability in general, and it is clear that we do not particularly like excessive volatility or excessive turbulence.

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.

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.

So we were not particularly satisfied with what I called the excessive volatility or excessive turbulence or excessive shifts in general.



2004-02-05, 31 sentences

We believe that the secondary legislation, namely the Stability and Growth Pact itself, the wording of the Pact, should not be changed.

And we believe that all we can do to communicate this element of confidence to the households is very important.

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.

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.

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.

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.

Could you comment on that and tell us what the right message is?

And you have a number of other improvements that could certainly be made and that would be welcome.

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.

Should excess liquidity persist, it could lead to inflationary pressures over the medium term.

We will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term.

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.

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.

But it has n't happened so far, which makes the European economy very dependent on export-led growth.

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.

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.

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.

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.

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.

Looking at the risks to this outlook, there are no new factors to be taken into account.

Over the shorter term, risks remain balanced.

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.

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?

And from that standpoint, it seems to me that we have a number of indicators which are encouraging.

And" strong '' is a word that, it seems, many officials have tried to avoid in recent days.

Recent data on labour costs seem to broadly confirm the assessment of a levelling-off of wage increases.

This assessment is reflected in all available forecasts from official and private sources and seems to be confirmed by developments in financial markets.

Mr Trichet, the signs of the economic recovery so far are mixed and somewhat weak in many cases.

It suggests that there might be a sort of division of views.

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.

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.



2004-03-04, 60 sentences

Two days ago Commissioner Monti announced that there is an anomaly vis-à-vis the Banca d'Italia with the rest of Europe because of its power over all anti-trust matters in the banking sector and because the mandate of the Governor does not expire.

Is the Banca d'Italia an anomaly?

Given the anticipated gradual nature of the recovery in economic activity and the high level of unemployment in the euro area, wage developments should remain moderate.

However, it appears that the reallocation of economic agents ' portfolios into longer-term assets is proceeding rather cautiously.

There is no other central bank, we are the only one -- I draw your attention to that -- which immediately after having considered the situation, and under the observation of the full body of European and global observers and journalists, produces its own assessment of the situation and asks the Vice-President and the President to appear in front of you and to respond as candidly as possible to the questions on the decision which has just been taken.

Mr President, you talk about growth rates in the euro area, which you assume will strengthen over the course of this year and next year.

What we believe in is that when a government embarks upon bold and courageous structural reforms, as has been the case of a number of governments, it is good for everybody, for the full body of society.

And we try to be confidence-inspiring, as I say, we believe this to be very important.

That 's the organisation of Europe, and I believe that it is a good organisation.

And we firmly believe that we have inflation under control and that our definition of price stability is being reached.

But I believe that on the whole the prospects are good, that this ratification will be concluded on time, before the end of the month.

We believe that perhaps perceived inflation or the absence of sufficient confidence in price stability play a dampening role in this respect.

While our assessment is in line with available forecasts and projections, we are aware of the conditional nature of such exercises.

Could you please comment on that?

Should excess liquidity persist, it could lead to inflationary pressures over the medium term.

So we have to take everything into consideration and not only the early indicators that are related to, for instance, the economic cycle and the last indication we have of domestic demand, but also all indicators of inflation and what could happen as far as inflation is concerned.

Could you tell us, please?

We will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term.

Could one reason for that be, just at the beginning of this year, that there has been huge volatility in foreign exchange markets.

Its effects on inflation over the medium term will greatly depend on the extent and pace of the future reversal of past portfolio shifts and on the future strength of economic growth.

Furthermore, we have the feeling, which exists in a number of households, that with the situation differing from one economy to another, perceived inflation is higher than it is in reality and that future inflation might be higher than we trust it will be.

Looking beyond short-term fluctuations in the most volatile components of the HICP, we expect inflation to remain in line with price stability.

And, secondly, do you think that one reason why people ignore your constant pleas to spend more money is because they are afraid they might lose their jobs?

Some criticisms implicitly go in the direction: you should be perhaps a little bit less orthodox, quote unquote.

We know in advance that for statistical reasons it will go up again, and then perhaps you will say: today you should do this, and tomorrow you should do that.

We know that it will increase on account of base effects over the months to come, perhaps.

And it is, perhaps, our duty to explain that and tell the general public that, because we are undertaking a reform, it should improve confidence, as it is something which benefits everyone.

Perhaps one day you will tell me: inflation is at this level, you should do this.

You can see in the results of our discussion in Boca Raton a number of elements which perhaps give evidence of the fact that we had a fruitful and friendly meeting with results.

Confidence is perhaps the ingredient which is still a little bit lacking in some constituencies, particularly in the household constituency, in the consumer constituency.

We feel it is our responsibility to tell the citizens, our fellow citizens, you can have confidence, we are here, the situation is under control, perhaps more so than you think.

Then you can adopt, perhaps I would say, a more positive attitude as regards consumption and investment.

If I take into account all the reflections on this matter by the Governing Council, I would say that perhaps we are devoting right now in between a quarter or a third of our time to the enlargement issue, so as to gain a better understanding of the situation of each of these particular countries.

But again, I would sum up by saying that we are proud, we are convinced, that it is good for Europe and we are convinced that this is a professional challenge of the first magnitude to be sure that we optimising their integration, including perhaps with appropriate professional preparation for ERM II, for instance, at the present juncture.

When you look at the evolution after we spoke, you can see that, perhaps, the message has been somewhat incorporated in the behaviour of the market as something important.

We examine the situation every month, and every month each member of the Governing Council rightly considers that we have to discuss the full context of the situation, including all data and analyses, with the possibility of concluding in any direction.

All countries would benefit from the strengthening of the sustainability of their public finances, especially in the expected upward phase of the cycle, by eliminating imbalances over the coming years and avoiding or correcting as soon as possible excessive deficits.

Then, I did not understand: there was a question about growth and your possible revision of growth projections.

And it is, of course, for the US to look at it in the most appropriate manner possible.

... is it possible to consider the dollar area as a whole, i.e. putting also the deficits of the different areas together?

Did the Governing Council today discuss a possible interest rate cut?

We are confident in the medium run, we have to remain as vigilant, alert and pragmatic as possible.

So you can trust us to have looked at today 's case on the basis of the situation today, as I have explained, as thoroughly as possible.

Does that mean that you have downgraded the economic forecasts or staff projections as you possibly want to call them?

The other question I have is, given that you are happy with the outlook for inflation and that you have now termed the outlook for inflation" favourable '', this must mean that there was some talk at today 's meeting of possibly cutting interest rates?

We said very clearly that for some areas in the world there was probably a good reason for a certain re-balancing.

First of all, what is your comment on the fact that Horst Köhler, banker and economist, and thus a technocrat, will most probably become the next President of the German Federal Republic -- which is a very delicate political role?

Did you also revise downwards your projections for inflation?

We continue to see the risks to this scenario as broadly balanced.

In some countries, contrary to their commitments, adjustment efforts are insufficient to mitigate the risk of excessive deficits.

This would risk a repetition of the policy errors of the last economic upswing, when insufficient consolidation efforts and tax cuts without adequate expenditure restraint laid the foundations for the recent fiscal difficulties.

Mr President, there was some speculation last week that the ECB might have intervened in the currency markets.

We know that we are in an uncertain universe and that we have to go through all detailed scientific analysis and then make our own judgement.

The Governing Council recognises that the still low level of consumer confidence is related to prevailing uncertainties, including the debate about the appropriate path for structural reforms in many countries of the euro area.

However, there are uncertainties related to euro area private consumption and the persistent imbalances in some regions of the world and their potential repercussions on the sustainability of global economic growth.

As you have mentioned yourself, we have a great number of indicators, and we have a great number of indicators which are volatile.

Over the coming months, volatility in annual inflation rates is likely to be observed, mainly due to further base effects from energy prices as well as to increases in indirect taxes.

We note that you have dropped the reference to excess volatility in the exchange markets.

We are observing, as we say, a certain volatility, up and down, of yearly inflation on a month-to-month basis.

Does that mean you are no longer concerned that there is excessive volatility at this moment?



2004-04-01, 87 sentences

Given the anticipated gradual pace of the economic recovery, wage developments should remain moderate.

With regard to real GDP growth, it appears that the recovery in the euro area has continued into 2004, following quarter-on-quarter growth rates of 0.3-0.4% in the second half of 2003.

And all this, put together, leads us to the conclusion that our working assumption of a gradual recovery is the appropriate diagnosis at the present moment.

At the present moment, we do not modify our working assumption of a gradual recovery and we consider that nothing goes against this overall, taking all figures, data, surveys and hard figures into account, and so we do not change our vision.

I mentioned that they were in some respects mixed but, overall, we believe that they do not lead us to change our overall assessment of the gradual recovery.

And I believe that it is important for you to know that.

As regards the position that we have expressed, we believed that it was necessary to explain even more explicitly what our policy diagnosis was, and I quote -- as it has been analysed very carefully --" on the basis of our regular economic and monetary analysis, we have not changed our assessment that the current stance of monetary policy remains in line with the maintenance of price stability over the medium term ''.

But do not believe that the previous" appropriate '' would mean no change in the future, in the many months to come, for a very long period of time.

We said exactly what we believe on the basis, again, of our present analysis.

We believe that through price stability we can help to considerably improve the situation, the economic situation of Europe.

In our monetary policy concept, we believe that this cross-checking is very important.

But the fact that we cross-check with the monetary analysis on a longer-term perspective, we believe, ensures a better anchoring of long-term expectations for inflation.

We the ECB, we the Governing Council of the ECB, the Treaty itself and all the people of Europe who have ratified the Treaty, we all believe that price stability is a necessary condition for growth and job creation.

We stressed that we believe our present stance of policy is exactly in line with that goal, and we note that it is obviously helping, because we have the lowest interest rates in 50 years.

And we said that we believed that we could improve the implementation of the Stability and Growth Pact without changing the wording.

And I firmly believe that it is very important to be as convincing as possible in explaining how our economy works and why we would be better off in all respects -- growth, job creation, prosperity.

Given their conditional nature, we will continue to monitor all indicators closely.

Obviously, any such forward-looking evaluation is conditional and subject to risks.

Could you clarify the absence of the word ` appropriate '.

I have no comment on what could be done in the case you mention since it is the responsibility of the executive branches to reflect on this particular question.

However, over the coming months, annual inflation rates could edge up again, on account of less favourable base effects and increases in indirect taxes.

Should excess liquidity persist, it could lead to inflationary pressures over the medium term.

And, second question, could you explain or could you help me understand the difference between" in line '' and" appropriate ''?

And as I said, we could go up or we could go down.

I am just wondering whether you could elaborate, was there a discernible effect at all and also, is there further information that could yet come out that could change your assessment of the long-term effect of Madrid?

We could raise or lower rates, depending on this very comprehensive analysis.

We will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term.

The effects of this high liquidity on inflation over the medium term will greatly depend on future developments in the economy and financial markets.

Looking beyond these short-term fluctuations, we expect price developments to remain in line with price stability.

Mr Trichet, it is quite obvious that we are at record lows for interest rates at the moment and maybe monetary policy can do only so much and politicians should do more.

Are you aware that the political setbacks of the French government or even the German government might impact on the will for more structural reforms?

To them, and only for the part of the consumption which might be hampered by this sentiment, to them we say: we are there to be the good guardian of the currency.

Of course, from time to time, for reasons that I can explain to myself very well, you might have an amplification of one sentence and the reverse attitude for other sentences.

One of the reasons which might depend more on us is that consumers in Europe feel that their purchasing power is hampered, because they have a perceived inflation higher than real inflation.

As you might have seen in the diagnosis that I read a moment ago, we mention consumption and consumer confidence and we mention a number of elements that might explain why it is not as robust and dynamic as would probably be the case if we had a recovery which were less gradual.

It is also clear, as you noted, that I said that we knew we would perhaps have a hump in the HICP in the months to come.

Perhaps the overall environment has been quite negative at a certain moment, more positive at another moment, which is understandable, because it is a gradual recovery and we have mixed signals.

Again, we are more explicit and I hope that you understand perhaps a little bit better what our permanent attitude is, which is that we have a magnetic north in our compass and incorporate all the information that comes in, to the extent, of course, that it is pertinent and informative.

Perhaps it was something felt by a part of the market, but it was not what we intended to communicate.

We do not exclude the possibility that such an impact could come, so we have again, in this domain as well as in others, to remain ready to incorporate any new information.

We would explain candidly -- as transparently as possible -- our monetary policy.

Again, I explain that we were in a position to analyse the situation as comprehensively as possible.

I have already mentioned that we were as comprehensive as possible.

But the fact that we said it was appropriate a month ago did not mean that a month ago -- and I have to say this because it is important that our dialogue is as clear as possible -- we were excluding anything in the months to come.

We wanted to be as clear as possible about our present analysis, and that is the reason why we were more explicit.

Again, what we do is analyse, as comprehensively as possible, every month -- as we did this month -- the overall situation.

First question: I have already explained that we wanted to be as clear as possible.

So, we work and we will give our opinion as soon as possible.

And we feel very much akin to those central banks that want to incorporate all possible elements.

We try to be as comprehensive and to understand as much as possible, and we go then through our own balance of risks.

You say that the preliminary evidence suggests that it did not have a major effect on uncertainty.

If we have a low level of interest rates, it is not due to a random behaviour of markets ; it is because we were skilful enough to pass on the best yield curve available in the euro area before the euro, to the euro.

One question has to do with the staff forecasts and whether they have been revised in view of the disappointing consumer demand data, for example, in the past month or two.

And we explained why, despite the fact that there is very abundant liquidity, it does not drive us to consider that we have to change the balance of risks to price stability.

It does not mean that we can not change this policy stance if we have new information and if the balance of risks to price stability changes.

It is clear if aggregate demand is much stronger or weaker, then the balance of risks to price stability changes and we are legitimate in changing our interest rates, whether it is up or down.

All the other elements contribute to this balance ; they include of course aggregate demand, which is a major element that we have to incorporate into this balance of risks.

Mr. President, how important or permanent a risk to recovery and gradual recovery is the rising oil price and the decision to cut production?

It is always this balance of risks to price stability that we are weighing.

I was wondering if the fact that you are leaving your assessment of balanced risks in place, not changing the stance and yet highlighting the issue of weak consumer demand means that you 've recognised you are actually not able to do anything about it, that it is not in the hands of the ECB to affect, that it is really up to the governments and that your policy mechanisms do n't let you reach in there and cause it to pick up.

One question, after your interview last week with the Handelsblatt, some members of the ECB were signalling that there were growing risks on growth.

We incorporate everything and we would change our monetary policy stance upwards or downwards on the basis of this balance of risks analysis.

If the balance of risks to price stability were to change, then we would change our own monetary policy stance.

And then, my other question is: you have talked about the balance of risks to price stability over the medium term.

We look at the situation with a view to weighing the risks.

Mr Trichet, some analysts were thinking after what you and other Governing Council members said last week that the ECB had slightly changed its tune, and when I listen to you today I do n't hear you say that rates are appropriate and I do n't hear that the risks are balanced any more.

Again, as I have said, we look at it every month on the basis of the full body of information available and we analyse this balance of risks.

The rates would not be as low as they are if risk premia were incorporated to take account of inflationary expectations over and above our definition of price stability.

By ensuring and being credible that we are correctly assessing this balance of risks, we contribute massively to helping Europe, because we give credit to the very low market rates that we are currently delivering.

We have to assess the balance of risks to price stability, which is the magnetic north of our compass.

We conduct a full examination of the situation through our own grid of analysis -- namely, what is the balance of risks to price stability, incorporating all elements.

We have an analysis of the balance of risks to price stability, which leads us to the conclusion that the present level of interest rates is the kind of level which ensures price stability.

At this juncture, risks are primarily related to the persistent imbalances in some regions of the world and the weakness of private consumption in the euro area.

And if we were abandoning our magnetic north, then risk premia would appear and we would have higher, not lower, interest rates.

If the balance of risks changes, we can change -- depending on the decision of the Governing Council -- our own monetary policy stance.

But what we mean is that it has to go through the grid of the balance of risks to price stability, taking everything into account, as clearly as possible.

The balance of risks I am referring to is always a balance of risks to price stability, which is the ultimate decision-making step.

You seem to say that rates are low enough and that nothing more can be done.

And then you seem to refer to the second part of the mandate, i.e. to support other policies if price stability is ensured.

Both monetary and credit growth seem to be supported by the low level of interest rates prevailing in the euro area and may also reflect the improvement in the economic environment since the summer of 2003.

But it seems to me that perhaps you are exaggerating the semantic meaning.

This economic analysis would support speculation on a rate cut.

Namely that we do not see at the present moment anything suggesting a significant impact.

Ending the political uncertainty and delays surrounding the implementation of sustainable fiscal policies and effective structural reforms would indeed support private sector confidence, which would add momentum to the economic recovery in the euro area, given the supportive stance of monetary policy.

Moreover, the prevailing uncertainties surrounding fiscal policies and structural reforms in some euro area countries may have had a negative impact on consumer sentiment.

Recently released data on production and demand as well as confidence indicators have been mixed, implying some short-term uncertainty, while preliminary information available after the tragic events in Madrid on 11 March does not suggest a major impact on confidence.

Turning to price developments, we expect some short-term volatility in HICP inflation rates to continue.



2004-05-06, 42 sentences

Growth in real disposable income should support private consumption, especially since households appear not to face financial constraints that might impede stronger spending.

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?

In other words, do you think that an interest rate cut could have a stimulating effect on domestic demand at this point?

Could you even sue them?

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?

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.

Should excess liquidity persist, it could lead to inflationary pressures over the medium term.

As always, we will continue to monitor carefully all developments that could affect our assessment of risks to price stability over the medium term.

Given that nothing has changed over the last month, could you comment on how balanced the risks are now to growth and price stability?

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.

Two questions, if I may.

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.

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.

As regards inflation, as I said one, two, maybe even three months ago, we expect a hump in inflation in the months to come.

There are not many members on the current Council who have that experience, maybe with the exception of Mr Domingo Solans.

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?

A growing number of countries are likely to report significant imbalances, while fiscal consolidation efforts might fall short of commitments.

Perhaps less simple, unfortunately, to deliver for obvious reasons.

So, as you have been mentioning, perhaps the Bundesbank said something, perhaps the Banque de France said something.

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.

Our country -- Latvia -- and the Baltic States recently expressed a desire to adopt the euro as soon as possible.

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.

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.

And if so, have you revised back your forecast to below 2 to 2 1/2%, which is where I understand it was?

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 is a risk.

We analyse that risk.

From this and all other elements and inputs that we had, we came to the conclusion that the risks to price stability were balanced.

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.

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?

You talk about the risks of oil prices.

So all I can say is that we have exactly the same analysis as regards the balance of risks.

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.

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?

Mr President, the Federal Reserve seems to be tilting towards a tightening bias, although a very mild one.

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.

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.

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.

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.

They are also very volatile.

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.



2004-06-03, 60 sentences

My question goes a little bit beyond the topic of the day, but on Tuesday this week the IMF strongly criticised the Member States of the EU for the ambiguities in their economic statistics.

Are these ambiguities also affecting the analysis the ECB is doing?

If they were to remain at their recent high levels, it is to be expected that inflation rates would continue to be higher than previously anticipated and stay above 2% for longer than just a few months ahead.

Coming back to the issue of credibility, given the fact that the ECB appears to have revised upwards its inflation forecast for this year and given the fact that it struggled to keep inflation under 2% over the past three or four years, are you concerned about the credibility of the ECB amongst investors and consumers in terms of its ability to keep inflation close to but below 2%?

I would say that all the data we have so far have confirmed that it was an appropriate working assumption, particularly for the first quarter.

So, we are in a situation where we consider our working assumption of recovery to have been confirmed.

As regards the monetary analysis, first of all, you remember that when we clarified and communicated our monetary policy strategy, we explained at length why we believe it is important to have a monetary analysis, why the monetary analysis is based very much upon our utmost conviction that in the long run, inflation is a monetary phenomenon.

We believe that it is extremely important for any central bank, and I would say in particular for the ECB, to firmly anchor medium and long-term expectations.

The French Finance Minister yesterday expressed himself to be in favour of the creation of a European economic government to act as a counterweight to the monetary policy of the ECB, which he believes to be too monetary-oriented.

Second, do you believe that the ECB could soon be faced with a sort of dilemma between cutting interest rates in order to boost economic growth or increasing the level of the interest rates in order to ensure price stability over the medium term.

I have three questions: first, do you believe in the risk of a" stagflationary '' scenario for the euro area if oil prices remain at such high levels for some months?

We believe that the combination of past decisions -- which we sometimes took against strong advice to the contrary -- and vigilance -- which is, as we say, of the essence now -- will permit us to deliver what it is our duty to deliver.

So we have to be prudent and cautious.

In an economic upswing, the persistence of excess liquidity could lead to inflationary pressures over the medium term.

A couple of times you used the line" urging oil producers to take necessary steps to ensure that the situation is transitory '' which implies, at least to my mind, that a -RRB- it is a situation that could be brought back down, and that b -RRB- the oil producers have a great deal to say about it.

We could have this scenario you are mentioning as well as others.

The first one: Mr Trichet, could you confirm that in July the central rates for Lithuania and Estonia are going to be fixed?

And if we could go in this direction I believe that we would all be better off: of course, first of all the countries concerned and certainly the Eurosystem and the European Union as a whole -- the remark was, if my memory is correct, about the European Union as a whole -- and I can tell you that it is also a recommendation which is made by this institution to all countries.

On the other hand, high oil prices could pose a downside risk.

We will remain vigilant with regard to all developments which could affect the risks to price stability over the medium term.

But also because, of course, it depends on this issue of stability in the Gulf, and that is very difficult to know from one week to the next, one month to the next, and I wonder how all these things are playing into the forecasting?

But, that being said, the information received may continue to be mixed and we continue to be very, very keen on analysing the new data and information and on being vigilant.

On your second question on the dilemma of any central bank, may I remind you once again: we are responsible for price stability.

And you might remember that this growth -- which has been observed for the first quarter -- has exceeded expectations.

On other sides, for example the PMI, you might have observed that the recent indication on the industry side -- and the most recent indication today on the services side -- have been quite encouraging, signalling that a recovery is under way.

In December last year you said that you might come up with a comment on this proposal.

You might remember what you were asking for in your questions here only a few months ago?

You might remember that some of you expressed doubts about this some months ago: I had to answer a lot of questions about whether we were right in making that working assumption of a gradual recovery.

And looking to the future, might you consider such risk scenario analyses if they are available?

So, I would prefer perhaps for you to have the full explanation of the projections, with all the assumptions that have been made, immediately after this press conference.

And while I will perhaps respond directly to a question on oil, which is part of the issue today, I am responding here to the general environment of uncertainty.

In your conversations today at the Governing Council did you consider the possibility that there is a secular change in oil prices?

But we did have such analyses and you can imagine what the various consequences of various possible scenarios would be.

But what we can say is that we urge the oil producers and all partners to maintain the highest possible level of responsibility in the present circumstances.

I will say that it is our collective and collegial responsibility to have ERM II function in the best possible way.

So, by being as vigilant and credible as possible in delivering price stability in the medium and long run, we make a decisive contribution to growth and job creation.

We are speaking of the possible functioning of ERM II and whether it was ERM I or ERM II we have never embarked on a policy of pre-announcing or pre-commenting possible future decisions.

We probably remain the only ones among comparable central banks to have a press conference in order to be as clear as possible and as transparent as possible.

According to Eurostat, real GDP grew by 0.6% quarter on quarter in the first quarter of this year, and quarterly real GDP growth for the fourth quarter of last year was revised upwards from 0.3% to 0.4%.

The decisions on the monetary policy stance are based upon a final judgement on the balance of risks to price stability.

Two brief questions: first, you mentioned in your statement the potential risks to growth from high oil prices.

Have the staff projections that you have discussed today in the Governing Council been accompanied by a risk scenario analysis which would quantify the impact from sustained higher oil prices.

Was that the only downside risk to growth that the Governing Council discussed today and is that helping to keep your stance neutral and flexible at this point?

Cross-checking with the monetary analysis also supports the case for vigilance with regard to the materialisation of risks to price stability.

However, short-term pressures on inflation have increased recently and some upside risks need to be taken into account.

Against this background, the potential risk for second-round effects via wages needs to be monitored closely.

And if you did have this risk scenario analysis, could you say something about it: how much it might affect inflation and growth?

These forecasts and projections are subject to a number of risks and uncertainties.

With regard to this scenario, there are risks and uncertainties in both directions.

And the second question is: except for the notion of price stability under the goals of the EU, it seems that the other proposals you made in your last letter to the EU are not going to be part of the constitution.

I must say, on a personal basis, because we have no Governing Council position in this respect, that it seems to me very opportune to eliminate all kind of ambiguity as regards the facts in this domain as well as in all others.

I was wondering whether the forecasting was becoming rather more difficult now because of this issue with the oil price, in particular, that the oil price is somewhat irrational.

We said that our overall analysis of the situation was such that we judged it inopportune to go in the direction that had been suggested at the time, and I would say that most of what we said proved to be well-founded.

In that uncertain environment what counts is that you take decisions that are wise and robust, namely that they are as optimal as possible, having worked through various possible representations of an extremely complex reality that can not be summed up with any level of pertinence by a single mathematical economic model.

So, again, it is absolutely clear that we have to take into account the uncertainty we are in.

There is an uncertainty in the oil area but also in a number of other areas.

We are in a world of a high uncertainty.

And for all decision-makers and for all responsible institutions -- and central banks are, of course, fully part of this constituency -- decision-making is decision-making in an environment of uncertainty.

There are uncertainties and risks in both directions and that is why we have to be very vigilant and alert, and keen to get all new information and to introduce this new information into our own assessments.

As regards the uncertainties and risks for the growth and credibility of this working assumption of a gradual recovery, which is materialising, I do not want to say more than I have already said.



2004-07-01, 63 sentences

On the upside, euro area growth in the first quarter was stronger than anticipated and this momentum may strengthen shorter-term dynamics.

Moreover, the recovery of private consumption should proceed in line with increases in real disposable income and the anticipated subsequent strengthening of employment growth.

We are in a symmetrical position -- I assume that the Federal Reserve would not respond by saying" Yes, we are under the influence of the ECB, if they do this, we would do that ''.

So, on the judgement we have on growth, I would say that what we are observing now and what we have observed during the last months, goes in the direction of a confirmation of our working assumption of a gradual recovery.

And I wonder whether you believe what appears to be a move towards longer working hours in Germany is going to have any impact on the way you assess inflation and your calculations as to the way you think inflation is going?

I will not comment on that, I do not see how there could be a counterweight to the ECB.

I am thinking of a pay deal that has just been struck here in Germany at Siemens, where workers agreed to no pay rises so that they could have secure jobs.

Outside Europe, I could have mentioned Australia, which is a country that has introduced a lot of structural reforms on the basis very largely of a political consensus, and also of a social consensus, and these reforms are paying off also very well.

I could have mentioned other countries myself.

For instance, I could have mentioned Ireland, which is in the euro zone and is certainly a success story in terms of growth, in terms of GDP per capita and in terms of job creation, and again it is in the euro zone.

Could you say how much?

In this respect, stimulating further product market competition, particularly in the services sectors, and facilitating industrial restructuring could speed up innovation and the adoption of the new technologies.

Ongoing robust growth in the global economy could also lead to stronger than expected activity in the euro area.

In the view of the Governing Council, the Stability and Growth Pact should not be changed, even though its implementation within the current framework could be improved further.

I wonder how you respond to these criticisms and whether you could, perhaps, fill us in on how the debate is evolving or has evolved in the meetings?

The Governing Council will remain vigilant with regard to all developments which could affect the risks to price stability over the medium term.

It is certainly our collective duty to explain better, but there is no doubt that we all agree on the direction to be taken.

The strength of global economic dynamism may continue to exert upward pressure on commodity prices, including oil prices.

Of course, this scenario of an ongoing economic recovery may be influenced by a number of factors working in opposite directions.

Would you share the view that this may be less of a concern now for the ECB in helping in its decision-making as far as whether to have established a bias, or is this set for the time being?

The stock of excess liquidity, if it persists, may pose an upside risk to price stability over the medium term.

All elements have to be taken into account and, as you know, at any time there might be changes.

First comment: there is a consensus in Europe, as extraordinary as it might appear, on what you said, on the fact that it would be extremely opportune to embark on structural reforms and to do things that some other economies have already been doing over the past years.

And we trust that it is a way not only to better anchor inflationary expectations, because in the long run inflation is a monetary phenomenon, but also a way of perhaps taking more closely into account phenomena like asset inflation and bubbles because they are fed by monetary expansion.

The credibility, perhaps, of the transparent interaction with you and, through you, with the full body of observers, savers and investors.

So we trust that perhaps -- I say perhaps, I am cautious, I am prudent -- our monetary policy concept is well-suited to this particular responsibility that is part of the overall BIS remark.

We all agree on the necessity of these structural reforms and the problem is to implement those structural reforms, which is being done in some countries before your eyes, and before the eyes of the Governing Council, but which is obviously not very easy because of the sentiment of perhaps part of the population because of the fact that public opinion in general probably has yet to understand why it would be extremely important to make those reforms if we want growth, job creation and diminishing unemployment.

And also the credibility of our monetary policy concept, which -- at the beginning -- was perhaps criticised a little but it is now less and less criticised, it seems to me.

So I would interpret such ideas as aiming at having the best functioning possible of the executive branches within their own constituencies and of the Commission itself.

Just one thing I did not understand so well: theoretically, is it still possible for you to cut rates if you have no bias?

So, not only do we try to be as transparent as possible but also we, more or less, contributed to changing, for the sake of transparency, the state of the art of communication in central banking.

That has made it possible to generalise for 306 million inhabitants a level of market interest rates that was previously the privilege of only a fraction of those 306 million inhabitants.

And then we take a decision, which has to be explained to you as well as possible.

We consider that on top of the possible interaction between asset inflation and possible bubbles and the monetary policy oriented towards price stability, which is the rule of the game for all central banks, we are keen ourselves on having a monetary analysis.

And we have a number of elements to substantiate that, particularly the fact that the private sector, private observers, have more or less revised upwards their overall judgement on growth in this economy, and particularly in the present year 2004.

Against this background, the potential risk of second-round effects via wage and pricing behaviour needs to be monitored closely.

Cross-checking with the monetary analysis supports this conclusion, including the case for continued vigilance with regard to the materialisation of upside risks to price stability.

Turning to price developments, there is a need to distinguish between short-term developments and the medium-term trend when assessing risks to price stability.

Nevertheless, there are some upside risks to price stability.

That being said, our judgement on the balance of risks for price stability is -- for all the reasons I have explained -- balanced.

For my first question, I was wondering if there are any downside risks.

It is clear that there are risks: you have exactly the same figures, the same data, you know the environment, you see that the present level of CPI is 2.4 when it was 2.5 last month, you know our definition of price stability of less than but close to 2%.

We also have to say that in the medium term we consider that price stability will be in line with our own definition, but it is obvious that we have to take into account a number of risks and that is the reason why vigilance is warranted.

The judgement we have on the gradual recovery proceeding is something which is part of our own economic analysis, which again has an impact on the balance of risks for price stability.

So you have a number of signals that we are going in the direction of the upside risks for price stability.

First, again, I repeat -- and you will pardon me if I say something I said already here -- we have an economic analysis and then a monetary analysis, and then we have a judgement on the balance of risks for price stability.

But two of the elements that we heard about earlier this year were the risk from high oil prices and the strength of the euro.

In the statement on risks to price stability you only point to upside risks.

I was wondering whether you thought that the various moves in Germany were having any impact: the move to increase working hours in the public sectors and in a lot of areas to 42 hours a week and also now some private companies from 35 hours to 40 hours a week, which seems to be a bit of a trend which is now starting.

Both of those seem to have subsided, or come off the boil to some extent.

Frankly speaking, it seems to me that all the criticism about the absence of transparency of the ECB can be taken with a grain of salt.

It seems that this could be a kind of counterweight to the ECB.

First, it seems to me that you outlined both the risks to the economic recovery and to inflation.

But on balance it seems to me that you are more concerned about the inflationary risks at the moment.

Monsieur Trichet, if you have any bias at all, it seems to be towards a non-bias, and this non-bias seems to have been around for some time.

Since the mid-1990s, somewhat stronger average employment growth has partly compensated for the negative impact of lower productivity gains on overall output growth.

While somewhat stronger inflationary pressure is likely to persist over the short term, the outlook still remains in line with price stability over the medium term.

On the downside, despite having declined somewhat, oil prices remain at high levels and may, largely through their impact on the euro area 's terms of trade, dampen growth.

It also suggested that you should have a bias.

First of all, the BIS is an international institution which is important, with a close relationship, as you know, with central banks and which is there precisely to ask pertinent questions or to suggest further deliberations in important areas at the global level because it is a fully international institution.

While this decline partly reflects base effects, the portfolio decisions of firms and households are also returning to normal as financial uncertainties have receded.

We operate in a universe where we have to take account of everything and make a synthesis out of everything we have, to be sure that our decisions are robust and that they really take account of everything, including the uncertainty, which is part of our very comprehensive deliberations.

Everything we have as far as our own analysis is concerned is telling us that all things being equal -- and, of course, do not forget that we are living in a universe where there is a lot of uncertainty -- in the short term inflation will probably be higher than 2% until the end of the year and even higher than 2% for part of the first semester of next year.



2004-09-02, 72 sentences

It appears that the reversal of past portfolio shifts is proceeding more slowly than would have been expected on the basis of historical regularities.

Eurostat 's flash estimate for annual HICP inflation in August was 2.3%, unchanged from July On the basis of current market expectations for oil prices, it appears unlikely that annual inflation rates will return to levels below 2% in the remainder of this year.

It appears that the reversal of past portfolio shifts is proceeding more slowly -- and I trust that this is exactly your point -- than would have been expected on the basis of historical evidence.

