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Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB and
John Hurley, Governor of the Central Bank & Financial Services Authority of Ireland
Dublin, 10 May 2007

Jump to the transcript of the questions and answers

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference here in Dublin. I would like to thank Governor Hurley for his kind hospitality and to express our special gratitude to his staff for the excellent organisation of the meeting of the Governing Council.

Let me now report on the outcome of our meeting, which was also attended by Commissioner Almunia.

On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our decision to increase interest rates in March. Strong vigilance is of the essence in order to ensure that risks to price stability over the medium term do not materialise. In turn, this will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. Given the favourable economic environment, our monetary policy continues to be on the accommodative side, with the key ECB interest rates moderate, money and credit growth vigorous, and liquidity in the euro area ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted.

Turning first to the economic analysis, the latest indicators and survey data confirm that the expansion of economic activity continued in the first quarter of 2007 and remains solid and broad-based. Looking ahead, the medium-term outlook for economic growth in the euro area continues to be favourable. Conditions are in place for the ongoing expansion to proceed at sustained rates. Global economic growth has become more balanced across regions and, while moderating somewhat in recent quarters, remains strong. External conditions thus continue to provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its momentum. Investment should remain dynamic, benefiting from an extended period of favourable financing conditions, balance sheet restructuring, strong corporate earnings and gains in business efficiency. Consumption should also strengthen further over time, in line with developments in real disposable income, increasingly supported by employment growth and improving labour market conditions.

The risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At longer horizons, the balance of risks remains on the downside, stemming mainly from external factors. Such factors include fears of a rise in protectionist pressures, the possibility of further increases in oil prices and concerns about possible disorderly developments due to global imbalances.

With regard to price developments, according to Eurostat’s flash estimate, annual HICP inflation was 1.8% in April 2007, after 1.9% in March. Looking at the coming months, barring further increases in oil prices, significant base effects deriving from last year’s energy price volatility will strongly influence the profile of annual inflation rates. On the basis of the current level of oil prices and oil price futures, annual inflation rates are likely to fall somewhat in the months to come, before rising again towards the end of the year to hover at levels around 2%.

Over the policy-relevant medium-term horizon, the outlook for price developments remains subject to upside risks. These relate notably to the increasing capacity utilisation in the euro area economy, the possibility of further oil price rises and additional increases in administered prices and indirect taxes beyond those announced and decided thus far. 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. The Governing Council is monitoring wage negotiations in the euro area countries with particular attention. It is crucial that the social partners meet their responsibilities so as to continue to avoid wage developments that would eventually lead to inflationary pressures and harm the purchasing power of all euro area citizens. In this context, it is also important to point out that wage agreements should be sufficiently differentiated and take into account price competitiveness positions, the still high level of unemployment in many economies and productivity developments across sectors.

The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. The underlying rate of monetary expansion remains strong, in a context of already ample liquidity. The ongoing strength of monetary expansion is reflected in the increasingly rapid growth of M3, which in March reached an annual rate of 10.9%, as well as in the ongoing high levels of credit growth. Monetary and credit expansion is due partly to the moderate level of interest rates and solid economic growth.

Short-term monetary and credit developments can be affected, inter alia, by the shape of the yield curve and external factors, and be subject to some degree of volatility. Looking through such transitory aspects, there are, however, several indications that higher short-term interest rates are influencing monetary dynamics, although they have not, as yet, significantly dampened the overall strength of these dynamics. For example, increases in short-term rates have served to moderate the expansion of the narrow aggregate, M1, in recent quarters, but its annual growth is still robust. Equally, the annual growth rate of loans to the private sector has shown some signs of stabilising since mid-2006, albeit at double-digit levels.

All in all, taking into account both short-term factors and the underlying trend of the continued vigorous expansion of money and credit, there are clear indications of upside risks to price stability at medium to longer-term horizons. In fact, following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. In this environment, monetary developments continue to require very careful monitoring, particularly against the background of a solid expansion in economic activity and still strong property market developments.

To sum up, in assessing price trends it is important to look beyond any short-term volatility in inflation rates. The relevant horizon for monetary policy is the medium 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 ongoing robust 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. Accordingly, the Governing Council will continue to be strongly vigilant in order to ensure that risks to price stability over the medium term do not materialise. This will support the solid anchoring of medium to longer-term inflation expectations in the euro area at levels consistent with price stability. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.

In relation to fiscal policies, the Governing Council welcomes the recent commitment by the euro area finance ministers – at the Eurogroup meeting in Berlin on 20 April – to make full use of the current economic growth and better than expected tax revenues to pursue sound fiscal policies and to avoid procyclical policies in line with the provisions of the Stability and Growth Pact. In the view of the Governing Council, this requires a rigorous implementation of 2007 budgets, the avoidance of expenditure overruns and the full allocation of unexpected extra revenues to deficit and debt reduction. For 2008, countries with remaining fiscal imbalances are expected to pursue more ambitious than planned budgetary targets As a result, all euro area countries should achieve their medium-term objective of sound budgetary positions as soon as possible and by 2010 at the latest. Moreover, all countries should avoid fiscal policies that feed macroeconomic imbalances. This would allow euro area countries to prepare themselves for less favourable economic conditions.

As repeatedly stressed, the Governing Council fully supports structural reforms that enhance competition, increase productivity and foster economic flexibility, thus promoting the potential for real GDP growth and employment. Increased productivity also allows for increases in real wages without negatively impacting on employment, thereby supporting the income growth of the euro area work force. In recent years, average wage increases in the euro area as a whole have been rather moderate, making a vital contribution to job creation and lower unemployment. It is important that this favourable trend in labour markets continues, so contributing to a prolonged and robust upswing. In this respect, sufficient wage differentiation is required so as to improve employment opportunities for less skilled workers and in sectors and regions with high unemployment. Furthermore, the removal of impediments to labour mobility would help to address local imbalances in labour markets and to enhance the adjustment flexibility of euro area economies to economic shocks. The euro area could reap major benefits from these policies in terms of economic dynamism, more job creation, lower unemployment and increased per capita income.

We are now at your disposal for questions.

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Transcript of the questions asked and the answers given by Jean-Claude Trichet, President of the ECB, Lucas Papademos, Vice-President of the ECB and John Hurley, Governor of the Central Bank & Financial Services Authority of Ireland

Question: I have a three-part question, if I may, but the first question is quite short an answer, I imagine. Was the Council unanimous in its decision to move to a stance of strong vigilance? Second of all, markets are pricing in a further increase after June, are they correct in that assumption, or would you like to correct them today? And finally, would you describe the ECB’s policy after June as data-dependent?

Trichet: As regards your first question, yes, we were unanimous. As regards your second question, I think that what I said speaks for itself. And that there is absolutely no ambiguity, we are in a posture of strong vigilance. On the other hand, we never pre-commit in advance, and you know that. And as regards your third question, of course, all that we do is always data-dependent.

Question: Mr Trichet, I would like to take the opportunity to welcome you to Dublin. While you are here, we would like to ask you about the Irish economy. With low unemployment, you have mentioned before our over-reliance on the property sector and house-building and house prices are falling off. Can you comment on that, please?

Trichet: First of all I have said that to the President of the Republic of Ireland, that very often, I and my colleagues of the Governing Council are mentioning the Irish economy as a role model in many respects for the euro area. In terms of growth, in terms of dynamism, in terms of job creation, in terms of long-standing reform strategy, with economic reforms that are paying off in many respects. And the present levels of figures that we can observe as regards job creation, the diminishing of unemployment, the GDP per capita based on this long-standing growth of the economy are very impressive. I will also make the remark that what we are deciding ourselves, together with John Hurley and the Vice-President and all our other colleagues, is based upon our judgement on the vast economy that is the euro area, 318 million people – our fellow citizens, 13 countries, from Dublin to Ljubljana, from Lisbon to Helsinki. And each of us has the duty, according to the Treaty, to reflect on what is necessary in the superior interest of this vast economy, and not embarking on discussions on what is good for country A, country B or country C. It is really the superior interest of the vast economy, which is at stake. That being said, I have noted with colleagues that we have, at the level of the euro area as a whole, to look very carefully at the real estate sector, at dynamism of loans to real estate for financing housing in particular. In our recent decisions and interest-rate increases we took into account this situation as one of the parameters that we have mentioned very often in the introductory remarks to the press conference. As regards the most recent observations in Ireland, I would very much like John to comment on your question but it seems to me that we have been going in the right direction, and the signs are that the tensions that were observed in the past are progressively, slowly, cooling down. And I would very much like John to make a comment here.