In all very large economies that I know -- and after all I know at least this one, the euro area, and another one which is approximately the same size -- in these kinds of continental, very large economies you have, and you might have, and we are observing, from time to time, substantial differences from country to country, from state to state, from, economy to economy, You might very well have a boom in one place while you have difficult periods in another, and I do n't want to cite any particular economy in Europe, but we all have in mind such examples.

So we are confident, on the basis of our present assumptions, and vigilant, because it is something which is not only our duty but which stems from the present situation.

Do you agree with this assumption?

So, what we publish does not confirm your assumptions.

Again, we undoubtedly have to take into account these events, which nobody was able to foresee, if you look at previous assumptions.

We are confident, as I said, that we will go back to our definition of price stability next year on the basis of our present assumptions, i.e. that wages and salaries are moderate, that there are no second-round effects from the increases in the price of oil, that there are no nasty surprises regarding the price of oil in comparison with our assumptions, which are based, as you know, on futures markets, and that there are no bad surprises regarding indirect taxes and administrative taxes, which have been responsible, this year and in previous years, for some increases.

This to explain why we believe that this strong vigilance is appropriate in the present circumstances and is helping to preserve this favourable environment and therefore growth.

Some economists believe that the peak in the economic recovery of the euro area has already been reached.

But, we again have to be very cautious.

One of the most frequent observations which is made about the Stability and Growth Pact is that we have problems in difficult times because the system is not, in its implementation of the preventive arm framework, sufficiently cautious when things are going well.

I was cautious, I am cautious because we have risks that have to be considered, both for growth and for inflation.

We take it that improvements in the implementation of the Stability and Growth Pact could be made.

We also think that the timetable for the monitoring process, again in the" preventive arm '', could be improved so that stability and convergence programmes and their assessment would better guide domestic budgetary processes.

That could bring us back to an earlier question.

Could you elaborate a little bit on this?

And we also think, again, provisionally, that taking into account the cycle and the structural aspects of the situation could be, in the preventive arm, an important improvement as regards the implementation of the Stability and Growth Pact.

These imbalances could affect the sustainability of the economic recovery.

In addition, high excess liquidity and strong credit growth could become a source for strong asset price increases.

If these were to remain higher than currently expected by markets, this could dampen both foreign and domestic demand.

At the same time, we consider that improvements could be introduced in the implementation of the Pact.

And on a number of points we feel that some improvements could really be effective: in particular, as regards the" preventive arm '' of the Pact, where we think that we could strengthen the incentives for compliance" in good times ''.

We will remain vigilant with regard to all developments which could imply risks to price stability over the medium term.

And this level of credibility is entirely dependent, in the eyes of all observers and, I trust, of yourselves and the market participants, on our vigilance.

Economic growth outside the euro area continues to be robust overall, even if subject to temporary fluctuations, and should continue to support euro area export growth.

Concerns relate in particular to oil price developments, which may continue to have a visible impact on inflation.

On the upside, the ongoing momentum of the recovery may again imply more positive developments for economic growth in the coming quarters.

I do not want to overemphasise the messages we may send, but I feel that they were part of the overall confidence rebuilding.

Am I right in understanding that you see the debate and the changes being proposed or that will be proposed tomorrow by the Commission as merely concerning the implementation and are therefore to be welcomed because they relate to improvements, or do you fear that there may be changes that are fundamental to the Pact itself and are therefore facing its credibility?

This may reflect an increased risk aversion of households and firms, given the stock market losses they experienced between 2000 and the spring of 2003.

Was it more that the economic performance in the first quarter, and to some extent in some countries in the second quarter, was pretty good, especially given that maybe in the past few weeks we have seen some signs of a slowdown in the growth rates of the world economy?

You explained that there might be a danger when the economy is picking up more strongly.

But you might remember that this was more or less questioned by a number of observers, which would have recommended doing this and that on the basis of a judgement which was less optimistic.

It is so, after taking into account a great amount of input, including the fact that for this year, as you might remember, the first quarter was better than expected and the second quarter was, in some cases, also a little better.

And perhaps you can tell us also what the view of the Governing Council is of these proposals?

That being said, of course, I think it is important to understand why we are observing those differences and, of course, to do all that can be done -- both by the various interested parties and particularly, of course, the governments themselves and the parliaments and social partners -- to understand why we are observing certain things and why, perhaps, on a country-to-country basis, improvements would be appropriate.

At the time when we had had the feeling that consumption, household consumption in particular, was very weak, abnormally weak, and that part of this weakness was due to, perhaps, the sentiment that inflation would hamper purchasing power in the household constituency in future, we had said to households that they could be confident, that we were there, that we were the guardian of the currency and that we would take care of this threat that some households perhaps felt looming.

Is it possible that you, as well as a number of other market participants and observers, have perhaps underestimated the risks -- or even dangers, inflationary dangers -- of a sustained oil price robustness.

I do n't want to predict what is likely or not likely to be decided tomorrow by the European Commission.

Again, as I said, these are preliminary observations and we have to be very precise, very professional in such matters, which are highly technical.

Again, I must be clear on the fact that what I am mentioning are only provisional and preliminary observations.

But for the moment our preliminary position is what I have said it is.

As I said, our present position, which is only a preliminary, provisional position, because we are waiting for the official proposal of the Commission -- and for that of the Council, which will decide as a last resort -- is that our preliminary, provisional observations are fully in line with what we have said before.

So what we are observing, namely that there are indeed differences in economic behaviour and in inflation from country to country in our own continental economy in the euro area, is probably something natural in such a wide continental economy.

We, of course, also have the past appreciation of the euro, which -- as I have also mentioned -- has probably contributed to the fact that the impact may have been smaller than it would otherwise have been.

We maintain our rates as they are and we are pretty vigilant, because there are upside risks to price stability.

Upside risks are present and visible.

A further upward risk relates to the future evolution of indirect taxes and administered prices.

However, several upward risks to the projections for inflation exist.

All these factors put the downside risks to economic activity coming from oil prices into perspective.

In assessing these risks, however, it should be taken into account that, when expressed in euro, the recent rise in oil prices has been significantly smaller than in previous episodes when oil price increases had a major impact on the world economy.

Another downside risk to the growth projections relates to oil prices.

At present, our judgement is that although some upside risks to price stability exist, the overall prospects remain in line with price stability over the medium term.

Indeed, upside risks to inflation are also reflected in the continued elevated levels of measures of long-term inflation expectations derived from financial market indicators.

If significant parts of these liquid holdings were to be transformed into transaction balances, particularly at a time when confidence and economic activity were strengthening, inflationary risks would rise.

Cross-checking with the monetary analysis also supports the case for strong vigilance with regard to the materialisation of risks to price stability.

To sum up, while the economic analysis indicates that prospects are consistent with price stability being maintained over the medium term, a number of upside risks need to be carefully monitored.

Oil price rises also imply the risk of second-round effects emerging in wage and price-setting, a risk which intensifies when the economic upswing strengthens.

Overall, the risks to these projections seem to be broadly balanced.

I would say that it roughly confirms what our previous judgement was and what our present judgement is on this gradual recovery which is gradually materialising.

The low level of interest rates also seems to be fuelling the growth of loans to the private sector, which has risen to a relatively robust rate over recent months.

The figures I have -- again, this needs to be checked very carefully -- but the figures I have would seem to indicate a reduction from 59% in 1971 to 42% in 2000.

Mr Trichet, you seem to be quite happy about the decline in the growth rate of M3.

What I have said on this impact seems to be true for the euro area economy.

I do not want to qualify the situation in other parts of the world, but it also seems to be reasonably true for other major economies in the world, notably for the sister economy I have mentioned.

In some cases, countries seem to have based their programmes on overly optimistic assumptions for economic developments.

Against this background, we expect the economic recovery in the euro area to continue and to become more broadly based over the coming quarters, leading to a somewhat stronger upswing in the course of 2005.

We have also witnessed somewhat higher inflation rates, mainly due to developments in oil prices.

It is also true for inflation, and academic research has suggested that, when you look at the overall level of inflation in our own economy and in the other big economy that I have mentioned, we see that the orders of magnitude of the overall dispersion of inflation from state to state could be considered very similar.

This moderation largely represents a normalisation of portfolio allocation behaviour following the easing of the exceptional economic and financial uncertainty which prevailed between 2001 and early 2003.



2004-10-07, 72 sentences

It appears that this has led to some underestimations compared to what we were really observing.

The downward trend in annual M3 growth from mid-2003 appears to have halted over the summer months, and the shorter-term dynamics of M3 have strengthened.

Still, on the basis of current market expectations for oil prices, it appears unlikely that annual inflation rates will return to levels below 2% in the remainder of this year.

That having been said, we are also making the working assumption that the present price figures will not necessarily last for long.

On the basis of this assumption, and provided that there are no further significant shocks to prices, annual inflation rates should drop below 2% in 2005.

And, as regards the corrective arm of the Pact, we have said clearly both that we would call for the Treaty and the Regulations not to be changed and that we believe it to be extremely important to retain the nominal anchor of 3%.

The information that we have today when I look at everything would confirm that sentiment, but I remain of course cautious because we are expecting the full report of Eurostat to definitely clarify the situation.

But we remain cautious.

To sum up the situation as cautiously as possible, I would say that there is no need for alarm at this stage.

Looking forward, from a cyclical point of view, employment should recover and unemployment could start falling in the course of next year if overall demand develops as expected.

Could you comment on that?

And could you give us an update on the timetable for the final decision?

Is there any fear that it could get overheated or excessive, as it did in the United Kingdom?

But I do not want to elaborate on the economic reasoning behind this, namely that if you have less debt then you are at an advantage because you have less service of the debt and more room for manoeuvre than other countries ; and why encourage a country to go on piling up debt until it reaches 60% when that particular country could be much better off with less debt?

And the second question: how concerned are you also that housing prices in the euro area could become a domestic source of inflation in the euro area?

So we take all parameters into account, including, of course, what could come from commodities in general.

The Bank of Greece provided all the figures which could be estimated on the basis of the information available.

We are also of the sentiment that further comprehensive labour market reforms could help considerably to improve job creation.

As you know, I read it and it will be available of course as part of our overall introductory remarks, but I could nevertheless read it again:" It is of vital importance to the credibility of the budgetary surveillance that the reliable compilation and timely reporting of government finance statistics is ensured.

If oil prices were to remain high, or even increase further, it could dampen the strength of the recovery, both inside and outside the euro area, even though the oil intensity of production has fallen significantly since the 1970s and 1980s.

In addition, high excess liquidity and strong credit growth could become a source of substantial asset price increases.

Mr Trichet, the International Energy Agency estimates that the current high level of oil prices could shave off 0.5% off economic growth and could boost inflation by 0.5%.

Strong vigilance is warranted with regard to all developments which could imply risks to price stability over the medium term.

I do not want to elaborate too much on that again, because we still have the same position and because I have reiterated on behalf of the Governing Council that very same position, namely that we are on board for improvement and implementation as regards, in particular, the preventive arm of the Pact, depending, of course, on careful examination of the very precise orientations that would be retained by the Council of Ministers of Finance, which is the responsible body.

So, again, I would not express anything on any particular country but I would say -- as it was mentioned by ECOFIN -- that we must have stable figures which are not dependent on electoral or political cycles.

I also refer to the statement of the Minister of Finance, who knows the available data and who recently stated that there is no doubt that the country fulfilled at the time the criteria.

And if you may, just a second question, often the bank makes comments about international imbalances.

In addition, wage developments have been more favourable than in previous episodes, and firms may have -- to a greater extent than previously -- adjusted labour input downwards in term of hours, rather than in terms of employees.

Higher energy prices may have been more than compensated by lower food prices, partly due to base effects resulting from last year 's strong increases in this sub-category.

I would add that, when I was in Washington on the occasion of the recent annual meetings of the International Monetary Fund and World Bank, I participated on behalf of the ECB in the deliberations and discussions of the G7, and you may have seen that in the G7 Communiqué we called upon oil producers to be as responsible as possible.

The following factors might help to explain this pattern.

This in turn might indicate that firms have gained an element of flexibility to adjust costs.

Now some local politicians in Frankfurt fear the ECB might change its mind or its bias.

Seen from the perspective of the medium and long-term inflationary expectations, we trust that, in the long run, inflation is a monetary phenomenon and we trust that our two-pillar approach is precisely what permits us perhaps to be more assured that our medium and long-term inflationary expectations are fully in line with our definition of price stability.

It is also true that the oil price increases are so important and visible that they perhaps have a tendency to hide other commodity increases a little, elements that are there and that we have to take into account.

I refer also to the G7 Communiqué from Washington which is calling for all partners to be as responsible as possible.

It is not something which, in our opinion, fits with the idea of encouraging the best behaviour possible.

Concerning the European fiscal framework, the Governing Council is convinced that substantial improvements in the implementation of the Stability and Growth Pact are possible and would be beneficial, while we would warn against a change to the text of the Treaty or the Regulations which form the basis of the Pact.

On the first point, as you know, we are as comprehensive as possible in our economic analysis.

To sum up our view in the best fashion possible, it is clear that we still have upward risks, that is absolutely clear.

No decision has been taken either by the Governing Council or the Executive Board concerning these revised plans, which have not yet been submitted to the decision-making bodies.

The Governing Council is expected to discuss and evaluate the revised designs of the three prize-winning competitors in the middle of November.

Over the last few months the three prize-winning architects from the architectural design competition that was completed in the spring have been preparing revised plans which aim to meet fully the requirements of the ECB and to address certain recommendations of the jury of the architectural design competition.

If significant parts of these liquid holdings were to be transformed into transaction balances, particularly at a time when confidence and economic activity were strengthening, inflationary risks would rise.

These upside risks call for ongoing vigilance, which is a necessary condition for keeping medium to long-term inflation expectations in line with our definition of price stability.

A further upward risk relates to the future development of indirect taxes and administered prices.

Several upward risks to the outlook for price stability continue to exist.

To sum up, annual inflation rates should fall below 2% in 2005, but a number of medium-term upside risks to price stability need to be carefully monitored.

Cross-checking with the monetary analysis also supports the case for strong vigilance with regard to the materialisation of risks to price stability.

Mr Trichet, you spoke a lot about the inflation risks powered by high oil prices, but I would also like to ask you: how concerned are you about other increases in other raw materials?

I was wondering if the further increase in oil prices, which we have seen since the last Governing Council meeting, has increased your vigilance on the inflation risks facing the euro area?

In the Introductory Statement you did not mention that the risks to growth are balanced, as you have done during the last months.

Does that mean that you have changed your position towards the risk to price stability?

As regards the risks to growth -- upward or downward -- I would not say that we have changed our judgement substantially or significantly.

We also have downward risks, to the extent that the new environment that we have had since the two meetings is clearly influenced by the fact that we have had a bad evolution as regards the price of oil.

In French I would say" chance '', the chance of there being upward risks to growth, but we will have to see whether they materialise.

Did you see a risk of further cases of flow statistics appearing in countries other than Greece?

It is clear that there is a nuance there and that, if we had the price of oil remaining at this level, it would confirm that we have a downward risk that would be perhaps more tangible.

However, the risk of second-round effects still seems to be contained, and the overall outlook remains consistent with price stability over the medium term.

And second, there seems to have been a relatively limited negative impact on employment growth over the past few years.

According to Eurostat 's flash estimate, annual HICP inflation seems to have fallen slightly in September, to 2.2%.

The aggregate euro area fiscal deficit-to-GDP ratio is expected to increase somewhat, as is the debt-to-GDP ratio.

So these are the facts, and any speculation concerning possible choices is unfounded because decisions have not yet been taken and the revised plans have not yet been assessed.

Moreover, the gradual recovery in consumer confidence is proceeding, and there are some tentative signs of an improvement in the prospects for employment, although available indicators for household spending do not yet point to an immediate strengthening of consumption growth.

It is uncertainty in the eyes of the full body of the Governing Council, the reflection of our understanding of the situation.

You said that some uncertainty has recently arisen concerning the expected strengthening of activity.

So, uncertainty is certainly a major issue for central bankers.

As regards economic growth, while some uncertainty has recently arisen concerning the expected strengthening of activity, the economic recovery in the euro area is ongoing.

Any central scenario for future developments is surrounded by a good deal of uncertainty, which at present is particularly related to oil prices.

And that uncertainty has certainly increased somewhat in line with what we have observed in this domain.

Is that uncertainty within the Governing Council or uncertainty outside the Governing Council, in the public, or is it both?

I referred to the relative stability of the figures that we had observed in the past, while they were far more volatile in the United States.



2004-11-04, 51 sentences

Almost one year ago I said that excess volatility and disorderly movements on exchange markets were undesirable.

In particular, wage growth appears to remain limited, in the context of ongoing moderate real GDP growth and weak labour markets.

The downward trend in annual M3 growth in the first half of this year appears to have come to a halt in recent months.

It is our duty ; we are there to ensure price stability ; we are there to deliver price stability ; we are there to permit all economic agents to make the working assumption that price stability will be delivered over time -- not just, as I used to say, on a two-year or a five-year basis, but on a ten-year or even a 30-year basis, because a number of Treasuries are issuing Treasury bonds on a 30-year basis.

The working assumption when I was mentioning the profile that I had in mind is that the price of oil would remain at the same level.

In reply to your second question, it is absolutely clear that under a working assumption that the price of oil remains at the present level and may even rise further, which is a possibility that we hate but that we have mentioned, clearly the impact on inflation is upward and the impact on growth is downward.

So under this assumption it is absolutely clear that downward risks for growth are there and are rising.

I remain very prudent and cautious and I will not respond to the question on the average of next year.

Could you explain that?

Could you please comment on this?

I wondered if you could not, in fact, go a little bit further?

First: China has signalled today that a rate hike could be a first step to currency reform.

I would only say and confirm that there is a consensus in the G7 communiqué to signal that some currencies -- not the particular currency that we are talking about here, i.e. the Chinese currency, but a number of currencies in Asia -- could certainly be allowed to appreciate, to some extent, by market forces, in a progressive, orderly and smooth fashion, which is not the case today.

Mr President, could you help us to judge the latest movements of the Bank of China in the appropriate way?

Moreover, persistently high excess liquidity and strong credit growth could become a source of unsustainable asset price increases, particularly in property markets.

Strong vigilance is therefore warranted with regard to all developments which could increase such risks.

This could pose inflationary risks in the future if the excess liquidity is not progressively reduced as a result of reverse portfolio shifts.

And the second question is on currency markets: I was just wondering if you could give us a definition of what you mean by" excessive volatility ''.

It depends so much on the oil price itself and what is likely or unlikely to happen and I do n't want to make any projections.

On the one hand, the magnitude and nature of this shock differ from earlier experiences, when oil price rises were much stronger and mainly due to supply constraints.

So I warn you that there is the likelihood, as far as we understand the consequences and, I would say, the passing-through of the oil price impact that we will probably see.

Moreover, the oil price shock may feed through the economy and generate further indirect effects, as indicated by developments in producer prices.

I wanted to ask if you see any potential bubbles in any markets in the euro area and what the appropriate monetary response to that might be?

Do you see something that is an immediate threat or is this something you fear might play out as these transatlantic adjustment purchases take place?

If you are not credible in delivering price stability and inflationary expectations increase, then you might see a generalisation of those second-round effects.

I will not elaborate on whether or not it announces anything else, you might ask the Governor of the Bank of China and the Chinese authorities.

And so, you might imagine that you have solved the problem for your first year, but then with your second, your third, your fourth, etc., you have the same problem without the means to solve it.

At the present time, I would say that what is clear to me is that the present pick-up of the CPI which we are observing will continue for some months and will perhaps even increase.

As regards the European fiscal framework, the Governing Council remains convinced that improvements in the implementation of the Stability and Growth Pact are possible and would be beneficial.

We have a joint interest in both our economies for this to be managed as well as possible.

And we also decided to embark on a swap of 50 billion dollars with the Federal Reserve System in order to be able to deliver dollars in Europe to cope with possible problems of counterparties in New York.

How does the ECB know about these indirect effects and if it is possible that these possible price increases -- you talk about price-setting behaviour -- will be withdrawn later on?

Each of us participated in the discussion and we weighed up the balance of risks to price stability.

The weight of the upward risks to price stability was assessed.

It is clear that we see these upside risks to price stability augmenting.

Do you think that in the presence of high oil prices -- or even higher oil prices -- there is a risk of stagflation for the European economy?

First of all, because we are" there '' as regards inflation and, as I have already said, we are strongly vigilant and -- and this is a reason why we did not increase rates today -- we take it that the situation, the overall balance of risks to price stability, is such that we have the maintenance of price stability over time in hand.

However, there are upside risks to price stability over the medium term.

Nevertheless, a number of upward risks to the outlook for price stability have emerged over recent months.

Cross-checking with the monetary analysis continues to support the case for strong vigilance with regard to the materialisation of risks to price stability.

However, there are other cases where there are significant risks that commitments under the Stability and Growth Pact will not be met, or where imbalances are on the rise and new breaches of the 3% reference value might occur.

Risks are mainly associated with oil price developments, possible renewed increases in indirect taxes and administrative prices, and potential second-round effects stemming from wage and price-setting behaviour.

Second, is it correct that you now see slightly greater downside risks for growth than upside risks?

On its face, there is an argument to be made here that they are avoiding dampening domestic demand at a time when it is somewhat fragile.

Looking further ahead, however, the information available so far does not suggest that stronger underlying inflationary pressures are building up in the euro area.

To sum up, the economic analysis suggests that underlying inflationary pressures are still contained, but a number of medium-term upside risks to price stability need to be monitored closely.

However, this outlook is surrounded by continuing uncertainty, in particular stemming from recent developments in oil markets.

I told you that I stick to what I said on excess volatility.

Thus we all signed, and I signed in particular, the sentence stating that" excess volatility and disorderly movements in exchange rates are undesirable for economic growth ''.

On the first question, I am very clear and I do n't want to repeat again the fact that excessive volatility and disorderly moves in the exchange markets are undesirable.

On the second question I will be very clear: the terms" excessive volatility '' and" disorderly movements '' speak for themselves.



2004-12-02, 51 sentences

And if inflation expectations remain in line with price stability, this paves the way for no second-round effects, for all economic agents to make the assumption that in the medium run we will be in line with price stability, and for a financial environment which is extremely favourable.

You see that the working assumptions of the present Eurosystem staff projections are different from the working assumptions of the previous projections that we published three months ago, only because the environment changes.

The markets at least do not believe it.

We believe that it is one of the main tools that we have to anchor medium and long-term inflation expectations.

We in the Governing Council of the ECB believe that in the long term inflation is a monetary phenomenon and we have the impression that this is also regarded by academics and by observers in general as something which is very important.

I think there is some confusion about the meaning of the words" strong dollar '' that you have just mentioned?

As you know, the English language comes partly from the Anglo-Normand and you could say that it is the Anglo-Normand style.

And in that context, could you explain: when you use the word" brutal '', do you use it in the French sense of a" surprise move '' or do you mean it in the English sense of a" hostile move ''?

Could you be a little bit more specific when you talk about recent moves being unwelcome?

What Lucas could not necessarily say but what I will say is that, when I look at the report of the Bank of Greece for the time in question, I see that the Bank of Greece had reported both the deficit figures based on" delivery '' -LRB- national accounting -RRB- -- we are entering into technicalities here -- and the figures based on" cash payments ''.

First, could you reassure us that central banks can use intervention as an instrument if it 's necessary?

It is absolutely clear that it could go up or down.

The Pact and the excessive deficit procedure should be fully respected in their current form, while their implementation could be improved, in particular as regards the preventive arm of the Pact.

And, as I have said, we are looking at the monetary gap that we are experiencing and we are trying to gain a better understanding of a phenomenon which I mentioned earlier, namely the fact that the portfolio shifts observed previously have not reversed, in our opinion, in the way that they normally could do or should do at this point in the cycle.

As you could see, as regards the projections of the staff of the Eurosystem, this has been taken into account at a certain level which is the working assumption.

Could you please tell us if you discussed, maybe in a marginal way, the possibility of a rate increase?

This could pose risks to price stability over the medium term.

We are also very much depending on the global evolution.

The Council itself -- and we fully approve of this -- said that" we should not be dependent on electoral cycles or political influence ''.

Perhaps you have noted that in what I have said today in my introductory remarks there are four paragraphs that concern our understanding of what is happening on the monetary side.

You said before that you did n't take into account the possibility of a rate cut.

As you know, as member of the international community, we are calling for oil markets to function as well as possible and for this price to go down and we are strongly calling for that.

Each of us weighs up all the pros and cons for the various possible decisions that we could take.

According to Eurostat, the contribution of net exports turned negative, reflecting in particular high import growth, and private consumption was subdued, probably dampened by higher oil prices.

You probably refer partly to what we extract from index bonds and the extraction from index bonds gives figures that are a little bit over and above 2%, and this is something that we have to examine very carefully.

As you know, when we clarified our monetary policy concept, which was done in 2003, we said that the reference value of 4.5%, which of course exists, was a medium-term reference value, so we would not reassess the reference value every year.

Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term.

Concerns relate in particular to future oil price developments and, more generally, to the potential risk of second-round effects in wage and price-setting throughout the economy.

Several upside risks need to be taken into account.

In order to limit such risks, second-round effects in wage and price-setting must be avoided and fiscal authorities should refrain from taking measures which would prolong or distort the necessary adjustment process.

Downside risks to these projections stem in particular from potentially unfavourable developments in the oil market.

Continued vigilance is of the essence with regard to those risks.

At the same time, we recognise the existence of upside risks to price stability over the medium term.

I do not make a" hit parade '' of risks but we have to continue, as we have been until now, to be an" anchor of stability ''.

We have an idea of the global evolution, but there are risks at the global level that we have to take into account.

And we take all pertinent information into account, including the evolution of domestic demand, the evolution of the economy and all other elements, as part of our own judgement of the risks to price stability, both through the economic analysis and through the monetary analysis.

Some are arguing that a part of it is due to risk premia on top of inflation expectations that would justify the fact that we remain a little bit below 2% for the sole inflation expectations.

Is the downward risk for economic development for you more important than the upward risk of the exchange rate?

And to me, it seems dangerous for you to keep repeating what Mr Snow has said while the US government does exactly the opposite.

However, investors ' preference for liquid assets seems to have remained greater than would typically be expected at the current stage of the economic cycle, possibly due to the fact that the economic and financial uncertainties in recent years have been relatively strong and protracted.

Accordingly, we expect a gradual recovery in euro area activity over the next two years, with somewhat more moderate growth rates due to the impact of oil prices.

Looking further ahead, however, the information available so far indicates that HICP inflation would fall below 2% in the course of 2005 if no further adverse shocks occurred and it does not suggest that stronger underlying inflationary pressures are building up in the euro area.

To sum up, the economic analysis suggests that underlying domestic inflationary pressures are contained, but a number of medium-term upside risks to price stability need to be monitored closely.

On the other hand, portfolio allocation behaviour has tended to normalise over the past year following the exceptionally strong preference for liquidity observed during the period of heightened economic and financial uncertainty between 2001 and mid-2003.

And it is true that we are living in an uncertain world.

As everybody can see, we are also living in an uncertain world as regards a number of other parameters, of course exchange rates, of course the overall attitude of authorities that are responsible for structural reforms, that are responsible for fiscal policies.

We have to be such an anchor in an environment which is obviously uncertain, and which is changing.

Do exchange rates represent an uncertainty in monetary policy-making of the same magnitude that oil prices represent?

I will not embark on a" hit parade '' of the uncertainties in which we are living, we ourselves in the Governing Council of the ECB and also at the level of all responsible entities, not only in Europe but all over the world.

So, it is clear that the oil price is an uncertainty that we have to take into account.

Finally, scope exists for private consumption to strengthen, particularly if uncertainties surrounding the extent and pace of fiscal consolidation and structural reforms are reduced.



2005-01-13, 43 sentences

While information on the fourth quarter is still incomplete, the latest macroeconomic data and survey evidence, although mixed, appear to suggest ongoing moderate growth.

I believe that when things are said that are, in my opinion, important and excellent, why not mention them?

And a couple of days back I believe Mr Issing said part of the problem of the strong euro was Asia, especially China.

And that was really something which I praised because I believe that it was something important.

And we believe that the strong expression of vigilance has played a role in calming down something that was rising slightly.

If they did not believe in this capacity, they would elevate the level of their inflationary expectations and we would immediately have medium - and long-term market interest rates that would be higher, or much higher, or much, much higher.

At the same time, the combination of high excess liquidity and strong credit growth could in some countries become a source of unsustainable price increases in property markets.

And if you want to know what it could be like, you only have to look at what existed before the euro was set up.

I could see that for myself only a few days ago: one of the member countries of the Eurosystem issued securities on a thirty-two-year basis -- more than thirty years -- at an extraordinarily low level of interest rates.

Listening to what you have said today, one could draw the conclusion that you are a little bit more confident than in the previous month about inflation and about growth.

I could mention at least three G7 communiqués on that.

The Bundesbank is a great player in the euro, and other central banks now have to sell the gold that it could have sold.

That being said, of course they fluctuate, and our successive analyses are very much based on what we are observing on the side of inflation expectations.

Mr President, you said that in some property markets we may witness unsustainable price increases.

I have two questions, if I may.

Are you concerned that your credibility may be eroding somewhat?

Two short questions, one to Professor Papademos because you answered a similar question last year, so maybe you will also this year.

And secondly, maybe one for Mr Papademos, can you give us an update on the discussion on the new headquarters of the ECB?

As you know well, what you observe in Germany in the real estate market is not what you might observe in other countries such as Spain or anywhere else in Europe.

As regards what the United States might or might not ask, we will see when we participate in the meeting, but again, I do not want to anticipate in any respect what we will do, or what the British Presidency will do, I will only say that the present global consensus -- and it has been expressed several times before now -- is that we all have homework to do.

Together, we signalled to the market that we would perhaps sell gold under a certain ceiling over a period of five years.

So it is much more the possibility for arranging the timing.

We can, of course, within the framework of this accord, where we have internal arrangements, have one participant deciding not to use his option, in which case there is, of course, the possibility for the option to be utilised by others.

On the first point I would say, that we are very eager ourselves to have the best possible exchange of views between the Eurogroup and the ECB.

We all have our responsibility, but it is important that we understand each other as well as possible with mutual respect and mutual respect for independence, which goes without saying.

Our will has never been to have a Eurogroup which is as weak as possible -- it is exactly the contrary.

I note that the market has, thanks to this accord a full understanding of the possible interaction between the central banks and the gold market, as far as the signatories are concerned.

The Governing Council is convinced that improvements in the implementation of the Pact are possible.

And that is possible only if markets, if investors, if savers, believe in the capacity of the ECB to deliver a very low level of inflation over thirty-two years.

But we all agree that one of the risks at the global level in the economy is the constellation of imbalances.

So that is a question that we have to follow carefully and without undue alarm, but it is part of the risks that we are identifying.

We are reasoning in the medium term in this respect, not in the short term, and it is part of the risks that we have clearly identified.

Now, this is technically quite complex, because you can interpret this break-even as incorporating inflation expectations and risk premia on future inflation.

In the context of what is a broadly favourable outlook for price developments over the medium term, upside risks to price stability need to be taken into account.

Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term.

Overall, the monetary analysis points to upside risks to price stability over the medium to longer term.

However, upside risks to price stability over the medium term remain, and continued vigilance is of the essence with regard to those risks.

Downside risks to the economic outlook stemming from oil price developments have diminished somewhat over recent weeks.

While short-term inflationary pressures persist, they have recently diminished somewhat, mainly due to the decline in oil prices from the peaks seen in October.

Moreover, the latest indicators do not suggest that underlying domestic inflationary pressures are building up in the euro area.

At this stage our monetary analysis suggests strongly that we have a high level of liquidity, higher than would be necessary for the appropriate financing of growth in Europe.

To sum up, the economic analysis suggests that underlying domestic inflationary pressures are contained but upside risks to price stability over the medium term need to be monitored closely.

Consumption would also be supported if uncertainties surrounding the extent and pace of fiscal consolidation and structural reform in the euro area were reduced.



2005-02-03, 51 sentences

Each institution must assume its responsibility.

On the contrary, we believe that by being vigilant and credible on price stability, we are preserving a financial environment that is, as you know, extremely favourable in our view.

You have outlined several factors for that, but I wondered whether you could also" colour '' for us how those factors come together to make the recovery self-sustaining in a way that it was not in 2004.

We also insist -- although it was n't mentioned in the question -- on the fact that the monetary analysis calls for vigilance, as I said, because we see dynamism of M3 and dynamism, by definition, of the counterparts of M3 which means that we -- from that standpoint -- can see that we could have an overhang of liquidity.

... and in your statement you said that the combination of ample liquidity and strong credit growth could become a source of unsustainable price increases in property markets.

Any proposals that could emerge from the EU Council will certainly be examined very carefully by us, with the idea that we can improve things.

So I wonder if you could tell us, how you deal with that?

I wonder if you could elaborate a little bit on exactly how you would tackle this as a policy-maker.

Had we not had the Stability and Growth Pact, it could have been said that we were putting the cart before the horse, because we were very bold in introducing a single currency without having a federal budget.

And, secondly, looking ahead to the G7 meeting in London: if the Chinese do not signal a willingness to become more flexible in terms of their currency peg to the dollar, do you think that could be harmful for global growth prospects?

But we expect that there could again be ups and downs over the coming months.

The combination of ample liquidity and strong credit growth could, in some parts of the euro area, become a source of unsustainable price increases in property markets.

This could pose risks to price stability over the medium term and warrants vigilance.

We could see that the explanation we had on the portfolio shifts and then the unwinding of portfolio shifts, which was a convincing element in understanding what was happening, does not seem now in our own analysis to be convincing in explaining the present dynamism of M3.

And, as you know, when we extract the inflationary expectations from index bonds, we see -- depending on our analysis -- that we are at levels which call for vigilance even if they allow very low long-term rates.