Hurley: Thank you very much, there is little to add; the decisions that are made here and in Frankfurt in the Governing Council are decisions for the euro area as a whole, as the President has said. In relation to the Irish property market, you probably will recall that last year, house prices in Ireland were rising at about 15% and at that time, I indicated clearly that I thought that that level of increase was too high and I thought that it could not be sustained. What we have seen since is a reduction in the level of price increases and I think in March, on an annual basis, these prices would now be increasing at about 7%. So it is clear that this year I think the growth in house prices will be down to single figures, low single figures and I think this is a positive thing and I think that it shows we have a soft landing in the Irish property market.

Question: You described again today that monetary policy is being on the accommodative side and I wondered if you could say the same of the overall economic and monetary conditions, taking into account the strong euro. And my second question: I notice that you have gone in some more detail than you usually do in the introductory statement about the volatility affecting monetary and credit developments at the moment. The ECB, of course, used to review the M3 reference value every year. I wondered if, since there is a bit of debate at the moment about the reference value, would it be appropriate to review that again? And do you still find the 4.5% benchmark to be useful when making decisions?

Trichet: On the volatility of M3, money and credit developments, let me say that we were quite explicit in the introductory remarks, in mentioning that we have had some indications that previous interest rate increases were modifying the structure of M3, the structure of its components and the structure of its counterparts. And I have mentioned as regards the structure of the components that we were reasonably happy to see that M1 had slowed down – but I have to mention that in the most recent period of time we have seen this slowdown somewhat interrupted. Nevertheless, we have seen that our previous interest rate increases were working. And I would say the same for loans to the private sector. To give you precise figures: for example in March we could see that outstanding loans to the financial corporate were still very dynamic, at 12.4%. But in January, for instance, we were at 13.2%. As regards lending for house purchases, John was mentioning a slowing down in the case of Ireland. I mention that at the level of the euro area as a whole – the last figure we have is that the outstanding amount was augmenting over 12 months in March by 8.9%. In November last year it was 10.2%, so we see a certain cooling down of this counterpart of M3. All this is important and we work a lot to understand as well as possible the dynamics of the counterparts, the dynamics of the components that are making up M3 in a context which is very peculiar, in particular with this low level of long-term rates the flatness in the yield curve being the mark of the present situation. Not only, of course, in our case but all over the world.

You had also a question on the reference value. That it is a concept, which we trust, is useful over the medium to longer term, because it allows the central banks to be reminded of the fundamental principle that over sufficiently long-term horizons, the rate of monetary growth must be consistent with the price stability objective. That being said, over the medium to long term, the deviation of money growth from the reference value should not be and has never been interpreted mechanically. This has been made absolutely clear since the very beginning of the display of the monetary policy of the ECB and it is what we have been doing, as you have seen, since the very beginning. It was reiterated at the time of the clarification we made in 2003. So again I would only say that we have a vision of the monetary pillar, which is a vision that it is very important. We are extremely attached to the monetary pillar and this is something that has been constantly repeated. My sentiment is that the necessity of having a monetary analysis to permit a better understanding of monetary policy in general is gaining ground. I could mention many colleagues, including the Governor of Bank of England, who have mentioned very explicitly that it was certainly an area where a lot of pertinent information could be obtained for central banks and for their decision-making processes. Again the full understanding of components and counterparts of the dynamics of credit brings about a lot of pertinent and important information and I have mentioned that in all introductory statements I remember.

Question: And my first question, which was if monetary conditions overall are still on the accommodative side given the strong euro?

Trichet: I have nothing to add to the introductory remarks. We consider that we are on the accommodative side, on the one hand, and I am very clear on that at the moment I am speaking. On the other hand, as you know, we always take into account all pertinent parameters. We make a synthesis on the basis of data and of appropriate and pertinent information.

Question: I have two questions Mr Trichet. You’ve made fairly clear today that barring some unforeseen circumstances there will be a rate hike in June.

Trichet: I said that we are in the posture of strong vigilance and that we never pre-commit in advance.

Question: The question is, assuming that you hike in June, would you at this point – based on what you already know and what you anticipate for the future – again say that policy remains on the accommodative side? That’s the first question. The second one is: you have outlined the main scenario, namely medium-term price risks to the upside and a favourable outlook for the economy in the medium term; I’m wondering to what extent the Council today discussed risk scenarios? To what extent perhaps these inflation fears might be overblown? To what extent maybe the outlook for the economy is perhaps being seen at the moment as being too favourable? The EU Commission said in its latest forecasts this week that wage moderation is expected to continue. It called this a very remarkable outcome in view of the economy’s strength. It also said that it sees no significant second-round effects, inflation effects, so far. And on the oil price it said a further rise in oil prices would or could have a significant impact on the economy. I wonder if you could comment on that, please?

Trichet: On your first question, I give you a rendezvous in Frankfurt in June and I will tell you then how we see things after June. At this stage, I will only say that after June we will do whatever is necessary to ensure price stability and that is of course on the basis of this fundamental working assumption made by all the investors, savers and market participants that we can have the solid anchoring of inflationary expectations in line with our definition of price stability and that is true for the next five or ten years. So again this anchoring is based upon the right assumption that we do what is necessary to do to deliver price stability and are credible in the delivery of price stability over time.

As regards the risks, I have mentioned explicitly a number of risks. Of course we always analyse risks to price stability, and I have mentioned very explicitly the risks to price stability that we see. I have also mentioned the risks for the real economy that are mainly stemming from external observations that we might have on the side of the global real economy and I have mentioned in particular protectionism. I have mentioned a possible increase of oil and commodity prices. I have also mentioned the risk of a disorderly unwinding of global imbalances. I could add that we are permanently reflecting on the disorderly unwinding of what I would call in global finance the certain degree of under-pricing of risks, which is also something that we have to consider as a risk. But again this has been already said in the introductory remarks. And, as regards prices, it is precisely because we consider that risks are on the upside in terms of price stability that I have mentioned this posture of strong vigilance.

Question: Two questions please. Firstly I notice you’ve avoided answering any questions about market expectations beyond June, but I wonder if you could just comment on the view for instance of Business Europe, which said that interest rates at 4% would represent some sort of psychological level, beyond which we go into a different world with all sorts of possible exchange rate risks which could be damaging for business in the euro zone. Do you see 4% as some sort of psychological limit? Second question, on these risks, you talked again about the risks of excessive wage settlement, we’ve had a major settlement in Germany, IG Metall. Has that settlement made you slightly less anxious about the possible inflationary pressures of such deals?

Trichet: On the first question: we take into account all pertinent elements when we take our decision. I have always said that. And we will always do what is necessary to ensure the appropriate and credible delivery of price stability over time. If we did not do that and were not credible in doing that, then inflationary expectations would go up, as would the incorporation of inflationary expectations in the yield curve, and the result would of course be a financial environment which would be much less favourable. So the credible delivery of price stability in line with our definition is a precondition for sustainable job creation and sustainable growth. And we profoundly trust that we can demonstrate this with facts and figures. Let me only mention that we have been credible in this since the euro area was set up, since the very beginning under the chairmanship of Wim Duisenberg, who was the President when we had our previous “delocalised” meeting here in Dublin. And allow me to mention that we have created more than 12 million jobs in the euro area in the eight years since the setting-up of the euro, compared with less than 3 million in the eight years before. I could add a number of other elements that are very telling in terms of the performance that we have had and we trust profoundly were achieved thanks to our credibility in the delivery of price stability.

As regards the accord that took place in Germany, I think that precisely in our own judgement we said that one would have to continue to take into account in all further negotiations the parameters I have mentioned: the competitiveness of the various entities concerned, whether they are sectors or enterprises, the level of labour productivity increases and the level of unemployment observed in the euro area economies and sectors. All this has to be looked after very carefully if we want to continue to have price stability, to preserve the purchasing power of our fellow citizens and to have sustained growth and sustained job creation. Again job creation during the last years is one of the major successes that the euro area can be proud of.

Question: I am sorry if I am coming back to the question of the impact of previous rate increases and the euro to ask you, did you discuss during today’s meeting the eventuality of pausing the interest rate increases, just because it is a question of lagged impact of previous rate increases plus a stronger euro which could pose risks to the economy later in the year?