As you know, headline inflation depends arithmetically very much on shocks, in particular to the evolution of oil prices.

It is important to avoid any doubts about the effectiveness of the surveillance process and the soundness of the fiscal policies of the single currency area in the long run, as such doubts would ultimately lead to higher risk premia and higher real interest rates in the euro area.

Two questions, if I may.

And the example that maybe it sets, and all the intentions that lay behind that deal?

In the euro area -- and it is the euro area as a whole that we have to look at -- we have signs that credit dynamism, might foster asset price increases in the real estate sector.

On top of that, of course, you might have the spreads I have mentioned, the different assessments of risks that are generally quite low at a global level.

And it is there that you might have the under-pricing of risks I mentioned.

It is nothing alarming that we perhaps have such a phenomenon.

I mentioned the figures for the last month, and we expect the figures for this month to be lower, perhaps significantly lower.

I do not want to be alarmist, but I must say that we have, perhaps, a rather low appreciation of risks by markets at the European and global level.

I would say that it is perhaps also the G10 's sentiment that we are currently observing quite a low level of spreads and volatility in financial markets and, in some cases a certain under-pricing of some risks.

As I have already said, there is no contradiction between price stability and the best environment possible for growth and job creation.

And I will certainly not mention anything in advance of our meeting other than say what we have already conveyed to the Chinese and they know exactly our sentiment on a possible better functioning of the global economy, if some moves were to be made.

I do not want to pre-empt the result in any respect, but the principles I have mentioned are very strong, which calls, of course, for as thorough as deep and strict as possible an examination of what has happened.

I have two questions: first, did you revise down your inflation forecast given the fact that you also admitted that inflation was coming down a bit?

We have revised absolutely nothing at this stage.

However, medium-term upside risks to price stability persist and need to be monitored closely.

Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term.

Continued vigilance is therefore of the essence with regard to those risks.

However, upside risks to price stability over the medium term remain.

However, several upside risks to price stability need to be taken into account.

Concerns relate in particular to future oil price developments and, more generally, to the potential risk of second-round effects in wage and price-setting throughout the economy.

But there are risks that could materialise, and we have to be vigilant.

Then you have all the spreads corresponding to the risk assessment depending on the quality of the various signatures.

It seems to me that the remark you were alluding to is part of this overall sentiment.

The US Fed seems to be afraid of excessive risk-taking in the financial markets.

It was written somewhere that, behind the scenes, European Central Bank officials are saying that they are now more at ease with the proposals to reform the Stability and Growth Pact and, moreover, that Juncker 's message is very comforting.

At the current juncture, the evidence does not suggest that stronger underlying domestic inflationary pressures are building up in the euro area.

Turning first to the economic analysis, recent data on economic activity, as well as survey information, suggest ongoing moderate growth in the fourth quarter of 2004 and a broadly unchanged situation around the new year.

To sum up, the economic analysis suggests that underlying domestic inflationary pressures remain contained.

On the domestic side, reducing uncertainties associated with the extent and pace of fiscal and structural reforms would support consumption, as such uncertainties seem to be limiting private sector expectations of future real disposable income growth.

High and volatile oil prices and persistent global imbalances pose downside risks to growth.

We should be conscious of the fact that there is volatility.

We have observed a high level of volatility.

Over the coming months, volatility in annual inflation rates is likely to persist, reflecting in particular oil price developments.

While short-term HICP inflation rates remain subject to certain volatilities, particularly in relation to oil prices, there is no significant evidence of underlying domestic inflationary pressures building up in the euro area.



2005-03-03, 71 sentences

Consumption growth should benefit from anticipated developments in real disposable income.

What makes you more confident in anticipating a strengthening of the recovery this year, as opposed to last year?

That is anticipated by all observers, by all market literature and by all market futures observations, and observers seem to me in line with the reality of our own posture.

We are looking at the situation, we are incorporating new data and new figures and when it appears necessary to guarantee -- which is our mandate, and which is the needle of our compass -- price stability in the medium and long run, then, we will do what is necessary.

Sustained wage moderation and some progress in labour market reforms aimed at increasing labour market participation appear to have partially shifted production towards a more intensive use of labour.

In addition, in some cases, fiscal targets are based on rather favourable growth assumptions and on insufficiently specified measures.

And it is the working assumption that we are making that we would observe a smooth evolution in the context of long-term, global growth, which would call for additional reserve instruments or additional monetary and financial instruments.

And of course these are what they had extracted, at the moment of the computation of the projections, from their observations at the time and from futures, because these assumptions are based on information enshrined in a futures market.

I only mention that in the staff projections, the assumption for the annual average oil price for 2005 was USD 44.7 per barrel and for 2006 USD 42.2.

And do you believe that these changes were in the spirit of the Maastricht Treaty?

We believe that it is extremely important not to engage in permanent battles on figures.

Again, I remain very cautious.

According to available figures, and we have to remain cautious and prudent, we have seen growth in capital investment which is not negligible for three quarters: 0.5% in the second quarter of 2004, 0.6% in the third and 0.6% in the fourth.

I take for likely, I do not recall exactly, that it was a comment on the last observations of the last quarter of last year and there, again, we have to remain a little bit cautious on how to interpret what has been observed, in particular in Germany.

I remain very cautious.

So we have to be again cautious, look at the various data, know that it is normal to have and to observe differences.

We expect, but again we are cautious, that this phenomenon will continue and perhaps accelerate in line with what I have said and, in particular, with the earnings, improved earnings, and improved profitability of a number of private institutions in the private sector.

There are a number of reasons why the weaker real GDP growth in the second half of 2004 could be a transitory phenomenon.

I would like to know if you could clarify, in greater detail than we have already been privy to, the ECB 's view on the recent changes in the composition of the Monetary Council in the Hungarian central bank in the context of Governor Járai 's allegations of government tampering with the independence of the central bank.

There are reasons to think that this is the sign that private consumption could in the future be more robust than we observed in the second and third quarters of last year.

I here quoted Germany, but I could quote the Netherlands as offering an opposite example, over the last few years, where you had a period of great success as regards cost competitiveness, then buoyancy in the economy and then increasing unit labour costs that were eroding this very remarkable" over-competitiveness ''.

And a second question, if I could: you spoke the last time around, at the last press conference that you did not want to ring any alarm bells, but we spoke of the issue of a bubble on the bond market.

Could you do the same for us today please?

We must have a referee which will be totally reliable and which could say" These are the figures ''.

I wonder if you could give us some more detail on what you expect for growth of real disposable income in the euro area and maybe also how this has developed in the past relative to consumption?

Could you qualify or quantify in any way where those risks are at the moment, given that we are seeing sustainably high oil prices at the moment of around USD 50 a barrel.

This could pose risks to price stability over the medium term and warrants vigilance.

I said already that it will depend very much on the observations of the first quarter of this year.

What we have observed, if I take private consumption growth in the euro area, and -- again -- depending on a very cautious checking of the figures, is that we had quite robust growth of private consumption at the very beginning of last year.

In the coming months, annual inflation rates are likely to fluctuate around 2%.

Developments in indirect taxes and administered prices may also again surprise on the upside.

The strengthening of domestic demand and, in particular, consumption may point to the recovery in economic activity in the euro area regaining some momentum.

And if I may only add one element: we are there to deliver price stability.

So, there is an arithmetic carry-over that may explain perhaps two-thirds of the disappointing outcome of the new projections in comparison with that of the December projections.

We will see exactly what might happen.

This might explain why Germany, whilst making a lot of progress in its cost competitiveness position, is still registering unsatisfactory domestic demand.

And secondly, I was wondering whether any central banks have given an indication that they might be diversifying their reserve holding into euros and what is your reaction to that?

You might also have the reverse phenomenon: The phenomenon where you are accumulating a very low level of unit labour cost and then after a long period of accumulation, of" over-competitiveness '' you are losing this" over-competitiveness ''.

A small part perhaps, or a bigger part -- it has to be checked, it is very delicate -- of this insufficient level of consumer confidence can come from the fear of inflation in the future.

When you ask people all over Europe, they still have this idea that perhaps price stability will not be delivered.

My second observation, and I will not expand too much on this, is that, as you know, in the case of Germany, a correction is made for the number of working days, which perhaps plays an important role.

Is that perhaps the wrong strategy or are you still confident that at some point the usual mechanisms work in the economy?

There are both difficulties which are obvious and also elements which are perhaps more encouraging.

I know that such differentials are possible within one economic block, but are such big gaps between these areas making your job as people who set monetary policy much harder?

We call in any case for an evolution that would be as smooth as possible.

That being said, we are not calling for changes in the overall framework that exists today, and where the Treaty gives responsibility to national authorities, what we do is to call on those national authorities to engage in as close and intimate cooperation and coordination as possible.

As regards the advances towards a single market -- a real single market -- for financial services, we are as you know very much in favour of advancing in that direction as far as possible.

And we are pragmatic and keep as close to the facts and figures as possible.

In all continental economies, including the United States, it is possible for some states to be booming while others have a much lower level of growth.

So it is clear that we are looking at what is happening and taking into account the facts and figures and data to the extent that they are available and reassessing the situation along the lines that I have just said.

In addition, third-quarter real GDP growth was revised down to 0.2%.

You can call this what you like, but I would say that these are projections that are revised downwards.

At the same time, upside risks to price stability over the medium term exist.

The picture emerging from the projections contains a number of risks.

Several upside risks to these projections need to be taken into account, notably future oil price developments.

Furthermore, continued vigilance is required regarding the potential risk of past price increases leading to second-round effects in wage and price-setting throughout the economy.

To sum up, the economic analysis confirms that underlying domestic inflationary pressures remain contained, while medium-term upside risks to price stability exist and will be monitored closely.

Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term.

At this level, is this not already enough to raise the question: can you qualify or quantify the size of this downside risk to growth which you describe?

There are risks if the price of oil is above what I just said.

You say here that you are concerned about downside risks.

But you know that behind all this stands a theory quite sophisticated, because you have the inflationary expectations themselves, and then you have risk premia for the possible inflation volatility, and also liquidity risk premia.

There we of course have a downside risk as regards growth, and this is something which is important to consider, i.e. that we are in a risk environment and of course there are also risks as regards headline inflation.

You stressed that Germany has made a lot of progress in increasing its cost competitiveness and to me it seems the idea behind this is that, by increasing cost competitiveness, at some point you increase investment, you increase hiring, and finally consumption.

Mr Issing seemed to be suggesting that actually the divergencies had proved rather larger than you had expected.

I was thinking, as you talked a little bit about the uncertainty for growth over the next year, given the lag time for monetary policy to take effect, would you ever consider raising interest rates before there are clear signs of a recovery being under way?

On the domestic side, there are uncertainties surrounding the evolution of consumption, while the very favourable financing conditions and the recovery in corporate earnings could lead to higher investment growth than currently projected.

You also talk about volatile oil prices.

Do they even need to be volatile?

On the external side, high and volatile oil prices and persistent global imbalances pose downside risks to growth.

It is also true that we have observed a level of volatility that has been considerable over time.



2005-04-07, 53 sentences

Last month, you said that everybody knows that at a time we will have to increase interest rates and that that was anticipated by all observers.

given the apparent effects, curious effects, interesting effects that excess liquidity is having on real estate prices in some parts of the euro area, perhaps on the bond market, has this led you to rethink how to best apply your strategy for the monetary pillar of the analysis?

It is particularly important that the social partners assume their responsibilities in this respect.

Again, the only working assumption I am making is that the Constitution will be approved and ratified.

As regards your second question, I would only say that I am making the working assumption that the Constitution will be approved.

Again, we are making the working assumption that we will progressively see this moderate ongoing growth develop, but we are very pragmatic.

That said, it is a theoretical assumption.

Contrary to your working assumptions, opinion polls are suggesting that the Constitution may be rejected at the next referendum, in France.

I have to mention that because I believe that it is something that is important.

In terms of our own position, we would certainly be cautious in this respect.

And he kind of put it into perspective and said" well, as cautious central bankers we 've got to do that, even if we do not expect the euro/dollar to go that way ''.

How cautious is the ECB on that score?

Mr Trichet, we all know that central bankers are famously cautious when talking about currency exchange rates and exchange rate targets.

So I would be very cautious -- and more cautious than you are -- in making the working assumption that what you can extract directly from the present bond market signals the fact that they incorporate depressed long-term growth.

What could be done to increase the unification of markets in the banking sector?

I would also mention that I could see one of the producers had decided to produce as much as possible without any other limit than its own capacity.

Could you explain what you see as possibly the consequences of that for the euro zone economy and monetary policy?

On top of that, there are other conditions for growth and job creation and that do not depend on us.

There is no doubt about that, it seems to me, in the perception of observers and market participants.

Is that because you fear that the recent oil price rise means it may not fall below 2% this year?

There are different legal arrangements from country to country: in some countries the decision is left to the Executive, whereas in other countries the decision is shared by the central bank and the Executive ; still in others, the decision may be left entirely to the central bank.

First of all, as you may know, we are a signatory to the Central Banks ' Gold Agreement that was published on 8 March 2004 following discussions by a number of central banks.

I would just like to ask whether in the main meeting of the Governing Council you are going to consider looking at monetary aggregates as a special topic and if that is the case -- or even if it is not -- whether, with the fact that a number of external forecasters have lowered their estimates of trend growth, it might be time for the ECB to consider lowering its reference growth value for M3?

This is the reason why I mentioned that in the months to come we would perhaps observe a level above 2%.

I would add that, if -- despite the thoughts I am expressing, which are certainly shared by a number of partners and shareholders of the IMF and perhaps even large shareholders -- a decision were taken, then it would be absolutely essential that it should not upset the market.

We would also say that, if the IMF embarked upon gold sales, it would perhaps be better, from the IMF 's standpoint, to use them to reinforce its own position -- its financial position -- rather than to finance debt relief.

I myself signed the G7 communiqué calling for the oil market to function better and to improve transparency, and I will reiterate that goal: as high a level of responsibility as possible from all partners concerned, whether they are producers or consumers.

Regarding possible sales of gold by the IMF, this is indeed an issue that is discussed in the IMF.

I think it is our duty to be as clear as possible on that.

I also think that it is important for consumers to be as good energy savers as possible.

And I would also tell the European households who are hesitating -- and a number of them are reluctant to consume because they fear future possible price instability -- I would tell them" No, we are here to ensure that you have price stability and you have your purchasing power protected.

But since then, some large banks have actually predicted that the next move by the ECB would be a cut and I wondered whether you would still reiterate what you said last month?

First of all, as I said today, reiterating what we said in real time -- and it is very important for me to stress that -- on 21 March, it is imperative that Member States, the European Commission and the Council of the European Union implement the revised framework in a rigorous and consistent manner conducive to prudent fiscal policies.

And second, would you accept that there is a risk that the European Union will fail to adopt its new Constitution?

And this is the reason why I mentioned earlier that before the euro we had a number of difficulties, drawbacks and very important risks that we had to cope with.

Does this create risks to the ECB 's expectations for the second quarter?

Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of such risks.

To sum up, the economic analysis confirms that underlying domestic inflationary pressures remain contained, while there continue to be medium-term upside risks to price stability which need to be monitored closely.

Furthermore, strong monetary and credit growth indicates the need to carefully monitor whether risks are building up in the context of strong house price increases in some regions of the euro area.

However, upside risks to price stability remain.

However, at the same time, persistently high oil prices in particular pose downside risks to growth.

However, upside risks to price stability over the medium term remain and continued vigilance is therefore of the essence.

All in all, we have not changed our assessment of risks to price stability over the medium term.

There are a number of other elements which are incorporated in the bond market evolution including a number of risk premia that might be very low in the present period for a number of reasons.

Of course, the benefit of good decision is that those kinds of risks and difficulties are eliminated, but you then forget the risks and the difficulties.

I will only say that, as far as the euro is concerned, it seems to me that there is a tendency to forget the situation before the euro.

In the coming months, annual inflation rates are likely to remain somewhat above 2%, although the exact figure will depend largely on how oil prices develop.

And it has been suggested that the ECB, rather than helping the market, in doing that, is hindering it because it is not discriminating between top-quality, top-rated government paper and less well-rated paper.

Mr President, it has been suggested, or some commentators have said, that now that the Stability and Growth Pact has been watered down it is of particular importance that the market can reward sound public finances and punish unsound finances.

In addition, the fact that monetary dynamics continue to be driven mainly by the most liquid components suggests that excess liquidity may entail risks of upward inflationary pressures in the medium to longer term.

Let me also mention that in the present international environment we observe none of the intra-European turbulence that there would have been with the various national currencies before the euro.

We would have had a lot of turbulence, a lot of difficulties, and not only on the exchange rate side, between the various European currencies, but also on the interest rate side, with a piling-up of risk premia, volatility and turbulence in the interest rate market.

As you know, we only provide ranges ourselves, capturing also the concept of uncertainty as regards what could happen.



2005-05-04, 39 sentences

In order to avoid this, it is important that the social partners continue to assume their responsibilities.

This is my own working assumption and, again, this would be in line with the idea of having an integrated financial market and financial services market at the level of Europe as a whole.

Because, if economic agents think that the delivery of price stability will be 1.9%, it is because they believe that we will be vigilant.

My third question is: do you believe that lower interest rates would contribute to growth if you were to lower them?

We undertook a very thorough analysis of the situation and we believe that the interest rates are in line with what is required by our overall economic and monetary analysis.

For the last point, the question was already asked: we firmly believe that our mandate calls for maintaining interest rates where they are and that if we were to go in the direction which is from time to time suggested we would not get a decrease in rates.

We could say that price stability and the present environment, which we are helping to create on the financial side, are elements of confidence for the households.

Mr Trichet, could you please be more precise on when you expect the economy to start rebounding again?

So are these economists right that you have tried not to get in conflict with your own strategy and prepare maybe even a rate cut?

And as regards my own position, you might remember that last time, and even two months ago, I said in response to a question like yours that" I am not optimistic, I am not pessimistic, I am realistic ''.

But as I have said already, perhaps on the occasion of the last two or three press conferences, it is not -- at this stage -- alarming at the level of the euro area as a whole.

You also have the introduction of the idea that you have a medium-term growth potential and perhaps a longer-term growth potential.

I do n't exclude the possibility that in the latest review of growth potential for various European economies and for the euro area as a whole, for the European Union as a whole, we might discover that the consensus of economists goes in the direction of revising down previous estimates.

There is no contradiction at all between being faithful to our mandate and preserving an environment as favourable as possible for growth and job creation.

We are all taking extremely seriously the presence of these six currencies in ERM II and we will continue to carry out our actions together with the newcomers as responsibly and professionally and efficiently as possible to prepare, when the time comes, when convergence has been achieved and when criteria have been met, for what could be the next step.

Those higher inflationary expectations, as augmented, would be incorporated in market rates, and then this" good advice '' would lead to a result which would be exactly the contrary of the result which is hoped for, I presume.

My second question to you is regarding the fiscal outlook: have the recent negative economic data that you have seen over the past months led you to reassess the fiscal situation of the euro zone governments?

At the same time, it is essential to implement, in a strict and timely manner, the revised Stability and Growth Pact procedures, which are soon to enter into force, so as to underpin the credibility of the EU fiscal framework.

However, upside risks to price stability over the medium term need to be monitored closely.

Cross-checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of such risks.

At the same time, continued vigilance with regard to upside risks to price stability is warranted.

Downside risks to economic growth continue to be related to oil price developments and global imbalances.

As monetary dynamics over the past year have mainly been driven by developments in the most liquid components of M3, this continues to signal upside risks to price stability in the medium to longer term.

However, there continue to be upside risks to price stability, relating mainly to oil price developments and their potential to lead to second-round effects stemming from wage and price-setting behaviour.

Do you think the risks of second-round effects are now greater than they were in past months?

Last week, there were economists who said if the Governing Council is going to realise that the perspectives for economic growth are deteriorating they will have to think -- start to think -- about a rate cut and, if that happened, the ECB is going to play down the risk arising from the monetary sector.

So, if I remember correctly, you did not mention anymore the risk of asset price inflation as you did during the last few months.

The risks to price stability are still there.

Some of the downward risks to economic growth identified earlier, in particular those related to persistently high oil prices, appear to have partially materialised over the past few months.

First, I wondered if you have altered your assessment at all on the effects of the strength of the euro on competitiveness of euro area exports, it seems to be a particular problem for some countries in the euro area?

It did n't seem to be there.

As regards fiscal policies, recent information and forecasts suggest little progress in reducing fiscal imbalances in the euro area.

To sum up, the economic analysis suggests that underlying domestic inflationary pressures remain contained.

First, several Governing Council members have suggested in recent speeches and remarks that, with an ageing population, Europe 's potential, or the euro area 's potential to grow is actually slowing down or is below what you previously assumed.

As regards our own understanding, I would not have any kind of conclusion in the direction you are presently suggesting, i.e. that we should revise down the 4.5% target.

A clear commitment to implementing the reforms and the explanation of their benefits will help to reduce such uncertainties and thereby make a considerable contribution to improving the economic outlook for the euro area.

As far as our own staff are concerned, you also know that, since we first embarked on the publication of these projections, they have produced quite large bands to capture the degree of uncertainty.

Over recent years, uncertainties surrounding the structural reform agenda in some euro area countries appear to have hindered the necessary improvement in the confidence of consumers and entrepreneurs.

You noted that uncertainty over reform has contributed to a decrease in confidence and presumably precautionary savings in some parts of the euro area.



2005-06-02, 66 sentences

Because it was really something which appeared extraordinarily difficult to achieve.

Looking ahead, there is scope for positive fundamental factors to again shape the outlook, assuming that the effects from adverse developments gradually diminish.

The assumption is simple: as long as you have common interest rates for the whole of Europe, you will always have those problems.

Taking into account the assumptions underlying the projections, upside risks to the inflation projections prevail.

What does that mean for your credibility, that some market participants are on the verge of not believing your protestations of late that you were not considering a rate cut?

We believe that we can prove that success in the economic and arithmetic studies that we carry out.

We believe in what we do and we are observed not just by all of you, but by the entire world.

We believe that by being very clear in the eyes of public opinion, households and market participants that we were vigilant, we have permitted precisely those inflationary expectations to remain firmly anchored.

We also believe that improving confidence, particularly in the consumer constituency and in the household constituency in general, would be a very important means to foster growth and job creation.

An environment which we believe is optimal under the present circumstances.

Nobody would have believed.

And if we moved interest rates, either down or up, we believe that it could increase medium - and long-term market rates, not decrease them.

You could also have quoted Mr Johnson and the chief economist of the OECD.

So, we could certainly improve in this respect in comparison with the United States, but it would be unfair to say that we have only defects on this side of the Atlantic and that there are only assets and qualities on the other side.

And then it could have an impact which would be negative in comparison with the present monetary and financial environment, which again, as far the financial environment is concerned, is exceptionally favourable to growth and to job creation.

Mr Trichet, could you help me by clarifying two points?

What we are very proud of is that -- that depends on us - solidly anchor had been at our level and therefore authorises a lower level of market interest rates.

At least, if it depends on us, we will do everything necessary to ensure price stability.

As regards the yield curve, of course, market interest rates depend on the global appreciation of risks and also on the global supply and demand of capital, which influences real interest rates.

Again, I have to say very firmly that when we look at the dispersion of growth, for instance, or the dispersion of inflation in this vast continental economy which is called the euro area, with 306 million people, and we compare that with a vast continental economy which is called the United States of America, with a little less than 306 million inhabitants, there are figures which can be computed in terms of standard deviation for growth and for inflation.

If I take the year-on-year standard deviation in Europe on the basis of the first quarter of 2005, I have a figure of 1.2%, which is the lowest level since 1999.

As regards the evolution over time, we do not observe change in this standard deviation figure.

If you compute the standard deviation as regards inflation you have 0.9% on both sides of the Atlantic.

They still have some doubt that we will really deliver price stability.

There is no doubt, you do n't need to convince us all or indeed the financial markets that the euro is a tremendous success story.

And if your question were to be whether or not there is a likelihood for California, Alaska or Florida to have their own currencies, I would do exactly the same.

Also in the light of the increasingly liquid nature of monetary expansion, the accumulated stock of the broad monetary aggregate M3 may entail upside risks to price stability over the medium to longer term.

Maybe sometimes we tend to hear the monetary grass growing, but last time at the press conference it sounded as if you were, for want of a better term, less hawkish.

But how do you explain that, for example, if you listen to recent opinion polls and they might be representative or not.

Are you also concerned the public trust in the ECB might also be at risk at the moment?

If you have the intention to embark on an increase in consumption and you are still hesitating because you have some lack of confidence, you can do it -- perhaps it is time to consume.

I am telling them: perhaps it is time to invest.

Again, I do not draw from that a definitive conclusion, but I want you to know this, to have these figures and to see the extent to which there is perhaps from time to time an over-amplification of issues.

Perhaps you could interpret what has been observed here and there as precisely part of the difficulty of this pedagogic challenge, this communication challenge which is a challenge for governments, parliaments, opinion leaders in general and also for this institution.

Perhaps you could help me with what appears to be a confusing position.

Perhaps in this room we also have editorialists that are very keen on advising us to increase rated and even perhaps think that we should have increased rates for quite a period of time.

Just another question on the image of the euro: perhaps the problem, if you ask people in the street, is not that they would say we do n't have enough stability or the euro is a weak currency, but they perhaps would argue growth is weak and that 's also what 's behind the article STERN published today, the impression that since we have the euro, at least in countries like Germany, growth has been deteriorating, rightly or wrongly so.

Should we take low yields as a sign of the ECB 's credibility, or should we take them as a worrying sign that perhaps markets are not pricing in risk appropriately, which is what the Financial Stability Review seemed to be suggesting this week?

And the second question concerns all this nonsense we have been hearing for the last couple of days about a possible retreat or dissolution of European Monetary Union.

Everybody sees that we do all we can by being faithful to our mandate to have an environment which would be as favourable as possible to growth.

I think that it is clear that as far as structural reforms -- reforms in general -- are concerned, we all have to explain as well as possible, to convince the people of Europe that everybody would be better off with the reforms.

We know that we have important responsibilities and we know that with a great level of responsibility comes possible criticism, possible observations of any sort.

Does that mean that a rate cut is now possibly an option, at least in some minds of the Governing Council members?

And on top, this increase of 100 basis points we would probably have an additional risk premium.

Compared with the ECB staff projections published in March 2005, the inflation projections for 2005 have been revised slightly upwards and for 2006 slightly downwards.

Moreover, the revised rules and procedures for the Stability and Growth Pact, expected to take effect soon, need to be implemented in a strict manner to ensure credibility and to promote a timely return to sound budgetary positions.

At the same time, we will remain vigilant with regard to upside risks to price stability.

The monetary analysis provides further insight into the risks to price stability over the medium to longer term.

At the same time, it is necessary to underline the conditionality of this assessment and the related upside risks to price stability.

These risks relate notably to future oil price developments, indirect taxes and administered prices.

And everybody knows that if we had to do something to guard against inflationary risks, we would do it.

Observe the market risk that we have in front of us.

So you have to have an insurance premium against the risk of seeing further increases in the definition of price stability.

There seems to be one difference, that in the United States there is much more flexibility in the labour markets and in the markets for goods.

Sometimes I am told, we are told with my colleagues in the Governing Council:" Look, perhaps you should be a little less demanding on price stability.

In recent weeks, however, the statements we heard from you and your colleagues sounded as if you wanted to nip the idea in the bud that there would be another rate cut somewhere in the making.

Were you concerned that there was too much speculation about rate cuts mounting?

But where does this come from all of a sudden?

Were you really surprised by this discussion coming up all of a sudden and what is the ECB 's take on this?

As regards examples of various central banks having had good experiences and bad experiences, I would suggest that you consult the academic literature, which is very abundant.

To sum up, the economic analysis suggests that underlying domestic inflationary pressures remain contained in the medium term.

I am not telling you anything that would be interpreted as suggesting we are preparing a rate cut.

I do not suggest that any of these institutions or individuals do not do their job.

And secondly, we have seen from the referenda this week -- or at least they suggest -- that public confidence in the EU institutions is deteriorating.

At the same time, recent data have heightened the uncertainties surrounding the short-term evolution of domestic demand, and persistently high oil prices and global imbalances may pose downside risks to the projections for economic growth.

And the other question I have is, again, when you look at the environment out there, the political uncertainty in France and Germany, the developments with the Constitution and the varying growth rates in some of Europe 's largest economies, to what extent does all of this create an environment which makes a more challenging environment for the European Central Bank to operate in?



2005-07-07, 55 sentences

In the case of 9/11 it appeared that, because of the difficulty with some counterparties on one side of the Atlantic, we had to be -- in the United States as well as here -- very attentive to the necessary pouring of liquidity.

High and rising oil prices in particular appear to have weighed on demand and confidence.

Reflecting not on a short-term basis but on a slightly longer-term basis, we believe that growth will be more dynamic.

In a number of economies and countries the sentiment of the people is even that there are more price increases than we believe, more than is calculated at the national or European levels.

We are not in a normal situation in this respect and, as you know, the international community -- and the ECB as member of the international community -- believes that progress can be made and must be made in the functioning of the market, particularly as regards higher levels of transparency of that market, so I would take advantage of your question to call again for as much transparency and responsibility as possible by all partners.

Mr Trichet, this is just a quick clarification question.

And then, the other clarification question: you said today that, on balance, the risks to growth are on the downside.

On the first point I would say that we do not think at this stage that these events could have any significant impact.

Yesterday, for the first time in seven years, the representatives of the people of Europe could not agree on a common resolution on the ECB, its policy and its work.

Things could be different tomorrow.

Prudent fiscal policies could provide considerable support for confidence in the euro area.

So observers, market participants and economists could see that because of these successive shocks, we could have inflation over and above 2%, but nevertheless they had and they have full confidence in our capacity to deliver, in the medium run, price stability.

As regards inflation, it is absolutely clear that we have to take into account the administered prices and administrative decisions that could influence the inflation risk on the upside.

There is no doubt anywhere that we are and will remain faithful to our mandate.

There is no doubt.

Over the next few months annual HICP inflation rates are expected to fluctuate around current levels and may not fall below 2% for the remainder of 2005.

And the second question is: are you concerned about the crisis of the European Union after the referendum, which is putting pressure on the ECB, maybe in your monetary policy stance and so on.

Maybe you might just go into a little bit more detail about what it is that you will be monitoring particularly closely in the days to come.

I wanted to ask if you saw any similar necessity this time around or any other measures which might be necessary under the current circumstances.

Some people might understand that to mean something a little bit different, maybe that you are a little bit less worried about upside risks to price stability right now...

The Governing Council will continue to monitor carefully all factors that might affect this assessment and remains vigilant with respect to the emergence of risks to price stability over the medium term.

And from time to time advice going in both directions in the same media, as is perhaps normal in the very vivid opinion-based democracies of Europe and the world.

I have the honour of being invited every month, together with the Vice-President, to the meeting of the Eurogroup, so this makes three times a month that we have the possibility of a physical encounter.

I am not sure that you will find any other place in the world where such possibilities are offered !

And, also, there is a very strong possibility that a euro area country might increase VAT substantially.

We will exert it as well as possible.

We judge the pros and cons of all possible action.

We were not in exactly the same environment in terms of oil prices, with all the effects that oil prices have on both growth and possible future inflation.

Now, let me say the following: any kind of comments from my side about a possible change of our own mandate is totally out of the question.

We considered all possible factors that are guiding our own judgement on the monetary policy stance.

As regards the organisation of the executive branches, I see very favourably the best possible organisation of the Eurogroup.

So we have a joint interest in this convergence exercise being as successful as possible and as well checked as possible.

But, simultaneously, I would call on all partners to be as responsible as possible, for the producers to be as responsible as possible, as well as the consumers.

The discussions on revising the Stability and Growth Pact regulations have been concluded and rigorous implementation is now key to ensuring an effective framework for fiscal policy coordination and discipline.

The monetary analysis identifies risks to price stability over the longer term.

Overall, monetary developments support the case for vigilance with regard to upward risks to price stability over medium to long-term horizons.

These risks relate mainly to oil price developments and their potential to lead to second-round effects stemming from wage and price-setting behaviour.

At the same time, upside risks to this scenario for inflation warrant close monitoring.

This outlook mainly reflects recent developments in oil prices, which were seen as an upside risk in the context of the June 2005 Eurosystem staff inflation projections.

On balance, risks to economic growth lie on the downside and are notably related to the persistence of high oil prices, the low level of confidence prevailing in the euro area and global imbalances.

In your opening statement last month you said that you would be vigilant with regard to upside risks to price stability.

But again an increase in the price of oil has exactly the two consequences you said, it is exerting downward pressure on the growth side and it is adding to upside risks on the inflation side.

Given the upside risk to inflation you have talked about, would it not be more useful if we had a slightly stronger euro at the moment?

That being said, we also say -- and I have said this before -- that we have real downside risks for the three reasons I have been mentioning: oil price increases, which are of course something that is certainly important, global imbalances, and the level of confidence.

You do not see a risk to growth.

Mr Trichet, you have been talking about the downside risks to growth.

And then, in the first paragraph today you said" vigilant with respect to the emergence of risks to price stability ''.

Would you say that the events in London are a downside risk to growth in the euro area and that they could weaken sentiment and hinder the recovery that you expect in the second half of this year?

And you spoke of upside risks to inflation, but can you also say that, on balance, risks to inflation are on the upside?

So I do not know whether others were more efficient in delivering a financial environment which would be more favourable for growth and job creation, but it seems to me that we are trying at least to do our best and we have elements that would substantiate that we are doing everything we can to be credible in delivering price stability.

And again, it seems to me that we are doing all we can by preserving price stability, to deliver a financial environment which is good for growth and job creation.

Overall, cross-checking the information from the two pillars suggests a need for ongoing vigilance in order to maintain inflation expectations in line with price stability.

The influence of an increase of oil prices goes in the two directions you have suggested.

This baseline scenario for growth continues to be surrounded by a good deal of uncertainty.