Trichet: Again, I will give you a rendezvous in June. We will have new information, we will have new data and it will be the appropriate moment for the Governing Council to decide, and for the Vice-President and myself to say, what we will do after the June meeting. At the present moment, I do not want to give you any other indication but that we will continue after June to do what in our view is necessary to do to deliver price stability and to be credible in the delivery of price stability. That is the needle of our compass.

Question: The Council meeting has met twice in three cities, once in Paris at the Banque de France, where you used to be Governor, and the only other two are Madrid and Dublin, the capitals of the two countries with the highest rates of M3 growth, credit growth, and house price growth. So you seem to like coming to countries with these characteristics. I know you are too polite and too professional to comment on the case of a particular country, but I would like to give you a hypothetical case to comment on. If there was a region of the euro zone, whatever country or region it was, where in a two-year period government spending had increased by 25%, the balance of payment’s position had deteriorated by 4% of GDP, fiscal policy was clearly pro-cyclical in the two years running up to an election, and the harmonised index of consumer prices was consistently above the euro zone average, and private sector credit was expanding by 40% over that two-year period, would you say to that country that it was not playing by the rules of the monetary game?

Trichet: I have absolutely no idea which country you are alluding to. But, for all countries and for all regions of the euro area we call again and very strongly for sound fiscal policies. This country you are mentioning is probably a country, which is growing rapidly. If this is the case, then you have to do on the fiscal side all what is necessary in terms of soundness and rigour in order to be sure that you are paving the way for periods when growth is less flattering. This is our constant message for the entire euro area. We would certainly also call for unit labour cost preserving competitiveness and wage moderation according to the level of labour productivity progress that can be made in order to preserve long-term competitiveness and again, pave the way for long-term sustainable active growth. All partners in all regions of the euro area must be fully aware of the fact that we are issuing a currency at the level of a vast economy which is a good store of value, which is credible, and which inspires confidence. The single monetary policy is designed at the level of this vast economy. Then at the level of each economy or region, all other instruments that are in the hands of these economies or regions, must be optimised in order to fully take into account all the parameters. That being said, I was happy to see that, as I said recently in Berlin, the ECOFIN, the Eurogroup, has decided to be even clearer in terms of the objectives that have to be reached at the latest in 2010. I have already said, on behalf of the Governing Council, that this decision is a very important one, that we support it, and encourage the governments to do all they can to fully respect this commitment.

Question: Back to the not-at-all hypothetical Mr Sarkozy in France, who has been suggesting “that the ECB stops fighting inflation that does not exist” and wants to re-write your mandate. What have you said to him or what would you like to say to that?

Trichet: I have noted that the call for a change to our mandate is a request which is no longer being made by the new French President. I draw your attention to the fact that your question corresponds to something, which is not substantiated at the moment we are speaking….

Question: …not at the euro level, but one big country is calling for it…

Trichet: No, it is no longer a request. You can check, but it has been made public and, of course, I am very happy that it is absolutely clear that our mandate is not called into question by any country and that the Treaty is not called into question by any country at the moment I am speaking. It is important that you gave me an occasion to reiterate that.

Question: Mr Trichet, just three points if I could just put them to you. The first one: do you see a stronger euro against the dollar in any way as being a substitute for higher interest rates? And what are your thoughts with regard to the euro level at the moment in that capacity and your view on accommodation? Secondly, the sub-prime mortgage market has been a very big issue in the United States and you describe what has been going on with regard to lending in Europe. Have you any concerns about the sub-prime mortgage market in Europe and the impact it might have? And finally, a last one, an Irish question, if you do not mind. We have an inflation figure today, 5.1% that is our consumer price index. That is the index which people look at when they are negotiating wages rather than the HICP, and our trade unions have been saying that if this rate stays at those levels by the middle of the year they will want to re-negotiate the national pay deal which is a three-year pay deal. Would that concern you or have you any views on that?