Moreover, uncertainties about future developments in administrative prices and indirect taxes need to be taken into account when assessing currently available inflation projections.



2005-09-01, 46 sentences

At the same time, wage increases have remained contained over recent quarters ; the projections are based on the assumption that this trend will prevail for the time being given the current labour market situation.

In our opinion, and because you all know that and the market knows that, the market believes we are credible and capable of delivering price stability.

And my second question, going back to the monetary policy: you said earlier this year that interest rates at the current low levels could not last forever.

You deduce yourself what we will or could do.

Thanks, if I could just follow up on a point that was raised before.

The most recent survey indicators have, on balance, been supportive to the view that economic growth could improve in the second half of 2005, while higher oil prices continue to weigh on demand and confidence.

As you know, being credible depends on our own action to preserve inflation in line with our definition of price stability.

And everything depends very much on what we call the second-round effects.

Over the next few months, annual HICP inflation rates are expected to fluctuate around current levels, mainly due to recent developments in oil prices.

Two questions, if I may, just to follow up on the last subject.

Second, maybe this is a marginal question, but I noticed that you came back to the word" appropriate ''.

So maybe to go back to oil prices: are you more concerned about the impact it has on growth than on inflation?

Nobody knows what might happen in the near future.

Would you perhaps say the same thing today or would you not believe that it is even more likely that rates will have to go up, given what we see in the money supply figures?

And we have to remain particularly vigilant as regards possible second-round effects.

We are committed to it because it is required by European law and also because, in our opinion, it is good for the economy of the euro area, for the European Union and for the best possible functioning of the level playing field in this sector.

That being said, whatever the national arrangement, we are strongly in favour of the closest possible cooperation and coordination between banking supervisors.

The ECB last year gave the Italian government a statement with suggestions on a possible reform of the Banca d'Italia.

On the first point, I have to tell you that the Governing Council of the ECB is pursuing its own responsibility as clearly as possible.

So all I can say is that, as you know, we already consider Bulgaria and Romania as friends, as observers in our committees and meetings, including those of the General Council, so as to prepare in the best fashion possible for their belonging to the European Union, and tomorrow, and the day after tomorrow perhaps, if criteria are met and if everything is in good order, to the euro area.

But now with this significant, considerable upward revision in your inflation forecast, you are probably in a better position today to give us your best guess on which direction the next rate move will be.

Do you think that this is feasible, and probably some special recommendations for our fiscal policy?

And you can see clearly that the staff of the ECB, have revised our growth projections slightly down for this year and down also for next year.

In comparison with the June Eurosystem staff projections, the ranges projected for real GDP growth in 2005 and 2006 have been revised downwards slightly, reflecting both the downward revision of growth data for the first quarter of this year and the effects of higher oil prices.

The Governing Council therefore urges Member States to step up consolidation efforts where needed and to implement the revised rules in a manner that supports these efforts and deters future slippages.

A rigorous implementation of the revised Stability and Growth Pact would reinforce the credibility of reform plans and boost expectations of a sound fiscal and growth situation.

We have also revised upwards our inflation projections.

At present our judgement is that, although upside risks to price stability exist, we continue to see no significant evidence of a build-up in underlying inflationary pressures in the euro area.

However, not least in view of the risk of second-round effects from ongoing oil price increases, the Governing Council continues to monitor the development of inflation expectations very closely.

At present, particular vigilance with regard to upside risks to price stability is warranted.

In some countries, targets for correcting excessive deficits are at risk.

However, the balance of risks to the baseline inflation scenario is tilted to the upside.

The liquidity situation in the euro area remains ample by all plausible measures, indicating risks to price stability over medium to longer horizons.

More fundamentally, the main risks to the inflation outlook stem from potential second-round effects in wage and price-setting behaviour triggered by ongoing oil price rises.

Risks to this new baseline inflation scenario are on the upside and relate to potential further rises in oil prices, administered prices and indirect taxes.

On balance, risks to the economic growth projections continue to lie on the downside, and relate to higher oil prices, low consumer confidence and concerns about global imbalances.

Because, undoubtedly, the risks have been augmented, not only by the price of oil but also by the increase in the price of oil commodities.

Mr Trichet, do you consider the impact of high oil prices on inflation a one-off effect or is this a permanent risk to price stability?

And how is the risk of asset price inflation?

We are, in the Governing Council, saddened by the terrible events in the United States and that are proving again that risks can materialise in all domains in a terrible fashion.

This is the reason why, even in the present circumstances, with undoubtedly a big difference between the previous projections and the present projections, and taking into account all the risks that I have mentioned, it is nevertheless our opinion that there is today no case for increasing rates.

We have exactly the same judgement as we had before, but since then, downward risks to growth have appeared, and these are undoubtedly associated with oil prices in particular, but not only oil prices, as I just said, also commodity prices in general.

But there are risks, and of course the oil price increases are one of the obvious risks to growth.

And I would underline that it is the responsibility of China, it is the responsibility of the Central Bank of China, it is the responsibility of the Chinese authorities to take decisions in this respect, and that, in any case, seen from an objective standpoint it seems to me that the facts, the figures, the overall international and Chinese environments, as well as those of other countries, suggest that it would be in the interests of all to continue the move in the same direction.

The latest projections constitute considerable upward revisions to the Eurosystem staff inflation projections published in June, reflecting the fact that oil prices have once again increased by more than was suggested earlier by forward rates.

They said that they will decide to put a time limit on the mandate of the Governor, which does not exist and which you suggested.



2005-10-06, 65 sentences

And third, just on Mr Fazio and the issue of banking supervision: The ECB has a Code of Conduct that is supposed to cover the conduct of the Governing Council 's members ; if the ECB makes no apparent effort to check whether this Code is being adhered to in the spirit and the letter, what is the point of having such a code?

If it appears that these positive elements are materialising, then they will be part of our overall analysis and it is clear that it will be incorporated in the overall perspective for price stability in the time to come.

While no detailed information on developments in the components of HICP in September is available as yet, it appears that oil price increases have again played an important role, this time exacerbated by a much stronger increase in petrol prices owing to exceptional capacity constraints at refineries following the two hurricanes in the United States.

I said that, taking all things into account, we had some signs that our own staff working assumption was materialising.

If growth materialises, of course it will be an element that is part of our working assumption, but I remain cautious and prudent.

And my second question is about reforms: Do you believe that some governments have squandered an opportunity to undertake reforms and relax monetary policy and are you alarmed about events such as strikes in France and a formation of a grand coalition in Germany which threaten to further slow the progress of reforms?

We are, in principle, against one-off operations because we believe that they do not help at all.

As a general rule, the ECB does not like one-off operations because we believe that then there is a problem: you have it good for one year and it 's not good for the following year.

Of course, because of these levels -- the nominal levels, as I have already said -- we believe that there is an absolute need to be strongly vigilant as regards precisely these second-round effects, which can be much more lasting and are our worst enemies.

Because, again, we believe that this is our mandate, and because this would then immediately disanchor inflationary expectations.

As regards the inflationary expectations, we have to remain very prudent and cautious, but until now the surveys have been confirming their correct anchoring.

Just a quick question for clarification.

I was just wondering if you could tell us why you chose the phrase" strong vigilance '' today.

In line with our staff projections, recent survey indicators, on balance, support the view that economic growth could gradually pick up from the second half of this year onwards.

Could I just ask if you will release that report?

When we thought about creating the euro, nobody could have imagined that 311 million people in the euro area would have had access to such low 10-year market rates.

My question has nothing whatsoever to do with Mr Fazio 's person, but, in the name of transparency, could you tell us how the ECB monitors the conduct of the Governing Council members?

Economists, such as Jean-Paul Fitoussi, consider that the euro could be used as a tool to promote economic growth in the euro area.

I would like to know if this document has been given to Mr Fazio or if you will give it to him, and if you could go into detail about it?

On the first question, I have already responded several times, so again: everybody knows that we could move rates at any time.

The reason we have such low rates is in particular because we are credible, as far as price stability is concerned, over the next ten years ; and I could say also over the next 30 years, or even the next 50 years !

You also said let 's see how Bulgaria will join the European Union and then we could embark on such an assessment.

And I would say that in some cases yes, it could be good to have nominal wages and salaries moving more slowly than the labour productivity increases.

As regards Mr Fazio, I will only mention that we have taken a decision regarding the draft legislation and I could comment on that if I have a question on the draft legislation.

If a gradual normalisation in this market segment is confirmed, an unwinding of the sharp increases in spreads between oil prices and refined products could materialise.

The pros and cons of a rate cut could have been envisaged by some, yes.

You could have seen, as we have, some surveys that are encouraging, but we have to remain cautious.

I will not, because it depends on a number of parameters, give you any figures now, but it will go higher -- that is absolutely clear -- in the months to come.

Second, there is an institution that is entitled to decide on such matters, and the relevant institution in this matter is Eurostat, which depends on the European Commission.

Second -- again it is a question which has to be checked, examined in detail and decided upon by Eurostat, which depends on the Commission itself.

Over the past two weeks you may have seen that we have observed rates on ten-year government bonds in some countries of the euro area as low as 3%.

Second, it is the Governing Council 's opinion that a fixed term of office should also apply to the other members of the Banca d'Italia 's Directorate -LRB- the" Direttorio '' -RRB-, comprising the Director General and two Deputy Directors General, since they may be involved in the performance of ESCB-related tasks.

A couple of questions, if I may.

I know that the European Commission, as you may know yourself, is also examining the situation.

In the Governing Council we consider all of these 311 million people, just as the Federal Reserve in the United States takes simultaneous account of Massachusetts, Florida, Alaska and California, all of which may have very different situations, as they historically have had.

If I understood you correctly, you said that you discussed the pros and cons of an increase today ; you discussed the pros and cons of leaving rates unchanged ; and that the pros and cons of a rate cut may have been envisioned by some.

This may be, at least partially, due to wage rigidities, such as an explicit or de facto indexation of nominal wages to prices or high reservation wages determined by the level of unemployment benefits, and to a lack of competition in some sectors.

In this respect, the flexibility within the euro area may well have been underestimated in its early phase of existence.

It must be understood that some differences in ULC growth rates are a natural feature of a well-functioning monetary union, as these may reflect catching-up processes or necessary adjustments to past shocks.

Hence, these increases may be only temporary.

And this is a little bit different from the previous language, you might remember, in the previous Governing Council meeting.

One is to recognise that the flexibility within the euro area in terms of cost competitiveness is perhaps superior to what some had envisaged before the euro area was set up, meaning that there can be some important moves up or down in the relative cost competitiveness of the various economies.

When Bulgaria has entered the European Union, then the first question which will perhaps be asked of the ECB will be whether or not it is opportune to enter the exchange rate mechanism, and I can not respond in advance, so I can only confirm what I said.

Third, once the draft article have been fully implemented the state will be the majority -- and perhaps almost the sole -- shareholder.

First, the Governing Council welcomes the draft article, which provides that the Governor will have a fixed term of office of seven years, without the possibility of renewal.

A month ago, in a press conference in Frankfurt, you were asked to comment on the possibility for Bulgaria to join the euro area in 2010.

In addition, possible further increases in administered prices and indirect taxes have to be taken into account.

On the second point I will only say that our position is crystal clear: we really think that implementing structural reforms all over the euro area will make it possible to elevate the level of the growth potential of the euro area, and this elevation of the growth potential is necessary if we want to have, again, more growth and more job creation.

On the question on whether or not we discussed it -- we discussed clearly the situation and we envisaged advantages and inconveniences associated with the possible decisions we could take.

In the light of the changes to the shareholders ' composition, the election procedure for the members of the Board of Directors -LRB- the" Consiglio Superiore '' -RRB- should be clarified and possibly simplified.

Upside risks to this scenario have, however, increased.

This outlook for economic activity remains subject to downward risks, relating mainly to oil prices, concerns about global imbalances and weak consumer confidence.

At the same time, strong vigilance with regard to upside risks to price stability is warranted.

Strong monetary and credit growth, in the context of an already ample liquidity situation in the euro area, points to risks to price stability over medium to longer horizons.

Domestic inflationary pressures over the medium term still remain contained in the euro area, but significant upside risks have to be taken into account.

Moreover, the monetary analysis identifies upside risks to price stability over the medium to longer term.

We look at the average for the whole of the euro area, so I would say that, as an average, and despite the fact that in Germany the figures are very depressed, we nevertheless have figures that are on the high side, and that is one of the reasons why we have to consider upside risks and have to be strongly vigilant.

But we do consider that all the elements that we have are indicating that risks to price stability are on the upside.

But, as I said clearly, the risks for us are on the upside, and it is absolutely clear that we have reinforced the message of vigilance.

And we concluded that the present rates were still appropriate, that upward risks to price stability were augmenting, and that we were in a posture of strong vigilance.

And second, you talked a lot about the upside risks to inflation, but you also talked about growth picking up.

We consider that the risks to price stability are on the upside.

But, again, we consider that strong vigilance is appropriate because we are now clearly facing upward risks to price stability.

These relate to ongoing uncertainties surrounding oil market developments, to a potentially stronger pass-through than has so far been observed, on account of higher oil prices being passed on to consumers via the domestic production chain, and to potential second-round effects in wage and price-setting behaviour, all of which play an important role in our assessment for price stability over the medium term.

Temporarily, further uncertainty arose as to the economic effects of the recent hurricanes in the United States, which assessments, in the meantime, have generally suggested to be limited and short-term.



2005-11-03, 77 sentences

The problem, on the contrary, if you want to solidly anchor inflation expectations -- particularly in the medium and long term -- is that you have to be able to anticipate.

Although economic growth has been dampened by the marked increase in oil prices over recent quarters, it appears that the euro area economy has shown considerable resilience to this shock, supported also by responsible wage-negotiating behaviour.

As regards the monetary aggregates ; as regards the components of the monetary aggregates, including M1, which is very dynamic ; as regards the counterparts of monetary aggregates, including loans to the private sector, which are very dynamic ; as regards our working assumption of a second semester, which would demonstrate a certain pick-up in economic activity.

Everything that we have seen since then has confirmed that our working assumption was well-founded.

Everything we have seen since Athens has confirmed the working assumption we made there.

But so far there is nothing to contradict the working assumption.

We have a number of indications that confirm this working assumption, including various surveys, industry PMI, service PMI.

A disappointing first semester and a second semester, which would be more in line with this assumption of a pick-up in economic activity.

This assumption underlies our forward-looking assessment of price developments.

It is clear that the working assumption I have mentioned, which is the working assumption of the staff of the ECB, is also the working assumption of all international institutions.

I am exactly in the" mood '' of Athens with the additional message that everything we have observed since then has confirmed the working assumption we made in Athens, both in terms of risks that are increasing and in terms of a pick-up in activity.

So I believe that we were instrumental in moving a bit the state of the art in this respect.

In light of the ample liquidity in the system -- continuing to enter the system -- do you believe that this rate has served its purpose in exactly what it is the benchmark rate is supposed to do?

First question: Yes, we believe that the 2% level that has been maintained for a substantial period of time has been the right response by the ECB to the various situations in which we found ourselves.

To your first question, it 's absolutely clear that we believe that we handled these difficult circumstances very well.

Can I also ask whether the ECB believes, as a matter of policy, does it believe in pre-emptive strikes?

I still remain cautious and prudent.

My last question is just a clarification: You say here on the first page of the Introductory Statement that the euro area economy has shown considerable resilience to this shock -- that is the oil shock -- supported also by responsible wage negotiating behaviour.

And we could observe during the last months a certain tendency to go up.

And my last point is the following: Without prejudice to the outcome of the current proceedings in Italy, as a result of its informal dialogue, the Governing Council has come to the conclusion that the procedures followed in the context of the recent cross-border takeover bids concerning Italian banks were based on a national legal framework that allows for a degree of discretion that could be used in a manner which is not necessarily in line with the above-mentioned principles and objectives of the Community.

We, the Governing Council, have a position: we say clearly that - as you mention yourself - under the national legal framework there is a degree of discretion that could be used in a manner that is not necessarily in line with the above-mentioned principles and objectives.

Again, as regards the national law in question, we consider that it allows for a degree of discretion that could be used in a manner which is not in line with the principles to which we are attached.

Could you specify which countries you are referring to?

If there were only one or two I could specify those two countries.

It would be even much better if you could do it in a very effective and active way.

Could you tell me of the need for vigilance on price stability -- is it stronger now than it was a month ago?

We mentioned the modification of the current draft to allow for collegiality, which would be desirable, and without prejudice to the outcome of the current proceedings in Italy, as a result of its informal dialogue the Governing Council has come to the conclusion that the procedures followed in the context of the recent cross-border take-over bids concerning Italian banks were based on a national legal framework that allows for a degree of discretion that could be used in a manner that is not necessarily in line with the above-mentioned principles and objectives of the Community to which the Governing Council is attached.

In this case, I would like to know whether you are worried about the real estate bubble in the United States and whether you think that the situation could get even worse and if it were to get worse, would you change your position?

President Trichet, as you, in the Governing Council, weigh the pros and cons of raising interest rates and compare the pros and cons with last month and the pros and cons with this month, could you give us a sense of how those lists of pros and cons are going?

So, all I could say, is that at a global level there is very large consensus and we are part of this consensus which considers that the risks that are at stake are the oil price, which is a very important risk.

They are very much deciding after reading your excellent articles, because they depend very much on the information they have and the overall environment including, of course, your own communication.

Because global prosperity depends very much on the absence of protectionism and the least that I can say is that we are looking here and there and we see some emergence of this risk, which is extremely unfortunate.

Otmar Issing called communication some years ago at the London School of Economics" the hidden pillar of the ECB strategy ''.

Or that there are some laws and a framework that may leave a degree of discretion?

I have a couple of short questions that maybe only require a" yes '' or" no '' answer.

As regards the position of the Governing Council on the Italian case, I am not speaking of the position of any particular Member of the Governing Council, including a few that might have expressed themselves.

We might have some indications that were obviously less flattering on the consumption side.

So, in our own judgement there is no contradiction between being faithful to our mandate and supplying Europe what it might need in terms of growth and job creation.

We were called on to say and to promise the market that we would not move for a" considerable period of time '' -- you might remember that -- by a variety of economists, by a variety of good advisers.

While some developments might prove to be transitory, markets expect oil prices to remain at high levels, driven mainly by buoyant global demand and, to some extent, by fragilities on the supply side.

So, if you need some other information perhaps you could communicate to me what your assessment is of what the market is doing.

Second, we had a very nice discussion, again, weighing the pros and the cons which were associated with the two possibilities I already mentioned, and we came to a consensus.

In addition, possible further increases in administered prices and indirect taxes have to be taken into account.

We also agree that we have to correct them in the most resolute way possible.

From that standpoint we are looking at all possible information, particularly the break-even inflation.

We are very keen on having the closest possible harmonisation and cooperation between the various authorities concerned.

We consider the monetary pillar as being very important for us, particularly as we had to organise the transition to the euro in a fashion which was extraordinarily ambitious, because we had to ensure that the euro had the highest possible level of credibility.

We try to do as well as possible, thanks to you also, in terms of being transparent and communicating in a world which is complex.

If possible, could you please provide an assessment of the global economy, including the US, for next year perhaps?

And we have particular difficult - as you know - because the futures market for instance is not a good predictor.

It is probably unavoidable that some sentences have been tougher than others and so forth.

You know that our present action, according to the mainstream academic research, would probably start having real influence over a period of perhaps 18 months, perhaps two years, and will continue to have influence over a longer period of time.

We therefore urge countries with fiscal imbalances to give priority to their timely correction and to implement the revised Pact rigorously.

Further delays in the correction of excessive deficits and a continued inclination to look for the most lenient way to implement the procedural steps of the revised Stability and Growth Pact risk undermining the Pact 's credibility.

Strong vigilance is of the essence in our eyes and we clearly see increased risks to price stability.

-LSB- Enough words, let 's see action -RSB- Is n't that a risk also in the communication strategy?

Is n't there a risk of credibility?

We will never -- and I trust that no central bank would -- wait for the materialisation of these risks to act.

Today, and as I said in Athens -- and we referred explicitly to the Athens judgement and assessment - we think that present interest rates are still appropriate, that strong vigilance is of the essence in the present situation and that inflationary risks are on the upside.

M3 dynamism is indeed very closely associated with loan dynamism as a counterpart and that is one of the main reasons why we consider the risks to price stability to be clearly on the upside.

We see very low spreads, we see very low risk premia and this is of course an element which has to be looked at carefully because it is not necessarily sustainable over the long run.

We have undoubtedly another risk which I have to mention which is protectionism.

Moreover, the monetary analysis identifies increased risks to price stability over the medium to longer term.

We remain, however, concerned about the medium-term upside risks to this scenario.

The monetary analysis also points to increased upside risks to price stability over the medium to longer term.

Domestic inflationary pressures over the medium term still remain contained in the euro area, but significant upside risks have to be taken into account.

Despite some welcome progress with fiscal consolidation, the outlook for countries in excessive deficit is a matter of great concern, as there is a risk of consolidation not proceeding and commitments for this year and next not being met.

At the same time, the outlook for economic activity remains subject to downward risks, relating mainly to oil prices, concerns about global imbalances and weak consumer confidence.

At the same time, strong vigilance with regard to the upside risks to price stability is warranted.

There is a last element which I have to mention which has been mentioned by the financial stability forum as a major risk, which is the under-pricing of risks in the global economy at the present moment, at least till now where we see very low real interest rates.

It is also, from that standpoint, absolutely clear that we have to look permanently at the risks, and particularly the upside risks, of inflation.

This time I think you used it much less but it seems to me that you used the sentence" we can move at any time '' much more often.

Can we infer from that that you do place some importance on leaning forward somewhat and anticipating these sorts of inflationary pressures before they arrive?

This suggests a more lasting impact of energy prices on overall price developments.

Moreover, the latest indicators suggest that economic activity is currently strengthening.

As we stressed a month ago, these relate to ongoing uncertainties surrounding oil market developments, to a potentially stronger pass-through than has so far been observed, on account of higher oil prices being passed on to consumers via the domestic production chain, and to potential second-round effects in wage and price-setting behaviour.

In the communiqué you said that you were looking at the situation and there 's a lot of uncertainty at the moment.



2005-12-01, 77 sentences

So, where monetary policy is at stake, there is absolutely no ambiguity.

As regards your first question to the extent that the short-term market rates had already anticipated our today 's move this move was incorporated in the Eurosystem staff projections.

While it is difficult to quantify precisely this effect, it would appear inappropriate to exclude energy from the price index and at the same time retain other items, such as internationally traded manufactured goods.

Among those people who are looking at what we are doing and taking decisions on a day-by-day -- even a minute-by-minute -- basis, you have non-euro area residents holding approximately EUR 3.5 trillion in negotiable instruments and liquid deposits.

Second, as regards the banking conference in Frankfurt which took place approximately a fortnight ago, I did not stand up, I was there at the banking conference, I had been invited, I was on the spot, and the Chairman of the panel, Mr Walter, asked me" could you tell us, Sir, what we need to know and to understand on interest rates and the monetary policy of the ECB ''.

I assume that the projections that you will release today do not incorporate today 's interest rate decision.

Underlying these projections is the assumption that wage increases will remain contained, as has been the case over recent quarters.

On a shorter-term basis, namely for next year for instance, there is also quite a large sentiment -- but, again, I am very cautious -- that perhaps we are just below 2%.

The first question I would really like to ask is about the future direction of the European Central Bank 's policy and I was wondering if you could tell us a bit more about how much accommodation the European Central Bank still sees left in its monetary policy and how much of that accommodation needs to be withdrawn to ensure price stability over the medium term?

Because of our remarkable own credibility we could deliver this extraordinary low level of rates, which had been the privilege of only a part of Europe and not the privilege of 311 million people.

Just a follow-up on that last point: I think it would be helpful to lots of people if you could give us your account of how the debate has evolved within the Governing Council in recent weeks and months.

Could you give us an idea what would be a rate, or a range of rates, of wage increases that you would think in line with price stability?

And also, could you give us a bit of a sense of how the debate was within the Governing Council?

Who would have thought that I could stand here in front of you and tell you that over the past five years we have had the same level of medium and long-term market rates -- not to speak of the short-term rates -LRB- we are lower as regards the short-term rates -RRB- -- as the best and most credible currencies.

Taken together, the programmes show a welcome political commitment on the part of the Member States and the Community, which could give renewed impetus to the implementation of structural reforms.

And the market people -- the specialists observing what we were doing, looking at our website -- could see that there was no change.

Given your remarks today as well as your remarks last week before the European Parliament about the ECB not having any catching up to do, I am wondering if you could clarify something for us a little: are we supposed to see today 's move as a one-off measure for now or is it part of a broader policy shift towards a gradual removal of accommodation for the economy?

Mr President, could you give us an idea of what percentage the effect of the German VAT increase contributed to your inflation forecast for 2007 and -- a second question, if I may -- could you give us an idea of where you see a neutral rate, even if you are saying now that there is not ex ante decision to approach it, but which range could we think of?

Could we make a distinction between the long-term level of interest rates, which you have noted are historically low, and the effect of a price increase on the tentative recovery in Europe?

And then the extent to which there would be a specific impact in a given country depends on a variety of other factors that influence economic activity in that country as well.

An additional remark we made was that there is now little doubt that a large part of what we are observing in the oil prices and in the commodity prices is a demand-driven process, that is, coming largely, but not exclusively, from emerging Asia and is also producing a lot of consequences in the manufacturing sector.

And if I may ask one other question on your profile for inflation, has inflation now peaked?

Maybe you have never used the word" record '' low, but the lowest since the establishment of the Bundesbank.

You might remember that we had indicated that we were in a mode of strong vigilance in Athens and I remember that all of you noted that the sentiment of the Governing Council was different in Athens in comparison with what it had been a month before.

You might note that this is the criticism made by the ECB Shadow Council, which includes a former head of the Monetary Policy Stance Division of the ECB.

If I am not misled -- but perhaps I was reading things too rapidly -- they were divided: ten on one side and eight on the other side.

It would apply rather to the much longer term -- 20 or 25 years -- taking into account very poor evolution of demography and perhaps also the very negative working assumption that structural reforms are not being done.

In this connection, perhaps you could tell us a little about your level of vigilance going forward?

Some perhaps could have imagined that we would have gone higher, and others perhaps would have thought before the discussion that we could wait a little longer.

At that time, there were so many voices speaking on interest rates, not inside the Governing Council but outside of it, that perhaps some of you might have had trouble understanding exactly what was happening, and I thought that it was appropriate to provide this information.

If you eliminate all those prices that are pushed up and maintain in your understanding of inflation those which are pushed down, perhaps it is not fair ; perhaps it is better for demand-driven change in relative prices to look at the full picture and not only at part of the picture.

But I will tell you -- because you are offering me the possibility of making the point -- that what we do is to cope with the risks we see.

Collegial wisdom implies that you exchange all possible information, arguments and analyses.

Second, you have emphasised, as you have many other times, that you need to be as transparent and predictable as possible in your actions.

We discussed all possible arguments and exchanged views to be sure that we were taking the best decision.

For this question I would like to have a comment from Mr Papademos as well, if possible.

I have said, as clearly as possible, what we thought and what our own understanding of the situation was.

We try to be as transparent and predictable as possible.

It is perfectly possible that 2.25 has the same characteristics !

Again, before the euro was set up nobody was predicting that we would be as credible as the most credible central banks.

... but is this an increase in predictability...

On predictability, we were very proud to be one of the most predictable central banks of the world, perhaps I could say" ex aequo '' with a great sister institution -- perhaps the most predictable -- and we will continue to be highly predictable.

... no, I am not sure it is an increase in predictability It is an implementation of predictability.

In the introductory remark, we mentioned the fact that, from time to time, we hear voices mentioning that core inflation -- that is, their definition of core inflation -- is the best predictor of future inflation.

However, there are a lot of cases where core inflation is not a good predictor.

There are cases where core inflation is a good predictor.

It is therefore very misleading to trust that core inflation -LRB- of which there are various definitions -RRB- is always a good predictor.

It has also never happened before that a board member has said a day before the Council meeting that it was highly probable that a move would come, as Mr Bini Smaghi said yesterday.

Probably, what I am telling you now is an emerging consensus amongst our own constituency of central banks.

When I take the analysis of the OECD, the IMF, the Commission, our own analysis, the private-sector analysis and so forth, I would say, as regards the medium and long-term growth potential, that the previous appreciation was that it was between 2% and 2.5%, and now there is probably a sentiment -- again, I am cautious as you see -- that we are closer to 2%: 2% plus something which is meagre, 2.1%, 2.2% perhaps ; but closer to 2% than 2.5%.

In comparison with the September 2005 ECB staff projections, the ranges projected for real GDP growth in 2005 and 2006 have been revised slightly upwards.

Our decision to increase interest rates was warranted so as to adjust our accommodative monetary policy stance, while taking into account the risks to price stability that we have identified in our economic analysis, cross-checked by our monetary analysis.

We will continue to monitor closely all developments with respect to risks to price stability.

At the same time, the outlook for economic activity remains subject to downward risks, relating mainly to higher than expected oil prices, concerns about global imbalances and weak consumer confidence.

In the view of the Governing Council, the main scenario for price stability emerging from the economic analysis remains subject to upside risks.

Evidence pointing to increased upside risks to price stability over the medium to longer term comes from the monetary analysis.

To sum up, increased risks to price stability identified by the economic analysis have been cross-checked with the monetary analysis.

However, in countries with fiscal imbalances, the speed of consolidation is disappointingly slow and there is a high risk that commitments are not being met.

We judged that the risks to price stability were increasing, were on the upside, and I made that very clear in responding to questions.

Today we have judged unanimously that the increased level of risks to price stability embedded in the situation were such that today 's correction was necessary to fulfil our mandate and to maintain the full credibility that we have.

And, as I have said, we will continue to monitor closely all developments with regard to risks to price stability.

And then it is added that one should wait for the materialisation of these risks.

From time to time, I am told that these risks do not actually materialise.

We will look at the facts and figures, make our judgement on the risks to price stability and take the decisions we will judge appropriate to deliver price stability.

We will monitor all developments closely, as I have said, with respect to risks to price stability.

We confirmed the view that risks were on the upside and had augmented at the press conference and in the introductory remarks a month ago, and that was again noted by everybody.

But if a risk materialises, it is no longer a risk !

So, here we are doing something that we consider to be exactly appropriate to cope with those risks and to avoid a materialisation of those risks.

Such risks relate to uncertainties arising from oil market developments, the pass-through of previous oil price increases to consumers via the domestic production chain, the possibility of second-round effects in wage and price-setting behaviour, as well as further increases in administered prices and indirect taxes.

And I will refer to what seems to me to be some kind of emerging consensus.

In English it would be -- it seems to me --" ex ante ''.

You seem to be in a spirit that you would be alarmed if it was going higher.

And the second question refers to the communication in front of the first press conference in November and the press conference today: historically, you had this idea that the week before the meetings no one on the Governing Council would speak to the public about monetary policy and, suddenly, that was broken in November as well as in December.

Suddenly, a fortnight ago, we as observers were surprised by a statement in front of the banking congress.

Owing to the same forces of globalisation, these goods currently exhibit little upward movement in prices and even suggest a downward trend.

Because it was suggested we do this or that.

This is very unclear, because last time some people thought it was 1.5%, and second, I have the impression that your strategy, as far as announcing interest rate change is concerned, has changed to become somewhat clearer and more predictable.



2006-01-12, 49 sentences

As regards the economic situation, we will see whether the working assumption continues to be confirmed.

Until now, everything that we have seen has confirmed our working assumption on the progressively more favourable conjuncture.

We will see again what the present state of the economy is, whether our working assumption is confirmed.

Taking into account both so-called soft figures -- surveys, polls -- and hard figures, I would say that the bulk of information received since our last meeting confirms our working assumptions.

All the information we have received since December has confirmed our working assumptions.

Second, all the information at our disposal since our decision of the beginning of December confirmed our working assumption that we were progressively reaching a rate of growth in the euro area that was close to potential, at potential or around potential.

Could you elaborate on that please?

Our credibility depends on everyone knowing that we do not hesitate to act when necessary, and we have demonstrated that recently.

We, of course, remain pragmatic -- we depend on facts and figures that we examine very carefully, as always.

There is no doubt in the mind of any market participant, observer, investor and saver that we will act and do what is necessary when it is necessary.

Beyond the short term, indirect effects of past oil price rises on other components of the price index may gradually materialise, and already announced changes to administered prices and indirect taxes can be expected to have an upward impact.

So I do not want to comment on one particular prior indication that the fourth quarter in one particular country might have been different from what was expected.

I add that perhaps each of us has his or her own way to mention the fact that we will monitor all developments very closely.

First, since the ECB looks at medium and long-term developments, was there any discussion today about the possibility of slowing US growth and global growth in the latter half of the year?

Is it possible that this is due to inflationary pressure diminishing at a global level and to the rise in the euro?

It is always time to be as sound and reasonable as possible in terms of protecting real wages.

From that standpoint, I confirm that, from our own perspective, the message has been well-received and interpreted, including as regards what is presently in the market for possible future decisions.

We were very proud because, as you know, it was a unanimous decision of the Governing Council of the ECB which made it possible to get out of a situation which was obviously very difficult.

I would not embark on any kind of" gossip '' in answering the part of your question which relates to how we should act in view of possible risks stemming from a slowing down of the global or US economy.

Was there any discussion today about possibly pre-announcing rises in months to come?

But I know you put a lot of value on predictability.

We are presently at a level which some are saying is a bit lower than what they had in mind and then it will probably go upward only for the arithmetical reason that it will incorporate the most recent upward move.

In 2002 the ECB laid out a revised voting plan for when new countries join the euro, and it would give more weight to bigger countries in the euro area.

As regards the imbalances, we consider that they are a risk to global growth and, of course, to economic growth in Europe too.

Is this a risk and are you prepared?

Will this year pose a risk for you and for the world economy because the gap in the interest rates is narrowing this year?

There are concerns about the risk of global imbalances.

We will monitor very closely all developments with respect to risks to price stability over the medium term.

On the sentiment of the Governing Council, I will only repeat what I have already said: we will continue to monitor very closely all developments with respect to risks to price stability over the medium term and take the decisions that will be necessary.

On the two first points there is clearly a risk which we take note of.

Second, I mentioned on behalf of the Governing Council that risks to growth existed and that they were on the downside.

I noticed your words, your language today that risks to price stability will be '' monitored very closely ''.

It is clear that if the economy develops and continues to be at a level of growth which is significant, then it augments the risks to price stability that I have mentioned.

Those risks have fortunately not materialised ; but they exist, and that is the reason why we gave this message.

As regards our discussion: as always, each one of us is weighing the risks to price stability.

Accordingly, we will continue to monitor very closely all developments with respect to risks to price stability over the medium term.

It is essential that such risks do not affect medium-term inflation expectations, which need to remain firmly anchored at levels consistent with price stability.

It also indicates that risks to price stability over the medium term remain on the upside.

Strong monetary and credit growth in a context of already ample liquidity in the euro area points to upside risks to price stability over medium to longer horizons.

Risks to this scenario remain on the upside and include further rises in oil prices, additional increases in administered prices and indirect taxes, as well as -- more fundamentally -- potential second-round effects in wage and price-setting behaviour.

With interest rates across the whole maturity spectrum remaining historically low in both nominal and real terms, and with our monetary policy stance remaining accommodative, we will continue to monitor very closely all developments with respect to risks to price stability over the medium term.

I myself recently expressed the same sentiment on behalf of the G10 at the global economy meeting in Basel: that it was one of the risks that we had to take into account when analysing and listing the risks to global growth and to growth in each particular component of the global economy.

Risks to this outlook for economic growth continue to lie on the downside and relate to high and volatile oil prices, concerns about global imbalances and the level of consumer confidence in the euro area, although the latter is improving.

President Trichet, if I have interpreted your statement today correctly, it seems you 're much more confident about the outlook for growth in the euro area this month.

There are some economists who say that inflation in the medium term is coming down somewhat quicker than you expected.

Turning to the monetary analysis, the annual growth rate of M3 moderated somewhat in November, but remained very robust, mainly owing to the stimulative impact of the prevailing low level of interest rates.

To sum up, the economic analysis suggests that some upward impact on HICP inflation will result from the indirect effects of recent oil price rises and already announced changes to administered prices and indirect taxes.

So, if you look at the price of oil, which is obviously very volatile, and then make projections using these different levels of the price of oil over a short to medium-term horizon, of course you find different levels of inflation.

But because there have been downward moves in the price of oil recently followed by upward moves, we expect the profile to be volatile.



2006-02-02, 66 sentences

This moderation can be explained in part by an apparent resumption of the unwinding of past portfolio shifts, which exerts a dampening effect on headline M3 growth.

Economic activity started to improve and broaden in the second half of 2005 and, on the basis of the latest indicators and survey data, it appears that this process has basically continued, taking into account the usual degree of volatility of quarterly growth rates.

Meanwhile, wage dynamics have remained moderate over recent quarters and are assumed to remain so for the time being, reflecting, in particular, global competitive pressure.

Looking at all the information we have and taking into account our baseline scenario that assumption has been broadly confirmed by all what we have observed.

I would say that our working assumption on growth has been broadly confirmed by all what we have observed.

Can you tell us whether you believe that risks to price stability have escalated since 12 January?

Let 's also be cautious about that distinction between soft and hard.

Mr Trichet, I need some clarification.

You could also have mentioned, of course, a lot of information which were much more encouraging, including a number of surveys from all over Europe, not only this country in particular.

While clearly we are not in the same situation in Europe as several years ago in the United States, there have been strong rises on the European stock markets in recent weeks and months and I was wondering whether you would care to offer any opinion on whether European stock markets fully represent fundamental values or whether they could be overvalued at this stage?

We heard the news today that there could be a strike in the public sector.

I wondered if you could tell us what effect that has had on the accommodative level of monetary policy.

I wonder whether you could give us your assessment of how you consider those external factors when judging countries that otherwise have a very good record on the criteria that countries need to meet to join the euro?

Could you tell us a little bit about your expectations for consumption this year, and does the Council believe that euro area consumption will improve significantly this year?

It could have been a possible interpretation, because, as you know, another major central bank had embarked upon such a concept.

Mr Trichet, I was wondering if you could tell us a little more about downside risks to growth and whether you think that they have diminished at all over the past three weeks?

But we think that it was exactly what we had to do and there is no doubt about that.

And I think that your colleagues have no doubts about what I have said.

To the extent that what is at stake is the position of the ECB itself and if there is any doubt on the ECB position, yes, you got it perfectly right.

First of all, Arcelor and Mittal Steel are not in the services sector, if I may say so we will not discuss that at all.

Looking further ahead, indirect effects of past oil price rises on other components of the price index may gradually materialise, and already announced changes to administered prices and indirect taxes can be expected to have an upward impact on HICP inflation.

Do you see a chance that you may come closer to the Federal Reserve System on the notion of anchoring price stability?

I will not comment in any other fashion on what we in the Governing Council may do.

Over the short term, annual inflation rates may again increase somewhat, reflecting in particular renewed increases in energy prices and some base effects.

Maybe you can help us.

And, also, am I right in thinking that the Governing Council has taken a decision consciously or maybe not consciously, that any increase would always be a 25 basis point increase?

Maybe I missed part of your initial sentence.

Second, as always, we have weighed thoroughly the assets and liabilities associated with various possibilities, and we did that as thoroughly as usual.

I do n't of course rule out the possibility that we could decide at that time, but there is certainly no rule and it has to be very clear.

You said in December that it was perfectly possible that 2.25% has the same characteristics as 2% because of other factors that affect the accommodative level of monetary policy, and I wanted to ask you whether this has panned out: has monetary policy become, in effect, more restrictive?

So I am looking forward to our continued cooperation ; and, of course, within the Eurosystem, the Banca d'Italia is a very important member of the team, and we will continue to maintain the closest possible relationship with this institution, in line with the team spirit which characterises the Eurosystem.

I was very happy to congratulate him when he was nominated and then appointed, and I am sure that we will continue to have the closest possible relationship on both sides of the Atlantic.

We want to be as comprehensive as possible in the economic analysis.

We also have the issue of labour productivity progress that is lower probably precisely because the single market has not been achieved in this domain.

You have a hard figure at a certain point in time, then one month later it is reviewed and revised and it goes up or down, and then two months later it is again revised up or down.

It is indeed essential that such risks do not affect medium and long-term inflation expectations, which need to remain firmly anchored at levels consistent with price stability.

Cross-checking the outcome of our economic analysis with that of our monetary analysis supports the case for vigilance to ensure that the risks to price stability over the medium to longer term do not materialise.

Oil prices are on top of the list of risks -- certainly in the eyes of this institution, and also in the eyes of all others -- and there is also the issue of imbalances.

It also indicates that risks to price stability over the medium term remain on the upside.

These are the two major risks that I have been mentioning.

Yes, have risks to price stability escalated over the past month since January 12?

I would say, to the extent that we see the development of this ongoing economic expansion, we see risks progressively augmenting

We thought, taking into account the trend of the baseline scenario and taking into account the risks to price stability, according to our analysis of their presence and their dynamics, that it was the right decision not to move this time whilst, at the same time, clearly, we have increased vigilance and I also commented on what is presently expected by markets.

I do n't understand very well how you can say that risks to growth have not increased.

Second point: again, we consider that when we take a decision, be it a decision to increase rates or leave rates unchanged or whatever, we are confident that it is what is needed at the time we take the decision in order to continue to cope appropriately with the risks for inflation.

Risks to this outlook for price developments remain on the upside and include further rises in oil prices, a pass-through of oil prices into consumer prices stronger than currently envisaged, additional increases in administered prices and indirect taxes, and -- more fundamentally -- potential second-round effects on wage and price-setting behaviour.

Overall, strong monetary and credit growth in a context of already ample liquidity in the euro area points to risks to price stability over the medium to longer term.

On the downside risks -- and there I am not on the external, but on the domestic, side of the coin -- I would say that since Q2 and Q3 of last year we have observed something materialising which had been expected for quite a period of time, namely the pick-up in investment.

You mentioned last month that the Council was monitoring price stability risks very closely ; today you used the word" vigilance ''.

Mr Trichet, you just said that to the extent that we see the development of this expansion, we see the risks to price stability augmenting.

Mr Trichet, you said today that risks to inflation are on the upside and that growth appears to be strengthening in line with your scenario, and you have used the word" vigilance '' three times by my count.

If, contrary to expectations, we see no hard evidence of a strengthening economy, of improving consumption, of escalating price risks, can the market assume that interest rates will stay where they are?

And, as we have always said, and as my predecessor always said, we incorporate all pertinent information to see what the risks to price stability are and what the appropriate response is in order to cope with those risks.

As regards the risks to growth, I have mentioned that it is on the external side that we see the major risks.

The first, you mention external risks when talking about downside risks to growth.

As regards the risks, I explicitly mentioned the downside risks for growth and the international risks that are there and should not be forgotten.

Downside risks to economic growth, relating, in particular, to persistently high and volatile oil prices and concerns about global imbalances, still dominate on the external side.

Delaying consolidation would be both inappropriate in the short term and risky in the longer term.

Second, as regards the market expectations for future action in a short period of time -- what I am observing seems to be reasonable.

That being said, I have added today that what I see as regards the very short-term expectations of future moves seems to be reasonable, taking into account all the information I have.

All I would say is that, from the information I would extract from stock market -- over the period of time you have in mind -- what I call our baseline scenario seems to be confirmed and certainly not negated.

As regards fiscal policy, recent information points to somewhat better than expected outcomes for 2005 in a number of countries and for the euro area as a whole.

There is an impression in the market also because there are speculations that at the next meeting in March you will have ECB projections and the interest rates may change.

To sum up, the economic analysis suggests that indirect effects stemming from past oil price rises and already announced changes to administered prices and indirect taxes can be expected to have an upward impact on annual HICP inflation over the coming years.

Overall, opening up the services sector to new entrants would tend to foster more efficient and flexible services markets, facilitate adjustment processes and increase the resilience of the euro area to economic shocks.

In reply to the first question, in the introductory remark I mentioned that there was a certain degree of volatility from quarter to quarter.



2006-03-02, 75 sentences

You appear to have dropped the word ` vigilant '.

They are not necessarily fully satisfied with the present level of inflation, as appears in a lot of surveys, and they are calling upon us to meet our responsibilities, which are given to us by the Treaty.

Can we therefore assume that if inflation turns out to be maybe slightly better than you are anticipating that there will be no need for further increases in interest rates?

Should I assume that you have a preliminary assessment that inflation will move above 2% in 2008 as well?

I know that they do not necessarily represent the view of members of the Executive Board because they are produced internally within the European Central Bank and, also, the forecasts are based on the assumption that interest rates remain constant which, when these forecasts were calculated, would have been at 2.25%.

Again it is a working assumption that we will have a significant contribution to growth coming through that channel.

At the same time, wage dynamics in the euro area have remained moderate over the recent past ; our working assumption is that this will continue to be the case, due not least to strong global competitive pressures, particularly in the manufacturing sector.

Compared with the December 2005 Eurosystem staff projections, these ranges imply a slight upward revision to the profile for HICP inflation over the coming years, reflecting mainly an increase in the assumption for future oil prices, in line with market expectations.

I believe that the Prime Minister of Lithuania is coming to Frankfurt next week to meet with you to discuss convergence towards euro entry.

We believe that when you look at the immediate, real-time estimate of the output gap, and then you look at the same analysis of the output gap one year afterwards, or two years afterwards, you see such huge differences that you have to be cautious.

I fully understand that a number of observers and economists would look at it, but we are very cautious in this respect.

First of all, I wonder if you could tell us whether anyone on the Governing Council was arguing in favour of a 50 basis point increase today?

I wonder if you could say that circumstances now in several European countries that are trying to protect national industries mean that these rules are not fully respected.

And I would also appreciate it if you could comment briefly on the record high producer prices for the euro zone which we have in January and if you feel that this is appropriately calculated into the ECB staff projections today and if this is a matter of concern?

You can draw any conclusion from past observations, of course, but I have always said that we could act whenever needed.

Could you perhaps explain what that might mean?

I told you that we will continue to monitor closely all developments that could modify our assessment of the risks to price stability.

And again, we will what will be necessary in the future depending on the data, facts and figures.

As I said, we are very pragmatic, we depend on the information that we receive and we will examine all new information as it comes in each month or each quarter.

In the short run, inflation rates are likely to remain at above 2%, with the precise levels depending strongly on future energy price developments, which have recently been relatively volatile.

But some German figures are clearly a good sign, there is no doubt.

It is a stimulative monetary policy -- there is no doubt about that.

Mario Monti in the paper this morning was writing that adherence to the single currency but not really to the Single Market is a recipe for poor economic performance domestically and may pave the way to problems for the euro.

Maybe other steps like this will follow.

At the same time, we have maybe not yet seen the following hard data confirming the soft data.

And maybe an English journalist may get a different answer on the issue of protectionism.

Maybe I might repeat that one and see if we are going to elicit some sort of indication of how vigilant you are feeling today?

There are two messages: first we did not decide today ex ante on a series of monthly increases, as other central banks might have done ; at the same time, we stand ready to do whatever is necessary and appropriate to ensure price stability and anchor inflationary expectations and to continue to contribute, through that anchoring of inflationary expectations, to a favourable financial environment.

So I am just wondering after the strong retail sales data today that we saw in Germany for January -- just wondering if you think we have turned the corner on that and, if not, when you think this might happen.

The second question is, most economic data we have received from the euro zone so far are soft data coming from your asking businesses and consumers about what might happen.

I do n't know whether he might be concerned at all about whether his country is going to meet the requirements, but in 1998 when the decision was taken as to whether the original members of the euro should enter, both Belgium and Italy did not quite meet the criteria in terms of debt-to-GDP ratios.

In that case, I do n't know whether the ECB might be able to offer a little bit of comfort to the Prime Minister of Lithuania about inflation criteria, which the country might be having some trouble meeting.

What is absolutely clear is that in our analysis, which is shared by economists and observers particularly in international institutions, after having had a clear driving force coming from the external side, then having seen perhaps since the middle of last year, an important contribution to growth coming from investment and gross capital formation, it would be in line with the normal sequencing to have now a significant contribution coming from consumption.

I know you do not have a pre-commitment to do anything with the interest rates, but perhaps you have developed some kind of bias towards higher rates?

That is just to give you an order of magnitude and the possibility to make a comparison.

On the first point, we weighed the assets and liabilities, the pros and cons, associated with various possibilities: zero increase, 25 basis points and 50 basis points.

You mentioned the possibility that our own assessment of future inflation could be lower.

Is it possible that the gap could turn positive anytime soon?

Our aim is to be as certain as possible, with the best analysis possible, that we are at any given moment in time putting our monetary policy stance in line with what we feel the risks are for future inflation.

The only substantial difference I can see is that the data has turned up pretty much as you predicted last month.

Do you think that this proposal fulfils the needs of the revised Stability and Growth Pact?

Or is there anything which is already starting to weaken the revised Stability and Growth Pact?

A number of countries continue to report severe imbalances, and in some of them consolidation efforts barely attain the minimum required by the revised Stability and Growth Pact, despite the improving growth outlook.

This will enhance the credibility of the revised Pact and create confidence in a sound and growth-friendly fiscal environment.

Overall, strong monetary and credit growth in an environment of ample liquidity in the euro area points to risks to price stability over the medium to longer term.

To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, and the economic analysis indicates that risks to price stability over the medium term remain on the upside.

Given the strength of monetary growth and the ample liquidity situation, cross-checking the outcome of the economic analysis with that of the monetary analysis confirms that upside risks to price stability prevail.

The Governing Council will continue to monitor closely all developments to ensure that risks to price stability do not materialise.

In the view of the Governing Council, downside risks to this outlook for growth relate mainly to oil price developments and global imbalances.

While this policy stance reflects our current assessment, we will continue to monitor closely all developments with respect to risks to price stability.

This decision reflects the upside risks to price stability that we have identified on the basis of both our economic and monetary analyses.

Mr President, you mentioned several times that there are upside risks to price stability.

As regards the future, we will decide to move on the basis of the facts, figures and data, and on our future assessment of the risks to price stability.

Today 's decision is in our opinion the right decision in line with our present analysis and our assessment of the risks to price stability.

We will see how the situation develops and whether the new assessments of risks to price stability lead us to take new decisions.

We will continue to monitor closely all developments with respect to risks to price stability.

As regards the reason why we increase rates today, it reflects our assessment of all the risks to price stability that we see.

We are doing it to counter these inflationary risks.

The economic evolution is for us pertinent to the extent that it modifies the risks for inflation.

We are reasoning over the medium term and we have to be sure that we are countering these risks.

I have mentioned the risks to price stability coming from the delay in incorporating in non oil prices the previous oil prices increases.

It is clearly one of the risks that we have to be fully aware of.

I did not quite get what you said before, when you were answering my colleague from the" Financial Times '' -- that there are price stability risks on the upside in the medium and longer term.

We consider monetary analysis to be important under our two pillar strategy not only because it permits us to cross-check the economic analysis but also because it gives us particular information on the risks from the medium to the longer-term horizons.

Risks to the outlook for price developments remain on the upside and include further increases in oil prices, a stronger pass-through of oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and -- more fundamentally -- stronger wage and price developments than expected due to second-round effects of past oil price increases.

This monetary analysis gives information which we consider pertinent and which is also pointing in the direction of risks to price stability in a somewhat longer term perspective.

In the case of Spain it seems to me that we are observing today a certain appeasement vis-à-vis the previous evolution.

It seems to be that your inflation forecasts are much higher.

It seems that one of the things we have been missing for a sustained economic recovery thus far is hard evidence of private consumption.

A few people in the financial markets have been observing that the European Central Bank seems not to have changed interest rates on occasions when it has been meeting outside of Frankfurt.

The results constitute a slight upward revision to the Eurosystem staff projections of December 2005, mainly reflecting a somewhat stronger outlook for private investment over the projection horizon.

You said that you are in a similar state of mind at the moment as you were in December, which would suggest possibly that there could be another rate increase in three months ' time.

First of all, as I say very often, we look at trends and it is absolutely normal that we have had a good deal of volatility in the day-to-day figures concerning soft data and hard data.

Same thing, it is not a reason for us to change our present assessment, certainly not to change the projections which have just been made, but we will see whether beyond the inevitable volatility of these figures there is something more permanent.

However, looking through the short-term volatility and assessing recent economic indicators and survey information, the evidence suggests that economic activity is improving.



2006-04-06, 68 sentences

As regards fiscal policies, while the budgetary results reported for 2005 are mostly better than anticipated a few months ago, the budget balances planned for 2006 imply no significant progress in fiscal consolidation for the euro area as a whole.

On the basis of the latest data, survey releases and various indicator-based estimates, it appears that growth is strengthening and broadening in the first half of 2006.

It 's true that quarterly growth appeared to be a little less flattering than was expected for the fourth quarter but we look at the trend.

Is it reasonable, therefore, to assume that markets will always have a good idea a month or two ahead about what the ECB is going to do, but that, beyond that timeframe, they have to use their own analysis?

But taking the euro area as a whole, we really believe that what is in the financing laws for 2006, does not correspond to the optimum in a period of cyclical recovery, even if we had some good news as regards the 2005 final results.

Mr Trichet, if I understand you correctly, the Governing Council has some kind of hesitation with regard to a rate hike in May, and I am wondering -- because you are talking so much about the trend you are looking at -LRB- and you said you believe growth is around its potential in the euro area, you see upwards risks to inflation in the short and medium term -RRB- -- why is it necessary to hesitate?

Does this mean that you do not believe that the trend, the economic growth trend, is going to hold over the summer and that there is sometimes a decline in the second half of the year or in the winter or something like that?

My second question is just a clarification on the fiscal policies.

Are you worried that France could stand still for a while regarding the reform process?

Inside the euro area, or the de facto euro area, you have very good examples that could be benchmarked: you have Ireland, which has no mass unemployment.

You could go back to only one month ago when some of your colleagues would have questioned increasing rates at the moment where you see that euro area growth in the last quarter of 2005 was only 0.3%, which is much lower than the growth potential or trend rates.

It is one of these concepts on which, of course, you could see a lot of different analysis and a lot of different opinions.

So we would like to know if the silence of the central bank means that you agree with this or, if not, why do n't you from the first moment condemn this and say this could not be coming from the European Central Bank.

I could even say there are a number of indications which are really on the upside.

You could have asked a question on rumours about markets, exchange rates, etc. -- we never comment on rumours.

On our side of the Atlantic, it 's clear that structural reforms are absolutely of the essence and could contribute not only to being better off in Europe but also to a better situation at a global level.

Fundamentally, I suppose that there are two things that the markets could have done in coming to the wrong conclusion: they could have overweighted things on the side of their economic analysis, or they could have made a corresponding error on the inflation side, perhaps having forgotten your dictum that inflation, that price stability, is the needle on your compass.

In the short run, inflation rates are likely to remain above 2%, with the precise levels depending largely on developments in the more volatile components of the index.

Beyond the short term, changes in administered prices and indirect taxes are expected to significantly affect inflation in 2006 and 2007, and an upward impact may also be expected from the indirect effects of past oil price increases.

You may remember we were a little bit challenged after our last monetary policy meeting.

From time to time, we give information that is a little bit different from what the market may have expected.

You may draw your own conclusions, but it seems to me that I was very clear on both May and June.

The situation in France with the strikes does n't look as good as it was a couple of months ago, so the three major countries maybe do n't have the growth that some economists had projected.

And the second question is about some off-the-record statements that a senior European Central Bank official has given to a news service, maybe for the second time within 15 days.

Maybe you could in your usual elegant way suggest why markets might have got things wrong.

I am wondering whether maybe the recent course of the euro might have had an impact on your discussions today.

Some concern has been expressed over the past few months that there might be secondary effects arising from inflation and, indeed, from the oil price shock.

I guess that the reaction of some people might have been the result of being impressed by some very good figures that we had for Germany.

The reasoning might go" Bad fourth quarter last year, ahah, they will probably cool down their interest rate increases ; good news, of course they will accelerate. ''

Until a few moments ago, markets had been pricing in a nearly 100% chance of a May rate rise.

I trust that, for the sake of clarity, transparency and simplicity, it was perhaps useful to make these two remarks.

In the present case, it is perhaps a slight correction, because the market, if I am not misled, is pricing in a 100% probability that in June at the latest we will move rates.

Does this mean that you are not overly impressed by the programme of fiscal consolidation in that major member state, or that there has been a deterioration in other places, because these are the two possibilities involved in that statement?

First, with regard to the point about market sentiment vis-à-vis a possible move in May.

It is our responsibility to be as clear and transparent as possible with market participants, investors and savers.

I would say that the current suggestions regarding the high probability of an increase of rates in our next meeting do not correspond to the present sentiment of the Governing Council.

As regards the first point, I would say that it is probably normal behaviour to consider the last indication that you have received as a very important indication.

I remember when I said, on behalf of the Governing Council, that we would probably do something in December.

Further ahead, downside risks still relate to potential increases in oil prices and concerns about global imbalances.

We will continue to monitor very closely all developments to ensure that risks to price stability over the medium term do not materialise.

The information which has become available since then confirms our assessment that a further adjustment of our accommodative monetary policy stance was warranted to address upside risks to price stability.

Delaying fiscal consolidation in times of improving economic activity implies risks for the medium term, as has been observed in the past.

Accordingly, the Governing Council will continue to monitor very closely all developments to ensure that risks to price stability do not materialise, thereby making an ongoing contribution to sustainable economic growth and job creation.

Given the strength of monetary growth and the ample liquidity situation in a context of improving economic activity, cross-checking the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability over the medium to long term prevail.

To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, and the economic analysis indicates that the risks to price stability remain on the upside.

Overall, strong monetary and credit growth in an environment of ample liquidity in the euro area continues to point to upside risks to price stability over the medium to longer term.

They would represent a high risk, but one which did not materialise.

What is the risk in your opinion, and is this also a point in your decision on monetary policy?

The IMF has now focused on this risk, on the foreign exchange market.

And I am just wondering why you hesitate to raise rates when you see such a clear trend of strong growth around potential and when you see inflation risks?

I would only say that we are in a process of normalisation, we are in the process of countering inflation risks that we have seen as being on the upside for some time.

As regards the discussion on accommodation or neutral rates and so forth, I would only say that what we have always been doing is to counter inflation risks.

I would say that the Governing Council considers that the risks as regards growth are really balanced at the moment I am speaking.

You were mentioning downside risks to growth in a number of countries.

I would like to know if, as far as the economic development is concerned, you said that risks are balanced.

The risks to economic growth appear to be broadly balanced over the shorter term.

Risks to the outlook for price developments remain on the upside and include further increases in oil prices, a possibly stronger pass-through of oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and -- more fundamentally -- stronger wage and price developments than expected due to second-round effects of past oil price increases.

Did risks increase or did they get lower, because the International Monetary Fund has revised downwards the projections for Germany and for Italy, both for 2006 and 2007?

We see these imbalances as a risk to growth and, as I said on behalf of the Governing Council, we see two major risks to growth: the price of oil and global imbalances.

In the present particular case, even if the Governing Council did not discuss that, I would say that it does not seem to me in line with what would be appropriate.

You seem surprised by market sentiment.

It seems clear to me that it was a good way to look at the situation and that all the information we have had since then has confirmed that we have a trend which is around our growth potential.

Since you seem very decided to raise the rates in June, why are you not doing so today?

The second question, which requires only a yes or no answer: It seems to me, from the way in which you have commented and acted in the last six months or so, that when you have moved you have never surprised us, and the guidance has been excellent for the markets.

We make a synthesis out of all information received and we are not impressed by short-term or quarterly volatility.

We look at the trend, we are not impressed by the volatility of figures, whether they are so-called soft data or hard data.

We are not too impressed by volatility.

We increased rates, while we said: yes, there is some volatility as regards quarterly growth.



2006-05-04, 64 sentences

Business confidence is particularly buoyant, which, in principle, bodes well for investment, and the recovery in consumption and employment appears to be proceeding, albeit still gradually.

Again our working assumption is that broadly our present assessment will be confirmed.

As regards the economic analysis, we have confirmation that our working assumption, our main scenario, is pertinent and with growth growing faster than before, it pushes up risks to price stability.

I already responded on the way we look at this if our main scenario develops, as we believe it will.

Again, I remain prudent and cautious.

I would be cautious - as you might understand - on the projections.

All what I can say at the moment I am speaking - again I remain very cautious - by making the synthesis of all the information we have been receiving -- information on growth, information on oil price increases, information on exchange rates, all kinds of information -- is that it broadly confirms our baseline scenario, but I will not confirm anything that would suggest that our growth projection would be different from the present baseline scenario to the extent that you addressed explicitly the question of growth.

Everything that we do is conditional upon our own analysis based upon as robust as possible information, analysis, data, facts and figures, as I always say.

This is one of the elements that could argue in favour of a change in the overall behaviour of some of the consumers.

Could you explain how that works?

Could you please clarify for me whether this process of normalisation implies that there has now been a decision, a predetermined decision, to tighten monetary policy gradually?

Could you have moved in May?

And second, could a rise in the euro exchange rate of the dollar delay, not stop, the process of interest rate normalisation in the euro area?

Could you comment on that?

You have mentioned in the past that the inflation-dampening effects of globalisation are beginning to diminish and I would like to know what kind of role that played in the ECB 's decision to enter this process of normalisation, and also whether a process of normalisation implies that even if the headline inflation figure trend were to ease, we could still expect to see continued monetary tightening?

Do you have any concern that the current euro appreciation could damage the eurozone economy or do you think the currently favourable economic fundamentals can absorb that kind of shock and that the euro zone can accept a little stronger euro?

It is a very professional exercise and I do not want to prejudge in any respect what could be produced.

It would have been the biggest mistake we could have made.

Could you tell us what it is?

I could also confirm to you that the Eurosystem has regular meetings with our Latin American friends --.

Could you comment on that?

I could go back to our analysis in December and at the beginning of this year, because you might remember that we had not that good data in some respects.

In the short term, annual inflation rates are likely to remain above 2%, with the month-to-month profile largely dependent on developments in oil prices and the strength of their pass-through to other prices along the production chain.

As I have said already to the extent that our scenario is confirmed, it is clear that further withdrawals of monetary accommodation will be warranted, and there is no doubt about that.

But I will not comment on any bold moves that may have been decided.

Beyond the short term, changes in administered prices and indirect taxes are expected to affect inflation significantly in 2007 and a further upward impact may also be expected from the indirect effects of past oil price increases.

I have a problem in understanding one thing -- maybe you can explain it to me: how can an economy grow over time if private consumption is as weak as it is in the euro area?

Mr Trichet, were you maybe a bit premature in so firmly ruling out a rate increase this month at last month 's press conference?

I would even be bold enough to say that, when I participated in the various" Gs '', including the G7 in Washington, I had the sentiment that all parties concerned were speaking for real when they said that they would do their best to implement what I call their" homework '', all partners including us, even if our contribution might not be very large.

And, in the case of the national economy, i.e. the largest economy in the euro area that you have mentioned, it is clear that the main drivers of growth are -- at the moment, but that might change and I trust that it will change -- exports, net exports, and investment.

I used the word several times, perhaps three times if you counted well.

These will be our contribution, perhaps a modest one, because we are not largely imbalanced, as you know.

At the global level, it is not particularly the sentiment of the Governing Council of the ECB, it is perhaps rather the sentiment at the level of the G10 and of the global economy meeting that we regularly have in Basel - which I have the privilege of chairing - that progressively the very powerful dampening that you mentioned on global inflation stemming from globalisation itself, and the increase of the share in the global economy coming from very low unit labour cost economy, that this is perhaps gradually diminishing.

Let me remind you, that at some time in the past I heard analysts and perhaps even some media suggesting that we should wait for the second-round effects to materialise before increasing rates.

I had the possibility of expressing the view of the ECB in the IMFC meeting, so I respond to your question, it has been the case as we had called for.

We synthesise our understanding of what is happening, we examine various models of the economy and of the behaviour of the euro area economy to have as robust analysis as possible, and then we make up our mind on the basis of all this information.

I would say that as orderly and smooth evolutions as possible are certainly welcome in this respect.

Mr President, is it possible to have from today 's meeting a first glance at the ongoing or maybe closing economic and inflation projections that will be published in June because they are closed in the data projections today?

I have a question about the news from news agencies that the finance ministers of Japan, China and South Korea have agreed about currency cooperation, meaning that a regional currency unit should be researched and probably developed.

However, fiscal targets in a number of cases are rather lenient and their attainment is still subject to considerable risks.

Accordingly, particular vigilance is of the essence in order to ensure that risks to price stability do not materialise.

Given strong money and credit growth in a context of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term.

To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007 and the economic analysis confirms that the risks to price stability continue to lie on the upside.

Overall, further acceleration of monetary and credit growth in this environment continues to point to upside risks to price stability over the medium to longer term.

Concerns about global imbalances continue to prevail over longer horizons, as do risks relating to protectionism

Against this background, the Governing Council will exercise strong vigilance in order to ensure that risks to price stability over the medium term do not materialise.

Are the risks to global imbalances rising because of the euro 's rise against the dollar?

This was also my response to your third question: I do not see these second-round risks materialising at the present moment, including in wage and salary formation, but we have to remain vigilant.

We of course have to prevent this risk from materialising.

That is a risk that we always mention.

The administered changes in prices and indirect taxes you are referring to for next year, which are those, and if you were to name the single biggest risk to price stability today, what would that be?

No, I think that this risk has not augmented.

Do you think that the risk of a disorderly adjustment of global imbalances, which you just mentioned, has increased in recent weeks or months?

Risks to the outlook for price developments remain on the upside and include further increases in oil prices, a stronger pass-through of oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and -- more fundamentally -- stronger wage developments than expected at present, possibly due to second-round effects stemming from past oil price increases.

Some of these risks appear to have increased in view of the renewed strength of oil prices.

Considering the information available, risks to this scenario appear broadly balanced over the shorter term, although recently oil prices have again demonstrated high volatility and their potential for posing downside risks to growth.

A risk would be that further increases could be made.

As regards the inflation risk we consider that this risk is going upwards and that is why we said vigilance is of the essence.

Second, I have always mentioned on behalf of the Governing Council that the risk of a disorderly unwinding of global imbalances is a risk to growth that we have to be aware of.

As regards the most important risk, it 's the constant position of the Governing Council that the most important risk would be second-round effects.

And, foreign exchange was n't cited necessarily in your statement as a particular risk, but certainly it seems to be being cited elsewhere.

It seems to me that you always got me right in the press conference.

It seems to me that the other major institutions also believe it will.

You have obviously seen some speculation in the markets now that you might even consider a 50 basis point rise in June.



2006-06-08, 81 sentences

Apparently, he is still waiting for a reply.

First, as far as the Chief Economist is concerned, does this figure, which does not appear in any of your statutes, still exist, even de facto, or did you abolish this function?

I have a question about the projections ; namely that you have changed your methodology concerning short-term interest rates, assuming that they will evolve in line with market expectations as opposed to being constant, and you observed yourself, Mr Trichet, that the forecast for HICP inflation in 2006 has been raised slightly.

Compared with the March 2006 ECB staff projections, these ranges imply a slight upward shift to the profile for HICP inflation in 2006, largely reflecting the assumption of higher oil prices.

And the main driving parameter has been the change in the assumption about oil prices.

If our assumptions and scenario -- our baseline scenario -- are progressively confirmed, and until now we have been very happy to see that it has been confirmed, then the progressive withdrawal of monetary accommodation would be warranted.

This is the working assumption.