Trichet: On the exchange rates: You know to what extent I call for discipline in this domain. And let me only say what I already said recently in Washington and in Berlin that I have noted with great interest that the US Secretary of the Treasury and the US authorities have confirmed that a strong dollar was in the interest of the United States. On your second point, we are looking very carefully at our international environment. I mentioned that it is from the international environment that we see the main risks, which would be downward risks for the real economy in Europe. I have also said, and I maintain this sentiment, that we trust the analysis that the Fed does of the US domestic economy and of the sub-prime mortgage market in particular. I would say that we have a phenomenon there, which is certainly important, but also is an orderly one. And I will not change my sentiment on that particular point.

On your last point: we look ourselves at the HICP indicator, namely at the harmonised CPI. We look very carefully at harmonised indicators and I would only say that for us it is that which is important. The harmonised indicator in Ireland is still high, it’s at 2.9%, if I am not mistaken, and of course it is above the definition of price stability that we have for the harmonised index in the euro area and above the present average at the level of the euro area. I believe that the trend would go in the right direction at the level of Ireland but perhaps John would like to say a word on that. And I would call on all social partners here as in all other economies and regions in the euro area to show a maximum level of responsibility – for all the reasons that I have already explained: to preserve sustainable growth and job creation and to preserve the purchasing power of all euro area citizens.

Hurley: Just to pick up on that point in relation to the trend on the CPI and the trend on the HICP: It seems to us that for 2007 we would expect the harmonised index to be about 2.5% and the CPI which, as you know, is affected by mortgage interest rates, to be about 4.8%. Now next year, in 2008, we would expect the harmonised index to be 2%, a little above 2%, and the consumer price index to be 2.7%. The CPI takes the impact of mortgage increases into account, and I think we are the only euro area country that includes the mortgage interest repayments in its domestic measure of inflation. So, I think the most meaningful comparison across the euro area is, as the President said, the harmonised index.

Question [in Irish]: A question with regard to the housing market. Since the beginning of 2007, house prices appear to have slowed down. Does this mean that the prices are being corrected? And if it is a correction, does this mean a fall in prices, a major fall in prices, particularly if the interest rate rises in June?

Hurley [in Irish]: From 1 January 2007, Irish is an official working language of the European Union and it is such an occasion for me to be here today in that regard. This is the first time on the occasion of the meeting of the ECB’s Governing Council that we can explain these issues through the medium of Irish. With regard to the question, as I said a few minutes ago, last year there was an increase of about 15% in the housing market in Ireland. I said at the time that I wasn't happy with that, that it was too high. We knew at the time that it couldn’t continue on like that and now it has reduced. I think that we will be down to lower single figures later on this year. As I said already, this means to me that we have a good chance of having a soft landing. We weren’t happy when we were talking about an increase of 15% and, as I said, we knew that could not be sustained.

Question: In Basel, you answered one of my questions, back then when the euro was at 1.366, saying that you were worried by the level of the euro, can we write the same now that the euro is even over that level?

Trichet: At the moment of speaking it is not the case, if I’m not misled. But I will restate that I have noted with great interest that the Secretary of the United States Department of the Treasury and the American authorities have said that a strong dollar is in the interests of the USA.

Question: Just going back to when you were talking about money supply, you said that you consider all the various elements. One element would be something like increases in net external reserves of euro area banks, and that may be pushing up the money supply, while the loan growth, you said, is actually stabilising. I'm just trying to understand how much of an influence that has on your thinking, so that you don't just have a mechanical response to higher M3 and increase interest rates. Could you sort of outline that for us in some way?

Trichet: It is absolutely true that among the counterparts of M3 that appear particularly dynamic, in the most recent month, we have the external counterpart. We must analyse very carefully the dynamics that are underneath. We have also observed that in the past, so it’s not a new phenomenon, but it is an important one.

Question: You mentioned earlier on that, in those economies that are growing more rapidly, fiscal policies should be implemented to pave the way for a time when growth may be less flattering. Would you have a similar message, then, for consumers in those economies where spending is growing more rapidly and the economies are growing more rapidly?

Trichet: In general – again – all decision-makers and all partners, in particular social partners, but not only – all those who have an influence on any region or any domestic economy, should take into account the fact that the monetary policy is a monetary policy which is optimised at the level of the full, vast economy of the euro area, at the level of the 318 million citizens. And this is true for all elements of the economic policy that are not in the hands of the single monetary policy but in the hands of other authorities and partners, and they are numerous, undoubtedly.

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