But as far as the assumptions about long-term rates are concerned, we - in taking a long-term rate assumption - took the yield curve foreseen by the market.

On the future trajectory of our interest rates, we are working on the assumption that we will proceed with a further withdrawal of monetary accommodation ; not unconditionally, but conditional on the confirmation of facts and data, and on the basis of our own future observations.

Is this a realistic assumption, or could you envisage increasing the pace of monetary tightening?

We believe that repeating the mistakes of the past would be terrible because as we know, those mistakes had an enormous cost and were extraordinarily difficult to cope with.

We are always conditional and we are always free to do what we judge to be appropriate.

Of course, you can refer to this as a tightening of monetary policy, but I like to use the expression" withdrawing monetary accommodation '' to refer to what we will do or could do according to the confirmation of our baseline scenario.

Can you still say today that you are on a path of normalisation, or could it be that the ECB stops this progressive withdrawal of monetary policy accommodation at a level that is still accommodative?

Could you tell me what his last name is?

Therefore, the change that we introduced is not as big as suspected by some, and consequently, I would not underline any significant change in the projections that could be attributed to that change.

I would draw your attention to the following: the level of inflation, which is closely correlated with the unit labour cost and the costs in general in the economy, functions in such a way that what one particular firm would theoretically gain out of a theoretical abstract computation of real interest rates is much more than offset by a loss in terms of cost competitiveness: what is lost when inflation is above the average is much greater than what you could theoretically gain with a lower level of real rates.

Could you tell us whether the Governing Council is at all concerned about recent volatility in global stock markets and whether that played any role in your decision today?

In the months to come and in 2007, inflation rates are likely to remain above 2%, the precise levels depending on future energy price developments.

We do not depend on any single piece of information or any single model of the economy.

Our decision certainly does not depend mechanistically on any particular input, including the input from the projections, which are an important piece of information for us.

There is no doubt: we issue the currency and I sign the banknotes.

In a way we are responsible for the level of the sea, but some swimmers, if I may, can swim above that level other ones below.

Did you take also this issue into consideration, and may I know what point you discussed, where financial markets are concerned?

Mr Trichet, I know that you have said that the ECB has no pre-commitment, and that there is no ex ante decision, but a few months ago you did make a comment that the ECB was on a path of normalisation of interest rates, which led some people to think that maybe there was an end-point in mind.

I am sure that lots of eurozone citizens -- particularly here in Spain, maybe if they are considering buying a house and borrowing lots of money -- would like to know where interest rates are going to be maybe next year or a little bit further forward?

Given the fact that you just said that for 2007 you foresee a slightly lower growth rate, that the euro is increasing still and is foreseen to increase further, and that the United States is showing first signs of slowing down, was there anybody in the Governing Council who raised the concern that the ECB might be over-tightening?

Perhaps you could say a word on that, Lucas.

Can you tell us perhaps, or give the 300 million euro area citizens an idea of where interest rates might be in the next year or so?

We want to be as comprehensive as possible.

I invite, on behalf of the Governing Council, the President of the Eurogroup and the Commissioner to each meeting of the Governing Council, i.e. twice a month, which allows as much contact as possible.

The Vice-President and I have a special responsibility for that team spirit to be as good and deep as possible.

Is that one element where it is generally presumed that when the euro strengthens, this, ipso facto, has some sort of dampening effect on whatever tightening you might be engaging in?

Although no detailed information is available as yet, this increase probably stems from energy price developments.

I realise that you have probably answered this question, Mr Caruana, a million times already, but I am myself in Spain for the first time in ten years, and am seeing the extraordinary amount of building that has gone on, and is continuing to go on.

In my understanding, the relationship that the ECB has with the executive branches, in line with the provisions of the Maastricht Treaty, is probably the best organised at the global level.

The Governing Council considers that more determined progress is required towards sound public finances in a number of countries, that concrete and credible measures should be implemented swiftly as part of a medium-term-oriented strategy, and that it is vital to consolidate confidence in the revised Stability and Growth Pact by ensuring the sustainability of public finances in the euro area.

When I look at the projections, the changes in the growth projections for next year, which have been revised slightly downwards, are fully in line with other projections, for instance the Commission projection.

We always at any time do what we judge to be appropriate for countering the existing inflationary risks and ensuring price stability over the medium run and for continuing to anchor solidly inflationary expectations in line with our definition of price stability.

I think the dynamism of the credit reflects to some extent the dynamism of the economy and I think it would be appropriate to have a little bit of a slowing but again, it is a question of each bank deciding and taking the measures necessary to ensure that they can handle the risk that they are taking.

Regarding your first question about credit, what a central bank does and what we have been trying to do is to signal very clearly the need for banks to measure properly the risks involved in lending.

We judged these increases to be the best and most appropriate way of dealing with the risk that we had analysed.

This was the judgement of the Governing Council as regards the level of risks that we have to counter at the moment and it was in line with what -- to my understanding - the market itself was appreciating.

In our opinion, risks to price stability augmented sufficiently during the preceding period to trigger our interest rate increase in last December, a new interest rate increase in March, and the new interest rate increase today.

And also, you mentioned that there was a thorough discussion of the monetary aggregates today and that risks prevail.

We also have the oil price risks that we have now come to know rather well over a very long period of time, and I would say, in that respect, any event that occurs in the geopolitical sphere obviously has an influence.

In a sense, this is going towards a more" normal '' situation as regards growth and, it calls for countering increased inflationary risks and to progressively withdraw monetary accommodation.

As I have always said, we think that our interest rates are correct and correspond to what is needed to counter inflationary risks.

That view which is shared at a global level by the constituency of central bankers - I say that as Chairman of the G10 -, which thinks that there has, to a certain extent, been an underpricing of risks in the global financial markets.

In a way, the re-appreciation of risks in the financial markets also corresponds to a view of the Governing Council.

Mr President, you said that one of the risks to growth is protectionism and you said also that this is now the moment for sound fiscal policies to avoid the mistakes of the past.

To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook on the upside.

Thus, the latest developments confirm that the stimulative impact of the low level of interest rates remains the dominant factor behind the current high trend rate of monetary expansion, which signals inflationary risks over the medium to longer term.

The further acceleration of monetary and credit growth in this environment of already ample liquidity points to increased upside risks to price stability at longer horizons.

Given the strength of monetary and credit growth and the ample liquidity situation, a cross-check of the outcome of the economic analysis with that of the monetary analysis confirms that upside risks to price stability over the medium term prevail.

Of course, one important issue is that the risk management systems are further improved, and they have improved a lot in recent years.

One important issue is how the counterparties of the hedge funds, i.e. banks and businesses, can assess risks that are associated with the products that are being offered, as well as with the hedge funds as institutions.

And they have played an important role in the diversification of risks and in contributing to the efficiency of the financial system.

Hedge funds are, by definition, institutions that are in the business of taking and diversifying risk.

In the Financial Stability Review, we focused on risks associated with the operations of hedge funds.

Overall, our monetary policy remains accommodative and the Governing Council will continue to monitor closely all developments to ensure that risks to price stability do not materialise.

Furthermore, there is a risk of consolidation delays in other countries.

This decision reflects the upside risks to price stability over the medium term that have been identified through both our economic and monetary analyses.

In the view of the Governing Council, risks to the outlook for price developments remain on the upside and include further increases in oil prices, a stronger pass-through of past oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and -- more fundamentally -- stronger than expected wage developments due to second-round effects of past oil price increases.

We see risks that this could happen, but it is not our central scenario.

We have signalled several times that this poses risks, but at the same time, we have also expressed that, in addition to the increasing debt, there has been an increase in the wealth of households, which is a positive development, and that the central scenario is still that this over-valuation could be corrected smoothly and not necessarily through an abrupt correction.

It is the Governing Council 's view that risks to these projections for economic growth are broadly balanced over the shorter term, while longer-term downside risks relate mainly to potential further oil price rises, global imbalances and protectionism.

So what we have been asking for is prudence, measuring properly the risks, taking into account properly the risks and in that sense I think we have achieved a lot.

So, I would say that anything we have that goes in the direction of an alleviation of this combined risk of oil prices, commodity prices and geopolitical risk would go in a good direction, but I have no other comment.

When we list the risks at a European and global level, I would say that we have the risk of a disorderly unwinding of global imbalances, we have the risk of protectionism, we have the risks that are associated with a disorderly evolution of the global financial markets, given the underpricing of risks that I have already alluded to.

Again, if this pricing of risks were to increase somewhat, it would perhaps be going in the direction of an improved pricing of risks.

My question is whether you see those risks increasing and whether there is any information available to the Council now that would suggest that the pace of monetary tightening needs to accelerate this year.

That being said I would also draw your attention to an argument which I see from time to time and which does not seem to me to be appropriate.

Full completion of the single market is a target which seems to us extraordinarily important, not only because it is one of the major goals of Europe as a whole, but because it would considerably improve the functioning of the European economy.

In terms of the evaluation, we have sometimes expressed that when you look at fundamentals, the present evaluation was above these fundamentals.

Is n't the increase actually somewhat more pronounced than that, given this change in your assumptions about short-term interest rates?

I think it is remarkable and I will take this opportunity to mention that it is something really exceptional in the world, but not unusual in Europe.

First, the question on volatility.

And we observed that volatility had augmented in a large number of markets.

That being said, we also looked at the fact that it came after a long period of very low volatility, something which could be regarded, according to some analysis, as a normal correctional phenomenon.

Just to draw the line with your previous comments about market volatility, because that in some senses reflected the conviction that perhaps central banks will have to do more than simply remove accommodation, but rather tighten monetary policy, and if, in reading that statement, I am correct in assessing your thinking in this respect, that you see this possibility as well.



2006-07-06, 57 sentences

It is clear that there will be some kind of boom-bust profile, which would be normal and is anticipated by all institutions and observers.

Therefore, if our assumptions and baseline scenario are confirmed, a progressive withdrawal of monetary accommodation remains warranted.

We believe that it is in the interests of Poland taking into account the Treaty and the fact that the euro area is open to Poland, as well as to all other friends, provided they meet the Maastricht criteria, provided they have converged sufficiently, and taking into account the fact that they have no opt-out clause, which we are happy about.

You know that all our decisions are conditional on facts and on figures and I have said this sufficiently frequently for you to be fully aware of this.

But we proved in Madrid that we could increase rates also outside of Frankfurt.

And finally, whether you could say a little bit more about the euro and whether you are concerned at all about its upward trajectory against the dollar.

What could that be?

And second question: could you give us a definition of the word" progressively ''?

And secondly, we have had plenty of comments -- admittedly from your colleagues in the ECB, not from yourself -- as to the pace of interest rate hikes, telling us that we should not always expect only 25 basis points: the pace could pick up and that the intervals could be getting shorter.

Mr Trichet, could you just clarify for us whether we could also expect a press conference following your meeting on 3 August?

And secondly, I wondered if you could perhaps give us a little bit more information about your discussions today in terms of accelerating the pace of interest rate increases, which was clearly an issue for you if you do indeed act on 3 August.

Could it be, perhaps, that inflation expectations are not in fact as anchored as you might hope?

Whether in any case then you could comment on the possible and probable narrowing of the interest rate differentials between the euro area and the United States.

During the second half of 2006, and on average in 2007, inflation rates are likely to remain above 2%, the precise levels depending on future energy price developments.

I have no doubt about that.

Why are you raising rates when doubts are being expressed in market literature?

And I think it is the right way of looking at what we have been doing in the past and at what we may do in the future, based on our own analysis and judgement of the facts and figures.

-LRB- May the best team win ! -RRB-

Monsieur Trichet, I have two questions, one about today 's discussion: if you are vigilant on inflation, as we know you are, and we should be braced for a rate hike next month, maybe, what prevented you from doing so today?

You might remember that we increased rates against a lot of recommendations.

Are you not concerned that this might dampen the potential for economic growth in Europe and the gain in competitiveness that is required for it to remain sustainable, if this expectation of constant interest rate hikes is maintained for a long time, as it is this year?

What should they expect within the next one or two years regarding interest rates and whether the ECB might consider revising the 2% level of inflation upwards, changing it and putting the target, let 's say, at 3%.

Would it be safe to say that, going forward, financial markets are going to have to get used to a more data-driven ECB, one that perhaps has neither the freedom nor the intention to give the sorts of verbal signals that you have over the past nine months?

However, we have a lot of teleconferences in the course of the year, something of which you are perhaps not fully aware, and decisions are always possible via teleconference.

There are two possibilities.

I therefore wonder whether you can comment on the possibility of a rate rise on 3 August and whether we might see a second one on 31 August.

The possible announcement that we meet by teleconference is usually made the Friday before the meeting, but next time we will in fact meet physically.

We ourselves hope that Poland will go as far as possible in this direction.

That being said, we will continue to monitor all information very closely and to be as pertinent as possible in our economic analysis and our cross-checking with the monetary analysis.

Looking further ahead, the conditions remain in place for continued economic growth at rates around potential, despite possible volatility in the quarterly figures.

Do suggestions at the moment of a high probability of a rate hike at the next meeting on 3 August correspond to the sentiment on the Council?

These concern, in particular, the need for a rigorous implementation of the revised Stability and Growth Pact with a view to speeding up fiscal consolidation and improving the outlook for fiscal sustainability.

Given the strength of the economic recovery that you have also identified, are you not emphasising the upside risks to price stability which you signalled with the expression" strong vigilance ''?

There is excessive liquidity on the financial market, posing a risk to financial stability.

Is there also a risk for the asset prices?

So," progressively '' meaning to the extent that we see our baseline scenario developing according to our own projections and scenario, then we will progressively withdraw monetary accommodation in order to permanently keep inflationary risks under control.

Does this pose a risk to price stability?

This is very important and we consider that risks are on the upside.

Against this background, we will exercise strong vigilance so as to ensure that risks to price stability over the medium term do not materialise.

Indeed, acting in a timely manner to contain such risks remains essential to ensure that inflation expectations in the euro area are kept solidly anchored at levels consistent with price stability.

The information that has become available since our last meeting has confirmed that a further withdrawal of monetary accommodation was warranted to contain upside risks to price stability.

Regarding prospects for inflation over medium to longer horizons, our assessment that upside risks to price stability prevail is confirmed by the monetary analysis.

Risks to the outlook for price developments remain on the upside and include further increases in oil prices, a stronger pass-through of oil price rises into consumer prices than currently expected, additional increases in administered prices and indirect taxes and, more fundamentally, stronger than expected wage and price developments due to second-round effects of past oil price increases.

The dynamic growth of money and credit, in an environment of already ample liquidity, points to increased upside risks to price stability at medium to longer horizons.

Accordingly, the Governing Council will exercise strong vigilance so as to ensure that risks to price stability do not materialise, thereby making an ongoing contribution to sustainable economic growth and job creation.

Given the dynamism of monetary growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium term.

To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook continuing to be on the upside.

Consolidation targets continue to be at risk, notably in a number of countries with an excessive deficit.

The risks to the outlook for economic growth appear to be balanced over the shorter term, while in the longer term downside risks prevail, relating mainly to potential further oil price rises, a disorderly unwinding of global imbalances and potential pressures for increased protectionism.

It is also clear that we had already diagnosed a degree of underpricing of risks in the financial markets in general, observed in particular as regards spreads, as regards risks premia.

One can interpret what has happened as some kind of repricing of risks: that would go in the direction that we had more or less suggested because we were not that happy with the previous very low level of assessment of risks.

On the first question, it seems to me that I have already responded.

In the scheme of things, as a central bank, it does not seem to be a huge amount of difference.

Until now, it seems to me, these have been quite well understood.

I would therefore repeat that it is exactly the contrary of what your question was implicitly suggesting.

The second question is on market volatility.

On financial market volatility we have looked at this phenomenon.



2006-08-03, 66 sentences

The decisions we took since December as well as the fact that the market is anticipating our decisions, and that the yield curve is showing an upward trend, all this has played a role.

There is also the point which you have mentioned, which we consider ourselves to be very important and which has to be examined very carefully, namely what we call a stronger than currently anticipated pass-through of past oil prices and I could add of past commodity prices.

The potential rate was, in former days, at the beginning of the euro area eight years ago, approximately 2 1/2%.

Do you have a discussion in the Governing Council -- assuming that you want to normalise interest rates, whatever you regard as a normal level -- do you have a discussion in the Council that the time is running out for interest rate hikes?

If our assumptions and baseline scenario are confirmed, a progressive withdrawal of monetary accommodation will be warranted.

Looking ahead, given that our monetary policy continues to be accommodative, a progressive withdrawal of monetary accommodation will be warranted if our assumptions and baseline scenario are confirmed.

So, if in case your baseline scenario is confirmed, would it be a reasonable assumption to be looking toward October?

It is also the working assumption of the social partners.

If our baseline scenario is confirmed, if our assumptions are confirmed, then we will progressively withdraw monetary accommodation.

I can only confirm to you that, if our scenario and our assumptions are confirmed, there will be a progressive alleviation of the monetary accommodation that exists today.

And the second question is: do you believe that concerns about financial stability or financial imbalances in the euro area have increased since the early months of this year?

We have a mandate, we are faithful to our mandate and we believe that it is the best way to help growth to be sustainable and job creation which, very fortunately, is now visible, sustainable in the medium and long run.

This is the reason why we are calling for structural reforms, because we firmly believe that it is the lack of structural reforms particularly in a period of very rapid changes in science, technology, and globalisation, that explains why we have a disappointing level of increase of labour productivity.

I do not believe that hard figures are the only reliable figures or that survey figures are the only reliable figures.

But we will see what happens, and again, we have to be cautious.

We have to make the best out of this wealth of information, but it is clear that there are areas where we could have good surprises.

We could also be -- I do not exclude that at all -- surprised by the dynamism of the domestic economy of the euro area.

I wonder if you could just elaborate a little bit on your point of needing change on the expenditure side.

I wonder if you could give us your opinion on whether you see that there is some way to go before rates are no longer accommodative.

What is your estimate of what impact fiscal consolidation could have next year?

Could you give us the flavour of your thinking regarding the pass-through of past oil price rises and commodity price rises in general through the price chain, whatever you want to call it.

In the second half of 2006 and on average in 2007, inflation rates are likely to remain above 2%, the precise levels depending very much on future energy price developments.

It depends on what we do.

Now, we will do what is necessary, depending on facts and figures and new events.

As I said, we depend permanently on new information.

We will do all what we judge appropriate, depending again on the wealth of information that we have, coming from our own analysis and the very impressive wealth of information and analysis from public and private institutions.

I have always myself said that we depend on the confirmation of our baseline scenario, on facts and figures.

Of course, we will have new projections, as you might expect.

There are a lot of economists seeing that there might be some kind of cooling down in the euro area economy.

We have our baseline scenario and we might have a lot of new events -- price of oil, geopolitical uncertainty, also good surprises that we might have in the rest of the world.

There has been some evidence in the surveys that this is creeping closer to the consumer, but perhaps this is not quite there yet.

Perhaps you have noticed that we said that we will be, when next year starts, in a euro area with 13 economies instead of 12 sharing a common destiny with a single currency.

And again, I will not underwrite any figures, but I would say that if you said in the present situation that perhaps 2% might be an order of magnitude it would not necessarily be absurd.

I take from that word that there were perhaps two or three members who might have preferred, at least at the start of the discussion, another decision.

So, you will have all possibilities to compare statistics of the highest quality on a state of the art professional basis.

I mentioned additional increases in prices -- I am not mentioning past increases that have already been decided and fully incorporated in our own projections, but rather the possible future increases in administrative prices and indirect taxes -- and I mentioned the traditional -- in this press conference -- second-round effects, in particular wages and salaries increases.

On the fiscal side, I would only say that we have always told our interlocutors, the Commission and the executive branches, that in delivering the appropriate fiscal position required by the Stability and Growth Pact, in an overwhelming majority of cases, to be as sound and reasonable as possible on the expenditure side is the first best option.

But it is clearly a risk that has to be taken into consideration.

On the particular impact of geopolitical risks, I do not see, at this very moment that these have contributed in any significant fashion to hampering growth.

On a longer-term horizon, we see a number of downward risks.

I would say that on a short to medium-term basis, the risks to growth are in our opinion balanced.

We consider the risks for growth to be balanced, on a short to medium-term basis, and to be on the downside over the longer term.

Again, even if I said that our own sentiment for growth was balanced on a short-term basis, it means that we have downside risks on the one hand, but we have also upside chances on the other hand.

You know that we consider that fiscal consolidation -- at the present level of the risks and dangers that exist in the various economies of the euro area today -- is improving the confidence of entrepreneurs, the confidence of economic agents in general and the confidence of households.

We consider that it is one of the risks that I have constantly mentioned.

This is particularly the case as regards the geopolitical risks that I mentioned.

The Governing Council will continue to monitor very closely all developments so as to ensure that risks to price stability do not materialise.

Given strong monetary and credit growth in a context of ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis confirms that upside risks to price stability prevail over the medium term.

To sum up, annual inflation rates are expected to remain elevated, at above 2% on average, in 2006 and 2007, with risks to this outlook on the upside.

The dynamic growth of money and credit, in an environment of already ample liquidity, points to increased upside risks to price stability at medium to longer horizons.

Regarding prospects for inflation over medium to longer horizons, our assessment that upside risks to price stability prevail is confirmed by the monetary analysis.

Medium to longer-term risks lie on the downside and relate in particular to the potential for further oil price rises, a disorderly unwinding of global imbalances and protectionist pressures, especially after the suspension of the Doha Round of trade talks.

This decision reflects the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses.

Risks to the outlook for price developments have augmented and include further increases in oil prices, a stronger pass-through of past oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and -- more fundamentally -- stronger than expected wage and price developments owing to second-round effects of past oil price increases at a time of gradually improving labour markets.

As regards our assessment of the risks to price stability and to growth I have told you clearly that we saw the risks to price stability over the short, medium and long term to be on the upside.

Would you -- looking at the risks to price stability and growth -- think the risks have increased or decreased for growth in recent weeks?

On the first point, I mentioned the risks that we saw to prices and I mentioned a number of those risks -- such as the increase in the price of oil -- which we have observed in the past, unfortunately, I have to say, and which are still a risk.

Risks to the outlook for economic growth are broadly balanced over the shorter term, although recent geopolitical tensions and their impact on markets are a timely reminder of the uncertainties that we face.

It surprises me somewhat that you appear to be telling euro area governments that they should not raise taxes, that they should cut spending.

My second question is: the Bank of England today raised interest rates somewhat unexpectedly.

But I can mention a number of studies which suggest that, for the euro area as a whole, we could be at the level of 1.9%.

Others suggest that we are in-between 2% and 2.5%, but possibly much closer to 2% than to 2.5%.

The main indicators of economic activity that have become available since the July press conference have tended to confirm our baseline scenario for economic growth in the euro area.

For those Member States which have fulfilled the convergence criteria laid down by the Treaty and participate in the euro area, the considerable benefits of the Internal Market are further enhanced by the single currency, which offers them a credible framework for monetary policy and price stability in an environment characterised by the absence of exchange rate uncertainty within the euro area, low long-term interest rates, price and cost transparency, reduced transaction and information costs and stronger insurance against economic and financial instability.

I also mentioned the fact that we live in a world where uncertainty, and indeed great uncertainty, is unavoidable.

As regards our own decision, it was not unexpected.



2006-08-31, 76 sentences

But we have been using this word for quite some time now, and it is the first time this question is asked, so I take it for granted that almost everybody has understood what it means.

They include further increases in oil prices, a stronger pass-through of past oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and -- more fundamentally -- stronger than expected wage developments.

As regards fiscal policy, in several Member States public finances appear to be on track to meet or even exceed this year 's targets as the favourable economic situation, revenue windfalls and effective consolidation measures exert a positive influence on fiscal balances.

To sum up what I have in mind as a synthesis of all information of a large array of analyses, I would say that today I mean over the last five years or even the last ten years -- the level of approximately a yearly increase of labour productivity is half the level we had in the euro area in the 1980s and half the level observed since 1996 or 2000 in the United States.

If you are not too comfortable with that, would it be wrong to assume that you think that 3.5% is not enough to bring inflation rates down and that there are still major price risks even if you are at 3.5%?

If you assume that economic growth is going to slow down next year and that the swing comes from the uncertainty about oil prices, may you tell us what your worse case/best case scenario for the oil prices that is the basis for this projection.

If our assumptions and baseline scenario continue to be confirmed, a progressive withdrawal of monetary accommodation remains warranted.

Compared with the June 2006 Eurosystem staff projections, the range for 2006 is within the upper part of the previous range, while that for 2007 has been shifted slightly upwards, largely reflecting the assumption of higher oil prices.

If our assumptions and baseline scenario continue to be confirmed, a progressive withdrawal of monetary accommodation will remain warranted.

As regards our overall assumptions and those of our ECB staff, it is what comes out of the future market because that is the only objective way you can look at it.

I have a question concerning again the inflation projection for 2007, which has been lifted slightly upwards to 2.9%, due mostly to the assumption of higher energy prices.

And secondly, you talk about this" our assumptions and baseline scenario ''.

On the first point, in view of the shocks that we have had to cope with, we can understand -- and I said that today also -- why for instance a large part of the new projections as regards inflation are explainable by the fact that assumptions on oil prices and commodity prices have changed.

This is then lower than the assumptions of the market concerning interest rate rises, which is that you will be at approximately 3.5% sometime at the end of this year.

If there is not any great difference between them, would you also accept that the assumptions, including the interest rate assumptions that lie behind your staff forecasts, would also be part of your baseline scenario?

As regards the methodological assumption, as you know for exchange rates the Eurosystem staff is photographing the situation of the exchange rate at the given deadline ; and then go along the period and that would call for 1.28 in the present assumptions that are underlying the projections.

As regards the IMF meetings in Singapore, the Eurosystem and the ECB believe that we must have an appropriate presence which corresponds to our responsibility.

So can we expect that, even if the economy slows down, the ECB could increase rates?

I wonder if you could help me clarify some of the terms you have been using today and in previous months.

And if we could benefit from the same gross labour productivity progress as is observed in the United States we would have a growth potential again more than 1% higher than the present one.

You said it was the first year that included Slovenia, so could you explain how much of that upgrade is due to the faster growth in Slovenia and how much to the current euro area economies?

Could you explain the reasons behind the upgrade in growth particularly for next year?

Given signs of decelerating US growth, which could affect Asia and so on, are you concerned about a dampening of global demand for euro area exports, and will domestic demand, particularly in Germany, be sufficient to offset that slowdown in global demand?

Firstly, I wonder whether you could give us a sense of the discussion today and whether the discussion was unanimous?

I wonder if you could talk about the flavour of the discussion in terms of the currency?

Could you just clear up this confusion in my mind: what is the difference between your assumptions and baseline scenario and the staff forecast that you present today?

And secondly, I wonder whether you could talk a bit about the euro, with the Fed perhaps pausing, the Bank of Japan also perhaps pausing and the euro hitting record highs against the yen?

I mentioned the imbalances and the price of oil and other commodities, and I could also mention geopolitical uncertainties.

During the second half of 2006, and on average also in 2007, inflation rates are likely to remain elevated at above 2%, with the precise levels depending mainly on future energy price developments.

The moderation of annual M3 growth observed in the past two months -- to 8.5% in June and 7.8% in July -- may possibly reflect the impact of previous increases in interest rates.

As a matter of fact when we increased rates in December you might remember that we did not have good news, because we had the immediate data relating to the last month of last year, which were not good.

And this of course is an element which might make it possible to explain why financial markets are under the influence of this very abundant supply of additional savings.

Also as regards the exante levels of savings and investment in the world economy, on top of all that has been said already, on the level of savings in Asia and in the emerging economies in general and also on the behaviour of corporate businesses in the industrialised world -- which is perhaps, in terms of investment, at least until now more cautious and prudent than before -- we have the oil element ; and the oil element not only triggers consequences as regards the inflationary risk but also simultaneously produces a level of additional" forced savings '' in a world which is far superior to what we had observed before.

I know that, for instance in German, or perhaps in Dutch or in other languages, it might mean an augmentation of the size of each decision, but it is not that meaning that we have in mind, it is the regular English meaning.

The speed limit itself has to be elevated and that is why we always mention structural reforms as being of the essence Thanks to our own mandate of price stability and to the extent that we deliver price stability, we have a very important responsibility in permitting growth to be as close as possible to the speed limit and not to be volatile ; in avoiding the stops and goes that are associated with inflation.

That needle of our own compass, which is our mandate, is extremely important because it permits us to be as close as possible to the speed limit of growth in the medium to long-run perspective and to diminish the volatility of output.

Can we see a certain tendency of considering the price target of 2% as possibly being a price target without the energy prices?

And I am not sure that it is exactly appropriate in the present period: first of all we have a number of other indicators that are also supposed to predict future episodes in the cycle and they are not at all giving the same indications.

But I would not qualify the probability of realisation ; and, to my knowledge, nobody does that, because, if I speak the language of economists and mathematicians, I would say that there is clearly an element of Knightian uncertainty in what can happen to this domain.

It is probably because observers, economists, and market participants understand this so well that we have succeeded until now in anchoring inflationary expectations in line with our definition of price stability.

In comparison with the June Eurosystem staff projections, the ranges projected for real GDP growth in 2006 and 2007 have been revised upwards, mainly reflecting the stronger growth recorded in the first half of this year, along with continued positive signals from a number of other indicators.

This is the best contribution that fiscal policies can make towards building confidence in the outlook for growth and stability in the euro area and in the revised Stability and Growth Pact.

This is worrying in view of the objectives and commitments agreed under the revised Stability and Growth Pact.

Continued strong monetary and credit growth in the context of already ample liquidity points to upside risks to price stability over the medium to longer term.

Accordingly, strong vigilance is warranted in order to ensure that risks to price stability are contained.

Given the ongoing dynamism of monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium term.

To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook continuing to be clearly on the upside.

Regarding prospects for inflation over medium to longer horizons, our assessment that upside risks to price stability prevail continues to be confirmed by the monetary analysis.

In the view of the Governing Council, risks to this outlook for price developments remain on the upside.

It is the Governing Council 's view that risks to these projections for economic growth are broadly balanced over the shorter term.

Indeed, acting in a timely manner to contain risks to price stability remains essential to ensure that inflation expectations in the euro area are kept solidly anchored at levels consistent with price stability.

It has also confirmed that strong vigilance remains of the essence so as to ensure that upside risks to price stability are contained.

Our concept is very simple: we do what - in our opinion - is necessary to counter the inflationary risks that we see, to deliver price stability over the medium term and to be credible in the delivery of price stability.

Unfortunately, this means that the materialisation of the risks associated with further increases of oil prices that we mentioned earlier is now being observed and this is crystallised in these projections.

The upward move of the ranges is very clearly associated with these dangers and risks.

As regards inflationary risks, they are on the upside, and this is a sentiment which we also see fully confirmed by the information we have received.

You can see what conclusions we draw from the changes in our own assessment of the risks to price stability.

I will not comment more on that as it seems to me that we are clear enough.

I have underlined the phrase" progressive withdrawal of monetary accommodation '', and what has happened in the past seems to provide all the appropriate keys to understanding how we act.

Mr Trichet, how do you reconcile the fact that you have just upgraded your growth estimates for this year and next year with signs that European consumers, investors and business people seem to think that growth has actually peaked?

So do you maintain this definition of the medium term because 18 months seems a long time to me?

The phrase" ongoing withdrawal of monetary accommodation '' seems to indicate that we are talking about more than one rate move, but maybe, that is a misinterpretation on my part.

Mr Trichet, I would like to hear if you maintain the definition of ` medium term ' in the sense that for 18 months now, we have had inflation above 2% and it seems there is growing inflationary pressure in many aspects of the economy, with growth rates possibly being revised upwards.

But I would say that it seems to me that there are a number of economists who are concentrating only on the predictive capacity over the cycle of the slope of the yield curve.

I would say that sometimes it is bad, sometimes it is very good.

However, in other countries, the current fiscal outlook suggests a shortfall in terms of the required structural improvement in public finances.

Therefore I would say that uncertainty in the oil and commodity markets is really something which is absolutely of the essence.

Of course, this has to be considered with a significant element of uncertainty.

But we have a number of other uncertainties.

That being said, we are in a universe of significant uncertainties, and the possible slowing down of the US economy does of course have an impact on us.

As regards the international environment, I said myself that uncertainties had augmented, and I would say that we are in a universe which is probably more uncertain than before.

Over the longer term, uncertainty has augmented and downside risks relate mainly to potential further oil price rises, global imbalances and protectionist pressures, especially after the suspension of the Doha round of trade talks.

Do you apply a certain concept of potential growth, or do you see this as a more endogenous variable which you can not determine before you start to hike rates?

In interpreting recent GDP data, due account needs to be taken of the degree of volatility of quarterly growth rates, but they generally confirm our view that economic growth is broadening and becoming more sustained.

And second question, on the concept of speed limit you were mentioning today ; you yourself said that you were very critical of potential growth estimates, because of data volatility and other reasons.

You have volatility, what I would call quarterly volatility of data, including GDP, which is major information.



2006-10-05, 92 sentences

They continue to include a stronger pass-through of past oil price rises into consumer prices than currently anticipated and additional increases in administered prices and indirect taxes beyond those announced thus far.

Secondly, I would like to have your analysis of some things that have happened or become more apparent since the Singapore meetings and the analysis that was taken at the time of the state of the global economy, namely the fact that there is more evidence now that the US housing market is going down and more discussion about whether or not Europe and Asia are in a position to grow irrespective of whether the American economy goes into a downturn, the decoupling debate.

I need also to mention and I do that from time to time, in terms of trade the UK is more important for us than the US, and that of course appears a little bit paradoxical taking the size of the two economies concerned but it is what the figures are telling us.

And finally, to build on my colleague 's question on long-term interest rates, I would just like to know if there is concern among Governing Council members that rate moves are not affecting what appears to be a voracious appetite for consumer credit effectively enough and that policy will not be able to do what it needs to do soon enough?

We decided to increase rates for the first time after a long period in December with the benefit of the hindsight the decision appears to have been fully justified.

All in all, the economic recovery now appears somewhat stronger than on the basis of earlier data.

If our assumptions and baseline scenario are confirmed, it will remain warranted to further withdraw monetary accommodation.

If our assumptions and baseline scenario are confirmed, it will remain warranted to further withdraw monetary accommodation.

Amid reports that output will be cut, do you have a message for OPEC and do you believe that such a move would call into question the reliability of OPEC members as suppliers?

First of all, let me remind all of us: when we told observers, investors, savers, economists, market participants that we believed that we had to move rates upwards -- you certainly remember that -- we did that some time before we increased rates in December.

I know that there are a number of schools of thought that believe that the US will continue to be going steadily, others are thinking that we are at the beginning of something which could be more ample.

Can we take away from that that you believe that the risks to growth have risen, are rising, for 2007?

And thirdly on the housing market in Europe: do you believe that, like a lot of economic research suggests, the situation in Europe is just the American situation with about a one-year lag but in fact it is an accident waiting to happen about a year down the road?

At the end of the year inflation could very well be substantially over and above 2%, even without changing the present price of oil.

And I was wondering whether you thought that this was reasonable, or if you could expand more on what you see as the prospects for growth and inflation in the early part of next year.

Seeing how you have to think ahead as good central bankers, I wondered if you could tell us what your working hypothesis is regarding the effects on price stability and on growth of the value added tax increase that is coming in a large European country on 1 January?

It 's an order of magnitude, I say that with great caution, which means that there is an impact, but that impact is not necessarily too large, depending on what happens in the United States.

But I would not exclude either the fact that we may go upward again because, as I said, you have a number of phenomena that are due to the profile of the oil prices twelve months ago.

A couple of questions if I may.

The decline in the working age population will place further pressure on pension and health care systems, and may have wide-ranging economic consequences.

You may recall that we were in an environment in which a large number of analysts including international institutions and a significant proportion of the market literature were signalling that, according to their economic analysis, we were not fully justified to increase rates.

And those who are in Paris today may also have a memory of that, and of all the declarations and analyses of the time.

The sequence for M3 in the most recent period of time, you may recall, was 8.8% in May, 8.5% in June, 7.8% in July and now 8.2% in August.

There may be other phenomena, on which we are also looking at, including market phenomena, which could also explain what we are seeing at the moment.

But you have also seen that enormous amounts of savings have been amassed, and are still being amassed by the oil-exporting countries, maybe not exactly quite as fast today as they were, but the increase is still very considerable, and obviously that is an additional element, when you try to compare savings and investment at world level.

Firstly, maybe I misheard you, but in response to an earlier question, I think that you said that the market sentiment is for further moves before the end of the year and you do nothing to correct this, did you mean to say that market sentiment is for a further move before the end of the year, and you would n't want to correct that.

On your first question, maybe you were n't listening to the translation or maybe you were listening to English directly.

And are you afraid that in the long run, this might be a handicap as regards the efficiency of your monetary policy?

And the third question, you said again that monetary policy in the euro zone remains accommodative, how are you judging whether or not policy is accommodative and are we near the point where it might no longer be accommodative?

That might be part of the explanation for the whole development.

And then we have what I might call modest but favourable developments in terms of the anchoring of inflation expectations.

Second there is an ongoing debate on the fact that we are at the end of a period of deflation that has lasted for several years that might have been brought about on the one hand by the problems in economic activity which were more important than in the past and on the other hand by the arrival of new workers on the world labour markets ; for some of us this period has come to an end while for others it has n't.

We might very well be below 2 in one month 's time.

The second question returns to the issue of the euro and the yen, and I know that you did not wish to comment about that earlier but I was wondering if the market reaction to your comments has been as you expected or as you hoped or whether you thought that there might have been slightly more of a response to what you said?

But on the other hand, you have an activity which might be more buoyant and that of course entails risks for inflation.

Then I tell you the contrary, I tell you that we have inflation which is low, perhaps even lower, but then it will go up again and that for arithmetical reasons that everybody can check.

Perhaps those of you who were in Frankfurt also have a memory of that.

As regards housing in the US and the US economy as a whole, you know that an order of magnitude which would perhaps be considered by economists as a good order of magnitude would be that the trade coupling, plus the" echo '', the reverberation of the US economy on the rest of the world, which impacts also indirectly on the euro area would perhaps be summed up by the fact that if the US economy slows down by 1%, more or less, we have ourselves an impact on our growth, taking everything into account, of minus 0.2%.

I do n't exclude that possibility at all ; we may even be lower, perhaps.

It represents a transformation, which of course from time to time encounters real difficulties ; and as you know we are doing all that we can to pave the way for the best possible outcome.

Our colleagues -LRB- including from Romania and Bulgaria as observers -RRB- are represented in all our committees in the ESCB, and we consider it our duty to facilitate things in the best possible fashion.

So I would say that we have to look at it from all possible angles to be sure that our final judgement is well founded That is exactly the reverse of when the prices are going up.

When you try to understand what that means, you will see that we extract all possible information from the financial markets.

The available information on activity in the third quarter -- coming from various confidence surveys and indicator-based estimates -- continues to support the assessment that economic activity will grow robustly while possibly moderating somewhat.

That decreases presumably the amount of visibility you have.

At this stage, all that I can say is that, according to all information I have, in 2007 it would be probably as an average over and above 2%, but there is of course a great influence from various parameters, including the price of oil as regards headline inflation next year.

The best summing-up I can give from the Singapore meeting and the confrontation of various analyses is that we were experiencing an extraordinary period of very robust global growth, around 5% for the fourth consecutive year probably in 07, so a very impressive episode of growth in ' 04, ' 05, ' 06, and probably ` 07.

Moreover, since our previous meeting on 31 August, Eurostat has revised upwards the growth data for the two preceding quarters, thereby confirming that a significant acceleration in economic expansion has taken place over the past few quarters.

On the basis of the revised data, economic activity has been growing at a quarterly rate of 0.7% on average over the last four quarters, the unemployment rate has been on a falling trend, employment growth has recovered and employment expectations overall have remained favourable.

This decision reflects the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses.

In addition, risks to the outlook for price developments remain clearly on the upside.

More fundamentally, given the favourable momentum of real GDP growth observed over the past few quarters and the positive signs from labour markets, stronger than currently expected wage developments pose substantial upward risks to price stability.

The monetary analysis continues to point to upside risks to price stability at medium to longer horizons.

Continued strong monetary and credit growth in an environment of still ample liquidity, as a result of the persistently high rate of monetary expansion over the past few years, point to upside risks to price stability over the medium to longer term.

To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook remaining clearly on the upside.

Given the ongoing dynamism of monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium term.

I hope very much that these downward risks will not materialise.

We were determined to raise the rates because the information we were getting from the monetary analysis was signalling that there were risks in the medium to longer term.

Two questions, first, you have spoken of liquidity and of upside risks that are posing.

Does it increase the risks for price stability or reduce them?

We said more fundamentally that, given the very favourable dynamism of real growth of the GDP which we have seen over the last few quarters and given the strong growth in the jobs market in Europe at the moment, wage and salary increases that would be higher than what expected at the moment - would pose serious risks to price stability.

We can not sit back and let these risks go by without reacting.

But, in addition to everything that I have said, that is to say low real long-term interest rates in Europe and in the United States on the best signatures, you have an assessment of risk which, even after the corrections of May and June, remains at a low level.

In the longer term, we continue to think that risks to growth remain on the downside, for all the reasons I have already said, and I could add some other reasons, but the main reasons we see are first the uncertainty about the price of oil and second the very important risk, that we could have confirmation of, that protectionist pressures are themselves materialising: it is something which is very adverse to growth at a global level and at the European level.

As I said, over the shorter-term, we have economic growth here in Europe, in the euro area, which, in terms of risks, is broadly balanced, and even perhaps a bit on the upside if I take the immediate influence of the lower price of oil to foster growth.

Over the longer term, risks to growth lie on balance on the downside, and relate mainly to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures, especially after the suspension of the Doha round of trade talks, and possible disorderly developments owing to global imbalances.

Third we have also the permanent threats that are associated with the global risks connected with the disorderly unwinding of global imbalances and the market risks which are embedded at a global level.

But that does not mean, obviously, that there are no risks, and that those risks are not of great importance.

I am convinced -- and we are all convinced -- that there are important risks and that is why we have to be vigilant as regards market risks.

In our last Financial Stability Review, we had stressed - Lucas Papademos will certainly remember that because he was the one who presented the report - the risks associated with hedge funds and we even had a specific box in that report in order to explain to all the observers how we see the risks posed by hedge funds.

So, you have a high level of the risk appetite in all of the financial markets, and that risk appetite probably wo n't last forever either.

And from that standpoint I think it 's a bit too early to conclude in which direction the overall addition of the two risks -- one downward risk and one upside risk -- would go.

Risks to the outlook for economic growth are broadly balanced over the shorter term, although the recent fall in oil prices -- if it were to prove lasting -- has the potential to lead to somewhat stronger demand and output growth than embodied in our baseline scenario for activity in the coming quarters.

Talking about the risk appetite of the financial markets, there is an event which has been mentioned a lot in the press and which has concerned the financial community, namely the fact that Amaranth, a speculative fund, has practically foundered.

Although no detailed breakdown is available as yet, this relatively sharp decline seems to be the combined result of favourable base effects, given in particular the strong rise in oil prices a year ago, and the recent significant fall in oil prices.

I also have to mention the great corporate dynamism, which seems to be due to two major phenomena: investment -- and one of the good pieces of news that we have at the level of the euro area is that growth over the last period, particularly in Q2 of this year but also beforehand, seems to have been driven by gross capital formation.

We pay very close attention to those expectations and, as I have said, it seems to us that these inflation expectations, on the basis of the indicators that we have at the moment, seem to be correctly anchored In my view it is because nobody doubts our determination, given the fact that we have proven that we intend to be inflexible in fulfilling our mandate.

That 's also clearly suggested by the situation.

From your earlier comments in the Q&A session, can I take it that you are saying that there is no evidence available to the Governing Council today that would suggest the baseline scenario will not unfold as anticipated over the next six months?

As regards the profile of HICP due to the VAT increase in one big economy in the euro area, clearly there we have, I would say, a mainstream analysis which is suggesting that we will have a hump in HICP, starting in January 2007 it is extraordinarily likely, arithmetically speaking, and there is also a probability of having more consumption in the last quarter of this year, and less consumption in the first quarter of next year.

While the outlook for energy prices is uncertain, on the basis of current energy prices and the higher quotations on futures markets, overall inflation rates are likely to increase again towards the end of the year and in early 2007.

You said in a recent interview in response to a question regarding the economic outlook for 2007 that we should not discount the level of uncertainty that exists in the world today.

There is much more uncertainty for 2007 in terms of what the European Central Bank will do then.

Remember I said growth uncertainties were on the upside.

And at the same time, the uncertainties were also seen on the increase and so we have to take account of those two elements: Solid growth on the one hand, uncertainties rising on the other hand.

Looking ahead to the remainder of 2006 and 2007, the conditions remain in place for the euro area economy to grow at solid rates around potential, with some volatility in the quarterly growth rates likely to emerge around the turn of the year.

My sentiment - and I am communicating the overall sentiment of the Governing Council - is that after a relatively short period of volatility we will go back to more normal behaviour.

We should not pay too much attention to the short-term volatility that would be induced by this phenomenon.

You 've mentioned the fact that, GDP-wise or growth-wise, there will be a certain amount of volatility around the end of the year, partly due to VAT in Germany, partly due to other factors.

That being said there is also short term volatility, which is again something we have pre-announced.

There will be short-term volatility.

As a consequence, we expect a considerable degree of short-term volatility in the annual HICP inflation rate, while the overall inflation rate will remain elevated at levels above 2% on average in 2006 and is likely to remain so in 2007.



2006-11-02, 91 sentences

They continue to include a stronger pass-through of past oil price rises into consumer prices than currently anticipated and additional increases in administered prices and indirect taxes beyond those announced thus far.

I would certainly hope so, but I do not want to anticipate our own projections, so we will see what our own projections are.

It is apparent that the announced VAT hike is affecting other fields.

It has a tendency to appear inverted, like in the United States.

And you remember we were criticised at the time: some were saying that we tightened much too early ; others were telling us that the last quarter of last year 's growth was not flattering -- which appears to be slightly true: now, after revision, it is 0.4%, while at the time it was estimated at 0.3%, which was mediocre.

That being said, it is of course linked to the fact that our trade with the United States is less important than is frequently assumed.

Our present working assumption is that there will be a soft correction -- not a sharp and abrupt correction.

When I combine that with your earlier statement that, if your assumptions and baseline scenario continue, it will be warranted to withdraw monetary accommodation, it is hard not to draw the conclusion that you see your baseline scenario continuing into January 2007.

At the present time, I would say that we are making the working assumption that this slowdown would be a soft slowdown.

There are a number of assumptions as to what happened exactly, and why these notes were plunged into an acid.

If our assumptions and baseline scenario continue to be confirmed, it will remain warranted to further withdraw monetary accommodation.

If our assumptions and baseline scenario continue to be confirmed, it will remain warranted to further withdraw monetary accommodation.

We are not making the working assumption that it could be a hard landing.

Again it is an assumption, and I draw your attention to the fact that I say this with extreme caution, but perhaps, after having being stolen, these notes, already impregnated with the first liquid, might have been attempted to be" cleaned '' by the robbers and that operation might have weakened these notes.

It is considered that you have to introduce a large number of other elements to conclude, and I said myself that our working assumption -- which is shared, it seems to me, by the mainstream analysis and certainly by our friends on the other side of the Atlantic, in the sister institution -- is that a soft slowdown is very likely.

First of all, I believe for the first time here in the statement you have staked out your views regarding the increase in German VAT by noting that there will be some quarterly volatility here at around the turn of the year.

The conclusion that we could draw from the yield curve as it stands is much disputed.

And then I wonder if you could help me understand: in the statement you say" in particular, wage increases should be guided in general by the trend in labour productivity growth ''.

I wonder whether you could talk about the impact of that on the euro and on the course of monetary policy.

First, I wonder whether you could talk about this: in line with this idea of a US slowdown, there has been some talk recently of central bank diversification of foreign reserves.

Several times when our rates were at 2%, we were repeatedly asked" Could you guarantee that there will not be any increases in your interest rates over a considerable period of time? ''

I was wondering if you could help me to understand two of your statements.

My second question is: I was wondering if you could explain your thinking on this idea of a stronger pass-through from past oil prices into consumer prices.

First, I wonder if you could help us interpret some of the latest data on euro area growth, in particular some of the confidence indicators.

Could you maybe give some clarification?

Let me give you the exact figures: for the evolution of M3 growth, we had 8.5% in June, followed by 7.8% in July when we could see that we had something which was suggesting that perhaps there was the start of a slowdown.

In any case, it is already being very predictable that you have little doubt on what we will do next month.

At this moment, I would say -- with some element of caution, because we will have the projections in December -- that the likelihood of the level of the headline consumer price index, as an average, being above 2% this year is certain, and remains likely for next year, on the basis of all the information that I have at this moment.

It is clear that the latest indications we have of monetary developments have not confirmed what we had seen some months ago when, as you may remember, M3 growth was starting to decline progressively.

How effective do you think the ECB policy is at controlling monetary aggregates and -- maybe, to put it a little bit more provocatively -- is where we are now where the ECB wanted us to be in terms of monetary aggregates today?

Are you afraid that that might happen or not?

What might be the rationale to explain a stronger or less strong pass-through?

Some pessimistic observers, like Standard & Poor 's, even say that we might even be above 3% in 2008.

The Bundesbank published at 12.30 p.m. today a communiqué which explains what the Bundesbank and the Eurosystem understands about what might have happened.

Also to be taken into account is the fact that, at the global level, what we see is that the slowdown in the United States is partially or might be partially offset by continuous robust growth in a large part of the rest of the world, which creates an overall environment which remains quite dynamic, seen from the euro area standpoint.

And that might explain in particular why we have such a low level of long-term rates on both sides of the Atlantic and everywhere in the world.

And I would say that if some are augmented, for example I understand pretty well why tobacco should be augmented -- there is absolutely no problem there, although I think that perhaps the smokers in this room would not be at all satisfied -- but I would say for health reasons we can have good reason to do that.

I do n't like to bang my head against the wall any more than the average person here on this subject, but I will simply give you an opportunity to perhaps tell us whether it would be wrong if we were to write such a thing.

As regards the second semester: as I said, we still expect robust growth -- less flattering than in the first semester, which was absolutely exceptional, but it would remain substantial growth, certainly around potential, perhaps hovering a little over potential.

Have you become perhaps a bit more worried about the impact of a US slowdown on the euro area?

Perhaps the paper in question was confusing the person with the difficulty of his job.

Firstly, I would not dream of asking you again what you plan to do in 2007, but perhaps I could ask you a more general question to also help us to understand better your communications strategy.

Given that oil prices have fallen 20% in the last three months, is there a good chance perhaps that next year you will already achieve your price stability target, and could you give us an insight into your view on what is likely to happen with inflation in 2008?

So, perhaps you might elaborate on whether you have changed your mind?

It is a way of protecting notes against the possibility of being stolen.

All in all, the assessment of a more broadly based and more self-sustaining recovery continues to be confirmed by the incoming data, notwithstanding some possibility of a somewhat slower pace of quarter-on-quarter real GDP growth in the second half of this year than in the first.

Now you will ask me how it is possible that there are such very low levels of long-term interest rates.

And that would be totally independent from the long medium-term prediction by the market of what is likely to happen in the economies concerned.

But let me tell you first that to the extent that we are looking at fiscal issues, I would say that in practically all of the areas concerned, and in practically all countries, we would probably say that we judge that further efforts should be made to diminish public expenditure.

And finally, in 2007 Portugal will probably be the only country with a budget deficit above 3%.

I expect that at the end of the year and beginning of next year, when we have the figures for December, and then those for January, that we will probably be at a substantially higher level, because we have those base effects, and a number of phenomena that create volatility in this domain.

It is important that commitments under the revised Stability and Growth Pact are met in all euro area countries.

I noticed in the statement that you have actually highlighted the risk of the US slowdown.

And we had said" No, we will not tell you that we will not move in the months to come because we are alert and we will do whatever is necessary to cope with risks and threats to price stability ''.

Your analysis is for strong and robust economic growth, but I can also quote you as saying that over the longer term the risk to growth continues to lie on the downside.

And I would say that the majority of economists -- certainly on the other side of the Atlantic but also on this side of the Atlantic too -- would not say that the present slope of the yield curve means that there is a very high risk of recession.

Do you feel that it reduces the risk of core inflation trailing after headline-inflation -- upwards?

When you have such capital chasing investment, it creates an environment where capital is abundant, and pushes down the price of risk in general.

As regards the pass-through -- again, it is a risk.

Risks to the outlook for economic growth are broadly balanced over the shorter term, taking into account, in particular, the recent slowing down in the US economy on the one hand and the recent fall in oil prices on the other.

Risks to the outlook for price stability remain clearly on the upside.

More fundamentally, given the favourable momentum of real GDP growth observed over the past few quarters and the ongoing improvement in labour markets, stronger than currently expected wage developments pose substantial upward risks to price stability.

Continued strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term.

To sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook remaining clearly on the upside.

Given the ongoing marked dynamism of monetary growth in an environment of ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term.

The monetary analysis continues to point to upside risks to price stability at medium to longer horizons.

Further administered price increases are one of the risks that we are regularly quoting because we really believe that it is a threat that we have to take into account.

It is in the analysis of risks that we say that we might have to cope with a pass-through which is stronger than previously expected.

Over the longer term, risks to growth continue to lie on the downside, relating mainly to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures, especially after the suspension of the Doha round of trade talks, and possible disorderly developments owing to global imbalances.

Again, it 's a risk -- I hope very much that it will not materialise -- but it is a risk.

As you know, we have the feeling that this can not last forever, and that the present accumulation of the very low level of real rates, the very low level of spreads, the very low level of risk premium that we are observing, the underestimation of risks in general -- will necessarily be corrected.

Do you take the message from these indicators that growth is continuing at roughly the same pace as it has been for the first two or three quarters of this year?

What we have to deliver is price stability in the medium run and what I have observed in the past is that the contribution of administered prices on inflation has been substantial year after year after year -- even if it seems bizarre, because we should not normally have to cope with such a big contribution of administered prices.

It seems that there has been a hike in tobacco taxes.

With the benefit of hindsight you see that it worked very well: we happen to be very predictable ; and the market has understood - it seems to me -- pretty correctly what we had in mind.

As regards 2007, investors seem to be split on what to expect next year.

Let me explain: when you bring notes from one safe to another or from one vault to another, you have sometimes a mechanism which impregnates the notes with red ink in order to prevent further use of the notes when they are stolen.

My second question: Mr Bini Smaghi, in Japan I think, told us that in the tightening cycle you sometimes have to be flexible in terms of the pace.

On the components, we nevertheless see the influence of our monetary policy tightening, because M1, as you know, is now somewhat less dynamic.

The oil price decline -- if it were to prove lasting -- has the potential to lead to somewhat stronger demand and output growth than embodied in our current baseline scenario for activity in the coming quarters.

Although the annual growth rate of M1 has moderated somewhat in recent months, reflecting shifts into instruments with more market-related returns in a context of rising interest rates, this has been more than compensated by the stronger expansion of the other components of M3.

And the second question is: there was a speech published last week on the ECB 's side by a board member about when to stop tightening, and in that speech there was a lot of speculation about the neutral interest rate, that the neutral interest rate might be higher this time than was thought before due to better economic effects.

The three last figures we have on M1 are 7.4%, 7.2% and 7.1%, which suggest that the most liquid component of M3 is a little less dynamic.

As you know, there is a mainstream analysis that suggests that we will have a hump in the last quarter of this year and then the bust after the hump.

We know that we tend to have higher levels of public spending than others, and of course, in the present world of increasing competition and profound and very rapid changes, this does n't work in our favour.

While the outlook for energy prices remains uncertain, on the basis of current energy prices and the higher quotations on futures markets, inflation rates are likely to increase again in the next few months and early 2007.

Looking through the usual volatility of quarterly growth rates, economic activity has been growing at an average quarter-on-quarter rate of 0.7% over the four quarters to mid-2006, and thus faster than generally expected a year ago.

Looking further ahead, the conditions remain in place for the euro area economy to grow at solid rates around potential, although some volatility in the quarterly growth rates is likely to emerge around the turn of the year, mainly reflecting the impact of an increase in indirect taxes in a large euro area country in January 2007.

As a consequence, we expect a high degree of short-term volatility in the annual HICP inflation rate.

Looking through this volatility, however, HICP inflation will remain elevated at a level above 2% on average in 2006 and is likely to remain so in 2007.

The fact that we have mentioned VAT in Germany as influencing growth and also creating volatility associated with it was in the statement or in the questions and answers a number of times already in such press conferences.



2006-12-07, 105 sentences

It is as simple as that, there is no ambiguity regarding our own monetary policy concept.

The Eurosystem projections foreseeing inflation hovering around 2% which is overshooting the ECB Governing Council 's stability definition, and given robust growth, would you still be able to say that if the scenario unfolds as anticipated or if it 's confirmed, that a further reduction of monetary accommodation would be warranted?

Domestic demand remained the main driver of economic growth in the third quarter, confirming the anticipated broadening of the recovery and pointing to the increasingly self-sustaining nature of economic expansion in the euro area.

It appeared to be even more dynamic than all observers would think.

It is approximately 2.5 times the growth of the GDP in value terms.

So all that I can tell you is that in that domain, we believe that permanent alertness is absolutely essential.

I believe that in your articles, editorials and judgement, you also have a wide range of views.

That being said, we strongly believe that a very important factor in making productivity progress materialise is the flexibility of the economy.

As regards labour productivity, we believe that the labour productivity increases that we are aiming for depend on the dynamism of the private sector and on a number of phenomena that are very complex.

And my third question was whether the Governing Council believes that the risks from wage-driven inflation have risen in, say, the last six months?

First of all, in the medium term what does the Governing Council believe is greater, the risks of higher inflation, or the risks of lower growth?

I would like clarification of that.

We are always" conditional '' but that does not mean that we do not extract the trend from the data.

In this context, let me remind you of the conditional nature of these projections, which are based on a series of technical assumptions, including market expectations for short and long-term interest rates as well as for oil and non-energy commodity prices.

And I fully confirm we are conditional, we are depending on data, deep analysis and judgement.

I know that there are more optimistic schools that are thinking that we can see now the results of previous structural reforms and I do not dispute that it could be argued.

One could play a lot of number games about whether 2% falls exactly in the middle of your projection for 2007 and the meaning of that for 2008.

So, could you give us a better sense of how we should weigh the use of the projections in your policy-making for the future?

Then, after a long period of maturation, in 1995-96 we saw the end of the paradox, because we could see a significant change in labour productivity increases.

More fundamentally, given the favourable momentum of real GDP growth observed over the past few quarters and the positive signs from labour markets, wage developments could be stronger than currently expected.

I am thinking about what would or could come in all countries in Europe on top of what has already been decided and taken into account today.

Everybody could see what we did in the past and make a judgement.

This is strongly, although not exclusively, associated with a certain time frame for adjusting borrowing costs, so I was wondering if you could comment on that.

I could repeat it if you wish:" after today 's increase, our monetary policy continues to be accommodative with the key ECB interest rates remaining at low levels ''.

And number three, on private-sector loan growth: could you explain to us whether corporate borrowing is less of a concern from an inflationary standpoint than household borrowing, please?

I could imagine a lot of reasons that the Council would want to keep rates on hold in February, perhaps to signal a slowing pace in rate increase and so on?

Because that would imply that it depends on a specific set of data.

I said myself it is data -- dependent.

Whatever pros and cons may have been put forward as arguments, the conclusion of the European Commission, the ECB and the European Council was that we had a Treaty and that we had to stick to the Treaty.

In the same week you may have a number of signals.

Institutions like the IMF or the OECD are now talking about raising rates in the euro zone to around 4% in 2007 or maybe 2008.

And the second question, I hope you allow it, I will slip into the role of Jean-Claude Juncker, maybe the question is allowed.

Because in terms of the language you have used, you are going to closely monitor price stability in the first quarter of the year, maybe inclined to move very soon after the introduction of the VAT increase.

Does that mean that maybe we should not be drawing from the fact that a certain set of words in previous months has led to a certain action a few months later, that maybe this relationship could be broken down over the coming months?

Do you maybe attach more risks to the monetary pillar, to credit growth, to wage developments or possible wage developments in large economies in the euro zone?

I will not comment on any particular meaning that the last sentence might have but it has no other meaning besides what it says:" the Governing Council will monitor very closely all developments ''.

I think that markets will have noticed that you have not talked about" further withdrawal '' of monetary accommodation, but also your comment that you are" very closely monitoring '', I guess, will increase expectations that you might raise rates as early as next February once more.

And then second, slightly more seriously, I am looking again at this word" accommodative '', and it is a word that economists have mentioned to me a number of times as implying some concept of neutral interest rates, and that at some point ECB rates will be at a level that is no longer" accommodative '', they might even be tightened at one stage.

What is correct is that, as always, we reserve the possibility to act any time, as I said, we do not pre-commit for two, three, four, five, six months later.

Let us see and wait a little bit to analyse that as closely as possible, see what is cyclical and what is structural in the recent evolutions.

But we expect of course that the active pursuit of structural reforms, if they continue to be implemented as actively as possible, will permit us to have a better position as regards labour productivity and then, by way of consequence, as regards the growth potential.

And that is the reason why we are so determined to take any occasion to say: let 's embark resolutely on structural reform, let 's complete the Single Market, let 's have an integration of financial markets which would be as complete as possible, let 's let the workers of Slovenia go to the rest of the euro area...

Is that a possible option?

Again, we have to be as clear as possible: that particular interpretation would not be correct.

I recall a little earlier today, markets certainly were not fully priced in for an interest rate rise to 3.75% in the first three months of next year, and I was wondering whether you thought that markets ' interest rate expectations are appropriate at the moment or whether possibly some revision in the light of your latest words might be needed.

At what point, if any, would you possibly rethink the policy of not encouraging or discouraging third-party use of the euro if a possible disorderly development owing to global imbalances suddenly occurs?

The European Commission, the IMF and the OECD predict growth in the euro area at 2% or more.

When making a judgement on growth, you can see that all institutions are predicting growth for next year that would obviously be quite flattering.

In our Eurosystem staff projections we have a large range which has been revised upwards.

This would be a crucial contribution of fiscal policies to economic growth and fiscal sustainability as well as to confidence in the revised Stability and Growth Pact.

Moreover, in a number of countries with fiscal imbalances, adjustment efforts still fall short of what is needed to meet their respective medium-term objectives in a timely manner and thus fulfil the requirements of the revised Stability and Growth Pact.

In comparison with the September ECB staff projections, the ranges projected for real GDP growth in 2006 and 2007 have been revised upwards, largely reflecting the assumption of lower energy prices and their impact on real disposable income.

This decision reflects the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses.

The Governing Council will monitor very closely all developments so that risks to price stability over the medium term do not materialise.

The Governing Council will therefore monitor very closely all developments so that risks to price stability over the medium term do not materialise.

In addition, given the ongoing marked dynamism of monetary and credit growth in an environment of ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to long term.

To sum up, annual inflation rates are projected to hover around 2% in the coming two years, with risks to this outlook remaining on the upside.

Continued strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term.

Turning to the monetary analysis, annual M3 growth was unchanged at 8.5% in October, remaining close to the highest rates observed since the introduction of the euro, which points to inflationary risks at medium to longer horizons.

In the Governing Council 's view, the risks surrounding this broadly favourable outlook for economic growth over the projection horizon lie on the downside.

We take growth into account to the extent that it augments or diminishes the risks of inflation -- an inflation which would not be in line with our definition of price stability.

So I was very clear on the risks for growth, which we see as being on the downside.

And I concluded, we" will monitor very closely all developments '' in risks to price stability.

As regards you last question on wages I think it is a risk which we do consider to be on the upside.

Again, there is no materialisation as yet of this risk at the level of the euro area as a whole.

What are the risks to financial stability, I think of the bond market, emerging market bonds, of private equity, high-leveraged acquisitions, and I also mention the current exchange rates between yen, dollar, and euro.

To conclude on that we have the sentiment at a global level ; it is true of course in each particular vast economy like the US or us, or the UK or others, that there is presently some under-appreciation of risks in general.

Mr Trichet, can I ask you how much weight you attach to the German VAT increase, in the sense of the risk it imposes to price stability?

When I mention the risks of further inflation that would be due to indirect taxes or administrative taxes, I am not thinking about VAT.

Even if those risks did not materialise, but when they materialise -- it is too late.

We are speaking of risks.

We think that there are more upside than downside risks for price stability.

And thirdly you have highlighted that risks to your inflation outlook are on the upside, would we be mistaken in focusing on a higher end of the ranges you have provided us with for 2007 and 2008?

In the Governing Council 's view, the outlook for price developments remains subject to upside risks, stemming in particular from a pass-through of previous oil price increases which is stronger than assumed in the baseline scenario, the possibility of renewed oil price increases and additional increases in administered prices and indirect taxes beyond those announced and decided thus far.

So, yes, there is a message there that the risks in that area might be on the upside and, as you know, once the risks have materialised, it is too late.

The issue is disputed, you have several schools, but there is a broad agreement that this under-appreciation of risks can not last forever, and that we have to pave the way for an orderly adjustment of this situation at the global level, which might explain why real rates are low, spreads are low, insurance premia are low, volatility is relatively low, all this in historical terms, of course.

The main risks relate to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures, especially after the suspension of the Doha round of trade talks, and concerns about possible disorderly developments owing to global imbalances.

We are not arbitrating between the risks of inflation and the risks for growth.

The other question is when you list the risks to growth, you do n't mention the euro, would you see the euro 's strength as a risk to growth going forward?

We take our decision on the basis of our risk analysis of threats to price stability on the medium run, and we decide accordingly to counter those risks in order to deliver price stability and be credible in this delivery over time on the medium, long and very long term.

But I think it would be wrong to conclude that the implicit real number within the range is this or that, because we are speaking of risks and not already of materialisation of risks.

Can I ask you how much weight you attach to it and whether the weight of the risks - or the risk portfolio -- may have slightly changed in the last couple of weeks?

As regards the changes in the risks concerning inflation, I mentioned traditional risks but, in the case of wages, we have the sentiment that we have to be particularly attentive to this element of risk.

To go back to your remark when I speak of downside risks to growth, I am referring to the general downside risks that I have listed, namely the pressures of protectionism, the risk of further increases in the prices of oil and commodities -- let us not forget that there are also all other commodities -- and also other global threats that could hamper growth in the euro area, but I would not refer particularly to the Italian decision.

But it seems to me that there is not so much pressure against an interest rate hike from the euro zone governments and the euro zone industries.

You also seem to have gone out of your way to sort of talk down their importance for your projections.

It would seem that there are a couple of other countries that have rates of 1.7% to 1.9%, which might be better performing.

It seems to me that it has been an exemplary cooperation with us in particular and with the other European institutions to pave the way for the best transition possible.

The first is on your monetary analysis: you mention sometimes the upside risks to price stability, but you do n't mention financial stability.

The first thing was that this morning I was somewhat surprised to note that there had been a report from Luxembourg overnight, in which Mr Juncker was quoted as saying that the ECB would indeed raise interest rates to 3.5%.

In particular, the annual growth rate of M1 has moderated somewhat, reflecting shifts from overnight deposits into other components of M3 which offer more market-related returns.

Compared with the September 2006 ECB staff projections, the ranges for 2006 and 2007 are somewhat lower, largely reflecting the assumption of lower energy prices.

As regards fiscal policy, the European Commission 's autumn forecasts suggest that deficits will fall below 3% of GDP in most euro area countries by 2007.

There is one school of thought out there that suggests that you can have a private sector-driven productivity increase, that it does not necessarily have to be policy-driven.

While the outlook for energy prices remains uncertain, on the basis of the oil prices currently implied by the futures market overall inflation rates are likely to increase again in early 2007 and then hover around 2% in the course of that year, also reflecting the impact of higher indirect taxes.

So you have both: continued exceptional prosperity and more uncertainty at a global level.

So, do you think that the effect of the increase in German VAT and the impact of the Italian tax rise have added to the uncertainties about growth that you have spoken of, because these countries make up almost half of the GDP in Europe.

At the same time the uncertainties are probably more acute.

They capture uncertainties very well and there are a great number of uncertainties.

What is unknown, obviously, is exactly the impact it will have ; the part of it which will be cushioned by some diminution of margins, the part of it which materialise in the prices.

There is a lot of information in such projections, which capture the modelling by our staff, the understanding of the interplay and interaction between all variables, and an element of judgement by staff.

And that we should even look beyond quarterly volatility for that.

I stick to what, on behalf of the Governing Council, I have signed a few sentences with the colleagues of the G7, including the sentence" Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. ''

As regards the euro, I stick to what I said before:" excess volatility and disorderly movements in exchange rates are undesirable for economic growth ''.

While some volatility in the quarterly growth rates is likely to emerge around the turn of the year, associated with the impact of changes in indirect taxes in a large euro area country, the medium-term outlook for economic activity remains favourable.



2007-01-11, 62 sentences

As regards fiscal policy, almost all euro area countries have submitted their updated stability programmes.

Domestic demand remained the main driver of economic growth, thus confirming the anticipated broadening of the recovery and pointing to the increasingly self-sustaining nature of economic expansion in the euro area.

Is there concern among Council members about this growth rate and the implications for asset prices, for inflation, or are there generally believed to be more benign explanations for that growth?

We believe that what is likely to happen this year looks encouraging, of the order of magnitude of what has been observed last year.

Secondly, I am just confused a bit about what you have been seeing about M3 and the monetary analysis.

More fundamentally, given the favourable momentum of real GDP growth over the past few quarters and positive labour market developments, wage dynamics could be stronger than currently expected.

We never said that everybody could expect an increase of rates every meeting, every two meetings or every three meetings.

Secondly, I noticed that your analysis of the global scenario is a bit more nuanced than before with the detail of deceleration in the US and resilient growth elsewhere and wonder if you could say whether that reflects a more nuanced understanding of the Governing Council 's discussion on the global economy.

So, my question is, could that have something to do with your decision?

Have you already got any information about the profit or loss you made last year from your balance sheet and, if yes, could we know it please?

I would not say anything here that would change expectations in the market that we could do something at the end of the first quarter.

I just wanted to ask if you could give us a sense of the Governing Council 's feelings on this -- on how confident you are of this assertion because it is hard not to read the utterances of the last four or five months as an indication of rising confidence that the German VAT will have a very brief effect and then we will go on with the base - line scenario you have outlined.

I was wondering if you could comment on whether there are basic qualifications among Eurosystem banks for central bank governors, and on what your opinion might be on Poland 's nomination yesterday?

While the significance of monthly figures should not be overstated, as they may also be influenced by temporary factors, the series of strong monetary data over the past couple of months underscore the continued very dynamic underlying rate of broad money expansion in the euro area.

You had a conference last year in which you emphasised the importance of this pillar and the importance of monetary developments and in your statement today you say maybe it 's a one-off, we should n't read too much into monthly figures, but point to an underlying strength and there are also worries about the liquidity at the global level.

Since you outlined your working hypothesis for the effect of the German VAT increase -- I think this was at the Paris meeting in October -- you have stuck to a very confident line that this will maybe have a one-time tick in the figures but things will return normal.

After your last meeting there was a lot of talk about whether or not the ECB had changed its communication strategy and, based on what you have said today, I suppose that question still remains for me - whether or not there is a question about your communication strategy and what you have decided to alter the way you let markets know what you might be thinking.

Hence, I rather think that this might increase speculation about more action being required down the line, maybe 50 basis points in March, which some people seem to be speculating about now.

You will also have noted, perhaps, that I did not use the words" strong vigilance ''.

And a second question on the recent oil blockade: do you feel that the unreliability, or perhaps increasing unreliability, of suppliers will augment or heighten inflationary risks?

We always reserved the possibility to judge and assess the situation in line with our definition of price stability and our monetary policy concept.

We also have to recognise, even if we do not have any other objective possibilities but to take future prices in account that these future prices are not a good predictor.

As regards our profit and loss it is very likely we will post a profit which will go to a reserve position in order to permit us to face up possible future challenges.

As regards your question on the counterparts of M3, one of the great advantages of our own methodology with the two pillars is that, when we look at the monetary pillar, we are bound to try to understand as thoroughly as possible the dynamics of all components, and not only M3 alone.

But, at this stage and in the present circumstances, I think the rather high level of predictability that we have as regards decisions that are taken on the very day of the meeting -- is appropriate for us.

Firstly, I am interested in your reaffirmation of the importance of predictability.

We consider that, unless there are exceptional circumstances, a reasonable level of predictability is not to be rejected.

It 's a question of appreciation of probability.

And this time, I am telling you again exactly this: we are not pre-committed, we will do what will be necessary and I even went a little bit further in saying that I did n't see the necessity to change present expectations as regards probabilities as regards the future.

Of course it is a balance, and you have a certain probability that things could also improve a little bit.

And I was really wondering whether, on the basis of past experience, that means that people can broadly exclude the probability of an ECB rate move next month and whether, also, the ECB could remain in the pattern of" monitoring very closely '' for several months in the future.

But it 's a question of probability ; it 's never a question of 100% certainty and I do not exclude the possibility that we could surprise the market.

But, taking everything into account and with all due taking into account for the various probability distributions, we consider the balance of risks to be on the upside ; that is absolutely clear.

I do n't want to confirm anything except what is in the market as regards future probability which, as I said, does n't seem to me aberrant on the basis of the present level of information.

On the VAT, just as the Fed has been vindicated by facts, figures and its own assessment of what was likely to be observed in the US as regards the conjuncture -- as we ourselves were vindicated in respect of our judgement at the end of 2005 and in 2006 on what was going on -- all the information we have until now more or less confirms that the reasonable assessment we had on the VAT impact on the German economy and, of course, on the economy of the euro area as a whole was probably well-founded.

There are probably -- at the moment we speak -- more than 315 million people in the euro area including Slovenia ; and it is for these more than 315 million people that we have to deliver price stability.

Taking all things into account, it is clear that, for us, it signals series of risks in the medium to longer term.

On you first point the sentiment of the Governing Council is that the balance of risks to price stability is on the upside.

It has also confirmed that very close monitoring of all developments is of the essence so that risks to price stability over the medium term do not materialise.

In the Governing Council 's view, the risks surrounding this broadly favourable outlook for economic growth over the coming years lie mainly on the downside.

These indications are a cause of concern and entail risks for the future.

Hence, very close monitoring of all developments is of the essence in order to ensure that risks to price stability over the medium term do not materialise.

Given the very strong monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term.

To sum up, annual inflation rates are projected to hover around 2% this year and next, with risks to this outlook remaining on the upside.

Continued strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term.

In the Governing Council 's view, the outlook for price developments remains subject to upside risks, stemming in particular from a stronger than anticipated pass-through of previous oil price increases, increases in administered prices and indirect taxes beyond those announced thus far, and the possibility of renewed oil price increases.

Does the Governing Council see any downside risks to price stability -- things that might influence the inflation rate in a downward direction?

I would mention three major risks that the Governing Council sees at the present juncture, the rise of protectionism, the possibility of oil price increases and the possibility of disorderly unwinding of global imbalances.

The main risks relate to fears of a rise in protectionist pressures, the possibility of a renewed increase in oil prices, and concerns about possible disorderly developments due to global imbalances.

These are low-probability risks but grave risks.

This does not mean that we have no risks, we have risks and those risks are clearly on the downside.

Do you think that seems reasonable?

Yet somehow, it does n't seem to have had a bearing on your decision-making.

It seems to me that the expectations have has not necessarily been made on the basis of what I say on behalf of the Governing Council, but rather on the basis of the figures that are available, the facts that are given and the assumptions made.

In particular, over recent months the annual growth rate of M1 has moderated somewhat, reflecting shifts from overnight deposits into other components of M3 that offer more market-related returns.

What does that suggest, if anything, about the momentum of growth continuing into the first quarter of 2007?

And secondly, there have been some comments from the central bank governor of the UAE earlier today suggesting that the Gulf Arab currencies might look towards re-pegging their currencies away from the dollar towards a basket of currencies, or a free-float Does something like this fit in with resolving global imbalances, and do you see that as a helpful step at all?

We all know that and that adds up to the current uncertainty.

Does that mean that the ECB would never find such a situation where an overwhelming majority of market observers expect a particular course of action for you as a central bank but we, on the day of interest rate decision, get something quite unexpected, as has happened in a country with which I am fairly familiar.

On the second question, we are clearly experiencing an episode where volatility is high and we have several illustrations of that.

On account of their volatility over recent months, and owing to base effects, energy prices will continue to play an important role in determining the profile of annual rates of HICP inflation in early 2007, together with the impact of higher indirect taxes.

While some volatility in the quarter-on-quarter growth rates around the turn of the year may be observed -- associated with the impact of changes in indirect taxes in a large euro area country -- the information available continues to be in line with our baseline scenario.



2007-02-08, 80 sentences

They continue to include a stronger pass-through of past oil price rises into consumer prices than currently anticipated and additional increases in administered prices and indirect taxes beyond those announced thus far.

First question -- we will see what will be in our next projections, and I do not want to anticipate in any respect the next projections -- they depend on a number of parameters and on the work that will be done by our staff.

In the very short term, it appears that the changes in VAT in a large euro area country were not fully reflected in prices in January.

Let me mention the December 2006 increase in outstanding loans to non-financial corporation of 13%, which is high, and approximately a little less than three times the growth of GDP in value terms.

You did n't mention that they are temporary as well, but I assume that will be the case.

I would not jump to a definitive working assumption -- as you are suggesting -- that it is carry-trade.

We do what we believe we have to do and, of course, the circumstances are changing, the environment is changing, new data are coming in, such as the good surprise as regards growth last year.

Given the robustness of the discussion, do you believe there is an implicit threat to the independence of the ECB, or for that matter the Bank of Japan, in all of the euro-yen discussion we have seen?

We are always conditional.

Could you give us an idea when you think that inflation will be above 2%, or reaching 2% again?

Was there any concern among Council Members, today, that markets could perceive a March rate increase to be the last -- before we go on to the next question.

Could you comment on that?

Could you help guide us as to who is right?

If I could just back up on the first question.

I wonder if you could share with us whether the decision to use that phrase was unanimous among the Governing Council.

And my third question: I was wondering if you could tell us -- you will be heading to Essen on Friday and Saturday -- what message will you take to the G7 on behalf of the Governing Council regarding improving transparency for hedge funds?

Could you comment on whether this is the case and if so, whether those meetings would be on a formal or informal basis?

We have also the administered prices and indirect taxes which could go over and above what has been anticipated and priced in present projections: our projections, as well as the projections of the market, of the observers and economists.

I understand you are not pre-committed, but could you tell me if there were any members of the Council, today, who were concerned that markets might interpret the March rate increase as the last?

So I wonder if you could address that, because you really seem to be singling that out as the key factor here.

Considerable challenges therefore remain, which differ across countries but which all urgently require determined action.

Thereafter, it should be noted that on the basis of current prices for oil and oil futures and previous oil price developments, significant favourable base effects may progressively lead to lower inflation rates in the spring and summer.

In this respect, it may be helpful to consider the potential volatility of inflation in greater detail.

At the same time, we learn from the data that the net external assets of the banking sector also increased very much in November and December and, as I understand it, this might have to do with carry trades.

You are absolutely right to say that, when looking at the counterparts of the monetary aggregate and, in particular, when looking at the external counterpart, we can see that there is room for further work to gain a better understanding of what might have happened in this respect.

I might just follow up if I may with a second question about the yen.

Secondly, to follow up on my colleague 's question about wages: a number of economists have noted that as the unemployment rate has fallen to 7.5% there might be some inflationary wage pressures in there, but, as much of the job growth has taken place in part-time and contract work, the expected inflationary impact might actually be muted.

Observers -- as lucid and vigilant as you -- perhaps concluded that we were increasing rates every three months in the first half of 2006.

As regards the percentage of counterfeit banknotes, the latest information that I have is that we are in a situation which is of the same order of magnitude as we had before but perhaps even better.

Would you comment perhaps on how the ECB is thinking?

Perhaps you could help us journalists.

Would you agree that the mode that the ECB is in now is perhaps something different to what it was in the second half of last year maybe because of the uncertainty about the global outlook because the inflation outlook is relatively benign at the moment, and that maybe we are entering a period in which the distance between interest rate increases might be slightly less predictable looking beyond next month.

As regards carry trade at the global level, it is clear that we do have that phenomenon -- perhaps more visibly for other currencies than for ours -- and it is true that it is a phenomenon that is probably also triggered, or fostered, by the low level of volatility that we are currently observing in the global financial markets.

It also encompasses more flexible product and labour markets that would give rise to new investment possibilities and innovation.

Better than expected budgetary outcomes in 2006 and possible further revenue windfalls this year should be used for faster fiscal consolidation.

It is now essential that the momentum of improving public finances is maintained and that the pace of fiscal consolidation accelerates in 2007 and 2008 so that all euro area countries attain their medium-term objective of a sound fiscal position as soon as possible.

On the basis of today 's assessment, after a possible fall over the spring and summer, inflation rates are likely to increase again later in the year.

However, it is not to say that we are living in the best of all possible worlds.

This is not to say that we are living in the best of the worlds possible.

With regard to price developments, it is essential to stress the importance of taking a medium-term perspective and to look through the possible volatility of inflation rates over the course of 2007.

On the first question about the word vigilance: you said we are in the domain of probability.

As regards the profile, we are in the domain of probability, because it depends on a number of parameters that we, of course, do n't have control of, namely the price of oil and of other commodities.

I wanted to make clear that we know in advance, on the basis of present information as regards the price of oil, in particular, that we would probably have a particular profile in the course of 2007, with diminishing yearly inflation rates month after month due to base effects and then a picking-up at the end of the year.

Or are you going to revise your growth projection, because growth around potential is not inflationary?

Hence, we will be strongly vigilant in order to ensure that risks to price stability over the medium term do not materialise.

Given the very strong monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term.

Risks to the medium-term outlook for price stability remain on the upside, relating in particular to stronger than currently expected wage developments.

Persistent strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term.

The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons.

More fundamentally, stronger than currently expected wage developments pose substantial upward risks to price stability, given the favourable momentum of real GDP growth observed over the past few quarters, the fact that survey measures of capacity utilisation are approaching the peak levels reached in 2000, and the ongoing improvement in labour market performance.

The medium to longer-term outlook for price stability remains subject to upside risks.

At longer horizons, risks lie mainly on the downside.

Risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term.

It has also confirmed that strong vigilance remains of the essence so as to ensure that risks to price stability over the medium term do not materialise.

Finally, I think you are right to underline the issue of wages and salaries as a risk: it is clear that we have a message there today.

Would you be of the mind to act in a firm and timely manner ahead of these inflation risks materialising later this year?

Today, I can tell you that we see inflation risks in the medium term on the upside, as I said earlier.

First one: you mentioned the risks to inflation you are seeing in the medium to long term.

And in my introductory statement I had mentioned risks.

Second, the risks that I listed on behalf of the Governing Council will not surprise you ; there is the stronger pass-through of past oil price increases than previously anticipated, and that remains a risk.

But we would certainly have, over time, an increase in the pricing of risks that will perhaps be more in line with a good and appropriate assessment of risks at the global level.

The main risks relate to fears of a rise in protectionist pressures, the possibility of a renewed increase in oil prices, and concerns about possible disorderly developments owing to global imbalances.

So, with this strong underlining of risks of inflation rises, are you sending signals that you are going to revise up your inflation projection for 2008, which was under 2%?

So as I look toward the risks to inflation that you sketch out here over, let 's say, the next ten months, it 's hard not to come away with the impression that it is wage developments that are the key factors that are going to determine upon which side the risks ultimately fall.

Then, for reasons that were entirely due to the risks to price stability that we had identified and the balance of risks according to our final judgement following our two pillars of analysis, economic and monetary analysis, we increased rates every two months in the second part of the year.

My second question regards the risks for inflation in the medium term: you seem to paint toward the upside here, but you note that base effects kick in and lower rates temporarily in the spring and summer, base effects then kick in, in the fall and raise them.

Given your emphasis, today, on the medium-term risks to inflation going forward -- and I note, in particular, your remarks on monetary expansion -- it would seem to me that it would be naïve to think one more interest rate hike would do the job.

And the Eurogroup seemed to have one voice, given that the Eurogroup had a common message on that after the last meeting.

It seems to me that, last time, this anonymous communication proved to be totally wrong.

And then second, on today 's topic: I was wondering whether, if -- as lots of people in the market seem to think -- ECB rates do rise, next month to 3.75%, whether it would still be appropriate to call the level of ECB rates accommodative, given the general situation in the European economy.

And thirdly on communication, why does the ECB have very successful communication, like today, but it seems to be that the Bank of Japan is somewhat struggling to get good communication.

I had the occasion recently to make public some comparisons that were more flattering for the euro area than has been sometimes said.

Everybody can understand that the situation is somewhat different from that of September in Singapore.

Turning first to the economic analysis, the latest indicators and survey data suggest that the economic expansion has continued into 2007 and remains solid and broad-based.

We hear comments from European finance ministers suggesting that somehow the yen is too weak ; it 's being distorted by financial flows.

Of course, monthly figures can be volatile and we should not overemphasise short-term developments.

Looking ahead, while some volatility in the quarter-on-quarter growth rates of real GDP can not be excluded, the medium-term outlook for economic activity continues to be favourable.

To sum up, in assessing price trends it is particularly important to look through any short-term volatility.

Also, moving beyond that, you warned against paying too much heed to short-term volatility in the drop-off of the inflation rate over the next few months, but warned against upside risks to price stability later in the year.

We know that this will not last for ever and I have myself said a number of times that I trust that part of the phenomena we are observing today -- the low level of spreads, the low level of volatility, the low level of risk premia -- are probably characteristic of a transitory period in the financial market, corresponding to an under-appreciation of risks in general.



2007-03-08, 83 sentences

Secondly, do you anticipate that competitors will arise in response to this system from the ECB?

By contrast, the projected range for inflation in 2008 is slightly higher, largely on account of the anticipated stronger economic growth, which could exert more intense pressure on factor utilisation and factor costs.

In this respect, some countries ' consolidation targets appear not fully in line with the requirements of the revised Stability and Growth Pact.

Am I correct in assuming that?

It has been fixed at 4.5% for eight years now and a number of knowledgeable people -- even within the ECB and the Eurosystem -- have concluded that the assumptions do not hold anymore.

Second, we believe that T2S can be extremely positive for achieving financial integration in the field of securities settlement.

We have taken this decision because we believe that it will allow us to exploit synergies and to deliver the service at a lower cost: up to 20% when compared with building T2S from scratch.

We believe that we are very transparent.

We are totally open, we are totally transparent, and we firmly believe that something has to be done and that the present situation is not -- as Gertrude said -- optimal, neither from the competition standpoint nor from the financial integration standpoint, which is very important for us as well as for the Council and the Commission.

We also -- including myself -- were referring to what Minister Omi and Governor Fukui had said ; I said that I had noted myself that they said" that they believed that the Japanese economy is on a sustainable recovery path and that the exchange rates should reflect these economic fundamentals ''.

And we had a clarification in 2003.

We said that in the clarification.

In this context, let me remind you of the conditional nature of these projections, which are based on a series of technical assumptions, including market expectations for future short and long-term interest rates as well as for oil and non-energy commodity prices.

Could you define that a little bit?

Gertrude, could you be more precise?

And the question of the nature of the public consultation: whether that is just looking for details or whether it could lead to a whole re-think of the project?

We expect, of course, in the medium and long run that, if we continue to be steady on structural reforms, we will observe -- progressively -- something of that sort, but so far, we do not consider it to be documented or substantiated and that we could retain it.

In the context of this favourable environment, orderly phenomena of the type I have mentioned could be observed in the period to come.

As regards your consideration on financial stability at a global level, I have already mentioned that we considered that there were a number of elements at the level of global finance that could progressively be corrected and, in particular, the under-pricing of certain risks I have mentioned.

It is also in line with the Treaty that the European Central Bank may provide facilities in this context.

The Governing Council has also decided on the" piece of land '' where the" house '' would be built, if I may express it in this way.

And while you may say that there may be additional savings of something like 20% if the current Target2 operators operate this and if it is operated on that platform, do you not envisage that there might be a further hold-up by people trying to challenge that assumption and people coming in saying that they could have provided -- say -- 50% savings or something like that.

And finally, how do you respond to criticisms of mission creep leveraged at the ECB because this does not fall within your monetary policy framework, as far as I understand it, but maybe I am wrong?

If we were to write that today the ECB began to prepare financial markets and indeed the citizens of the euro area for a monetary policy stance in the future that might be restrictive, would that be a fair interpretation of the message you are trying to convey?

We have a similar situation now, albeit with different kinds of contours, and I wanted to see if you might be of a similar sentiment today?

You might also have noted that I said that we continue to be on the accommodative side and that interest rates are moderate.

Would you consider raising rates to a level that might be slightly restrictive for growth if the inflation outlook were to warrant it?

Do you not envisage that there might be some criticism that it did not go out to public tender?

Secondly, you have said that the move from low to moderate and also from" accommodative '' to" on the accommodative side '' speaks for itself -- you 'll have to forgive me if it is not speaking to me -- if I took from that that the Governing Council had a consensus that interest rates might be reaching a peak, which is what it does say to me, would I be wrong in that interpretation?

Concerning the recent events that we have observed, it is true that the Governing Council of the ECB widely felt -- and I would say that it was very largely a consensus, a consensus that I myself have expressed on a number of occasions as the chairman of the G10 group of central bank governors -- that we were perhaps in a phase in global finance where risks in general were not necessarily assessed at their real price.

These relate to the possibility of renewed oil price increases and additional increases in administered prices and indirect taxes beyond those announced and decided thus far.

First of all, there has always been discussion among us on the assets and liabilities of all possibilities but there was no discussion of any 50-basis point interest rate increase.

On the monopoly issue, central bank money is a product which can be offered by central banks only, but the possibility of providing the necessary securities for settlement will remain open in the future, because the T2S system will not be mandatory.

We exchange all possible views.

The intention is to draw as much as possible on the market expertise to draw these plans and to have them finalised by the end of this year.

Is it possible that, if there are strong objections from incumbents or banks about the principle of the project, the project as a whole could be scrapped as a result of this public consultation?

If I read the report correctly, he referred to a probability.

And secondly, rates are moderate, signalling that they are probably edging towards more neutral levels, yet at the same time you are highlighting the risks to price stability.

Might that be a reason for the Governing Council to reassess this value or has it maybe already become defunct and we just did not notice?

In comparison with the December Eurosystem staff projections, the ranges projected for real GDP growth in 2007 and 2008 have been revised upwards, largely reflecting the strength of GDP growth in the second half of 2006 and the lower energy prices, which, if sustained, would have a positive impact on real disposable income.

When we extract information from the financial markets, we have a level of break-even for inflation expectations that is in line with our definition of price stability when you deduct the appropriate risk premia, and it is the same with the surveys that are done.

You said that on the market there has been a realistic re-appreciation of the risks.

We have had no ex ante concept, but we have always said that at any time we will do what is necessary to counter inflationary risks.

I wonder if you will say that on the exchange rate of the euro against the yen there has been a realistic re-appreciation of the risks and particularly on the carry trade?

More fundamentally, stronger than currently expected wage developments would pose significant upward risks to price stability, not least in view of the favourable momentum of real GDP growth observed over the past few quarters.

The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons.

In an environment of ample liquidity, it points to upside risks to price stability over the medium to longer term.

Risks to the medium-term outlook for price stability remain on the upside, relating in particular to stronger than currently expected wage developments in a context of robust ongoing growth in employment and economic activity.

Given the vigorous monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term.

The Governing Council will continue to monitor very closely all developments so that risks to price stability over the medium term do not materialise.

Risks stem in particular from a lack of well-specified and credible measures, notably on the expenditure side of budgets.

At the policy-relevant medium-term horizon, the outlook for price developments remains, in the Governing Council 's view, subject to upside risks.

This decision was taken in view of the upside risks to price stability over the medium term that we have identified through both our economic and monetary analyses.

The Governing Council will monitor very closely all developments so that risks to price stability over the medium term do not materialise.

In the Governing Council 's view, the risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term.

At longer horizons, risks lie mainly on the downside.

Wages are very important for us, as always, because of the risk of second-round effects and, also, because we have to take into account different situations.

It represents a more realistic appreciation of risks in general.

Again, some re-appreciation of risks is welcome ; abrupt moves are not welcome.

I said that we will monitor all developments very carefully so that risks to price stability do not materialise.

What we do is, we assess the situation, we make a judgement on the inflationary risks and we do exactly what we believe to be correct in order to counter those risks.

And my second question is that when we were all in Madrid last year and the financial markets were doing their gymnastics then, you stressed that an appropriate assessment of risk was not the worst thing in the world and that perhaps some valuable lessons were being learnt.

This was materialising in the levels of spreads and risk premia and in a number of other considerations, perhaps including low real interest rates.

The main risks relate to the possibility of a renewed increase in oil prices, fears of a rise in protectionist pressures and concerns about possible disorderly developments owing to global imbalances.

We have to permanently make judgements on the inflationary risks in the medium term and we will do whatever we consider necessary to counter inflationary risks.

If you look at the risks to the economic outlook now and a month ago, would you say that risks have increased, especially if you take into consideration what is going on in the United States especially in the subprime real estate markets, and also again looking at what is happening in the global markets?

Can you see in your monetary analysis this risk to financial stability coming from the carry trades and so on -- we are connected world-wide with this risk?

You had, in particular, some parameters that were moved in one day, whereas in the previous episode -- when you had some kind of re-appreciation of risks and volatility in 2006 -- the same levels of corrections took much more time.

What we have been observing for a number of days has been a certain re-assessment of risks on the upside and across the board and a higher level of volatility.

Their claim seems to be that it would dampen consumption growth, which has long been the euro zone 's weak spot.

Therefore we think that our facility would open the market to competition -- would increase competition -- and this seems to be a reason to offer these services.

We have sometimes revised our views as a result.

Compared with the December 2006 Eurosystem staff projections, the upper bound of the range projected for inflation in 2007 is somewhat lower, largely reflecting the fall in oil prices.

As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust, supported in part by lower oil prices.

Our current assessment is that the quarterly profile of real GDP growth is likely to be somewhat smoother in response to the impact of indirect tax changes in one large euro area country than had originally been anticipated.

I would not suggest that we would change anything at this stage.

One of the questions I would suggest that you ask yourself is, how is it the case that this monetary pillar served the central banks so well that they delivered price stability and that they were credible in the delivery of price stability?

We would at this stage not suggest that we consider our growth potential for the euro area to have changed significantly upwards.

I just want to be clear: would you characterise what happened last week and the ongoing market turbulence as an abrupt movement and therefore as an appropriate reassessment of risk?

In Madrid, you basically told us that financial markets were experiencing some turbulence -- some dropping -- and this reflects a realistic re-pricing of risk and perhaps that is the same thing going on now?

But we publish ranges and the ranges also capture the uncertainty which characterises all projections.

To sum up, in assessing price trends it is important to look through any short-term volatility in inflation rates.

Looking ahead, last year 's volatility in energy prices will lead to significant base effects, affecting the profile of annual inflation rates this year.



2007-04-12, 70 sentences

Government deficit and debt-to-GDP ratios in euro area countries in 2006 have turned out to be significantly better than anticipated.

On the basis of the latest data, survey releases and various indicator-based estimates, it appears that robust growth is continuing in the first half of 2007.

I have a couple of questions: First, you note in the introductory statement that robust growth appears to be continuing in the first half of 2007.

We have already an instrument that we believe to be a very good one.

And I also said after some comments made by Minister Omi and Governor Fukui that we believe that the Japanese economy is on a sustainable recovery and that the exchange rate should reflect these economic fundamentals.

As regards Germany, we have noted -- not only for Germany but, more broadly, at the level of the euro area -- that a number of indicators confirm what we believed to be the case, namely that we were in a process where growth continued to be there at the beginning of this year.

At this stage we do not believe that we can conclude with sufficient certainty that there has been a change in total factor productivity or in labour productivity that would permit us to say that the growth potential is higher than before.

We also believe that there is no room for complacency because the convergence process is certainly a very important one and very ambitious one, taking into account the starting point.

And this is not new, because I already said that we believe that there are in global finance a level of spreads, a level of volatility, a level of low long-term rates, a level of pricing of risks in general in the global economy that would not necessarily be sustainable in the medium and long run.

And thirdly, coming back to the monetary pillar, you 've just talked about the complexity of this pillar -- I think there is a lot of confusion in lots of people 's minds about how much weight you are actually attaching to this pillar at the moment because, if you look at the sort of numbers you 've just been reading out, you 'd be thinking that you 'd be raising interest rates already.

It could also be improved at a global level, because we have still significant differences on a transatlantic basis and at a global level.

It could be improved more, and better harmonised.

If I take the example of one particular country -- I could take many of them -- the case of France: since the euro was created, around two million jobs have been created in France during those eight years.

The ECB has said that Romania should be more ambitious in adopting the euro and that this could happen in 2012.

We never pre-commit in advance and I will not comment on what could happen in the months to come.

So, I do not have any particular comment on what the United States could do, or could not do.

And then, finally, if you could elaborate a little bit -- has the Governing Council entertained the idea that interest-bearing components of M3 could be rising specifically because interest rates are rising and are thus perhaps not a sign of inflation pressures to come?

More fundamentally, stronger than currently expected wage developments could pose significant upward risks to price stability, not least in view of the favourable momentum in labour markets observed over the past few quarters.

First of all, I was wondering if you could comment on the fact that although the euro is appreciating strongly against the dollar and the yen, it seems to be losing ground against such currencies as the Romanian leu, the Polish zloty and the Hungarian forint, and I am curious if the ECB is following this trajectory of the euro in this area?

You know that they always depend on facts and figures.

But if you are in a position where there are doubts about your present level of cost competitiveness, then of course wage moderation remains absolutely of the essence.

The IMF said that if Romania were to adopt the euro in 2014, the reforms for achieving the nominal and real convergence criteria may be slower.

You may remember that I said several times that, on the basis of our cross-checking of the economic analysis and the monetary analysis, we had judged it to be time to increase rates.

Each of us -- the 19 -- fully accept that other colleagues may have good arguments -- may have good analyses -- that are worth being examined and incorporated in this collective collegial wisdom that I have to express as the spokesman.

Previously, when I have asked whether" monitoring very closely '' means in two months ' time, you said that it was the wrong interpretation... maybe you want to say something different this time.

Why are you signalling that you are planning to wait with a rate increase until maybe June, taking into account that you have mentioned robust GDP growth and inflationary pressures on the upside?

Maybe you do not want to comment on it, but I would like to ask about the JPY/EUR exchange rate again.

We think that what we are observing as regards labour productivity might be linked to the cycle, and we are looking at it very carefully because it is a very important parameter for us of course.

My substantive question was: markets are obviously looking at June, but also beyond, wondering whether or when euro zone interest rates might reach some kind of peak.

And my second question: I know it is still a little bit early, but I am very curious if the ECB 's policies are influenced or are changing in any way in order to account beforehand for the new big economies that might join the euro area, such as Romania and Poland, which are probably going to have a bigger impact than the latest one which joined.

Perhaps you have noted that I have mentioned in my introductory remarks an analysis of the situation which is extremely close to the analysis we made in our last meeting, which is not surprising, because everything that we have observed since then has confirmed what we had envisaged in our last meeting.

I will confirm what I said, perhaps when responding to one of your own earlier questions.

I do n't expect you to give a categorical answer, but perhaps as people try and make their analyses of the situation, you could help on three fronts.

On the first question, I would say that there was no discussion on an increase in interest rates today, and as always, we weighed up the pros and cons associated with various possibilities.

These relate to the possibility of further oil price rises and additional increases in administered prices and indirect taxes beyond those announced and decided thus far.

They relate to fears of a rise in protectionist pressures, the possibility of further increases in oil prices and concerns about possible disorderly developments owing to global imbalances.

As regards M3, I would say that, as you know, we look at the monetary pillar with a view to understanding as much as possible the complex dynamics that underlie it.

I also mentioned explicitly the possible unwinding of global imbalances.

What we are telling Romania is that we encourage Romania to reform as efficiently as possible.

Are there any indications that the ECB will follow suit and also revise upwards its potential growth estimates for the euro area?

And the second question, regarding potential growth in the euro area: some economists and institutes in Germany have been revising upwards their forecasts or their estimates of potential growth in the largest euro area economy, which is Germany.

At the present moment, no, I can not tell you that in our judgement we have to revise the growth potential for the euro area upwards.

This is of vital importance to ensure fiscal sustainability in preparation for the impact of ageing populations and is fully in line with the revised Stability and Growth Pact.

It has also confirmed that the medium-term outlook for price stability remains subject to upside risks, so that very close monitoring of all developments is warranted.

Indeed, it is essential to ensure that risks to price stability over the medium term do not materialise.

The risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term.

At longer horizons, downside risks remain, stemming mainly from the external side.

Over the policy-relevant medium-term horizon, the outlook for price developments remains subject to upside risks.

The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons.

In this environment of ample liquidity, the continued vigorous expansion of money and credit points to upside risks to price stability over the medium to longer term.

R