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Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB
Frankfurt am Main, 6 December 2007

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Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and 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 latest information has confirmed the existence of strong short-term upward pressure on inflation, with the HICP inflation rate reaching 3.0% in November. It has also fully confirmed our assessment that there are upside risks to price stability over the medium term. Against this background, and with money and credit growth remaining very vigorous in the euro area, the Governing Council stands ready to counter upside risks to price stability, as required by its mandate. The economic fundamentals of the euro area remain sound. However, the reappraisal of risk in financial markets is still evolving and is accompanied by continued uncertainty about the potential impact on the real economy. We will therefore monitor very closely all developments. By acting in a firm and timely manner on the basis of our assessment, we will ensure that second-round effects and risks to price stability over the medium term do not materialise. Firmly anchoring medium and long-term inflation expectations in line with price stability is all the more important at times of financial market volatility and increased uncertainty. As regards the financial markets, we will continue to pay great attention to developments over the coming weeks.

Allow me to explain our assessment in greater detail, starting with the economic analysis.

According to Eurostat’s first estimate, the quarter-on-quarter growth rate of euro area real GDP in the third quarter of 2007 was 0.7%, in line with the earlier flash estimate. Domestic demand remained the main driver of economic growth in the third quarter, confirming the sustained nature of economic expansion in the euro area. The latest information on economic activity from various confidence surveys and indicator-based estimates supports the assessment that economic growth has continued into the fourth quarter of this year, though probably at a more moderate pace than in the third quarter. Overall, the fundamentals of the euro area remain sound. Profitability has been sustained, employment growth has been robust and the unemployment rate has fallen to levels not seen for 25 years.

These factors are also reflected in the December 2007 Eurosystem staff macroeconomic projections. Annual real GDP growth is projected to lie in the range of 2.4% to 2.8% in 2007, and be between 1.5% and 2.5% in 2008, and between 1.6% and 2.6% in 2009. In comparison with the September ECB staff projections, the range projected for real GDP growth in 2008 has been revised slightly downwards, whereas for 2007 the new range lies within the upper part of the previous one. Available forecasts from international organisations broadly confirm this outlook.

The scenario of sustained real GDP growth broadly in line with trend potential is based on the expectation that the global economy will remain resilient, with the slowdown of economic growth in the United States partly offset by the continued strength of emerging market economies. External demand should therefore provide ongoing support to euro area exports and investment. Consumption growth should also contribute to economic expansion, in line with developments in real disposable income, as continued employment growth provides supportive conditions. That said, in view of the potential impact of ongoing financial market volatility and re-pricing of risk on the real economy, the level of uncertainty remains high.

In the Governing Council’s view, the risks surrounding this outlook for economic growth lie on the downside. They relate mainly to the potential for a broader impact from the ongoing reappraisal of risk in financial markets on financing conditions and confidence and on world and euro area growth, possible further oil and commodity price rises, as well as concerns about protectionist pressures and possible disorderly developments owing to global imbalances.

As regards price developments, according to Eurostat’s flash estimate, the annual HICP inflation rate increased sharply again in November 2007, to 3.0% from 2.6% in October. Oil prices have risen strongly in recent months, and food prices have increased substantially, reflecting higher global demand. In addition, as emphasised on previous occasions, we are currently in the midst of a period in which unfavourable effects from energy prices are having a strong upward impact on annual HICP inflation rates, owing to the marked decline in oil prices a year ago.

Looking ahead, the HICP inflation rate is expected to remain significantly above 2% in the coming months, and is likely to moderate only gradually in the course of 2008. Hence, the period of temporarily high rates of inflation would be somewhat more protracted than previously expected. The December Eurosystem staff projections foresee annual HICP inflation to be between 2.0% and 2.2% in 2007, but then to rise to between 2.0% and 3.0% in 2008. For 2009, HICP inflation is projected to lie between 1.2% and 2.4%. Compared with the September 2007 ECB staff projections, the projected ranges for HICP inflation in 2007 and 2008 have shifted upwards. Forecasts from international organisations which incorporate recent inflation developments give a broadly similar picture.

These projections largely mirror the assumed path of oil and food prices, for which available futures prices suggest a deceleration in the course of next year. On the domestic side, unit labour cost growth is projected to increase over the projection horizon. In this context it is important to emphasise that the staff projections assume that recent oil and food price dynamics and their impact on HICP inflation will not have broadly-based second-round effects on wage-setting behaviour. This is a key assumption. A further key assumption is that growth in profit margins will moderate over the projection horizon. In combination, these two assumptions imply, in the context of the staff projections, a continuation of overall contained domestic cost pressures, which contributes to the moderation in inflation projected in 2009.

In the Governing Council’s view, risks to this medium-term outlook for price developments are fully confirmed to lie on the upside. These risks include the possibility of further rises in oil and agricultural prices , continuing the strong momentum observed in recent months, as well as increases in administered prices and indirect taxes beyond those foreseen thus far. Moreover, taking into account the existence of capacity constraints, the favourable momentum of real GDP growth observed over the past few quarters and the positive developments in labour markets, stronger than currently expected wage growth may emerge. Furthermore, an increase in pricing power in market segments with low competition could materialise. It is therefore crucial that all parties concerned meet their responsibilities and that second-round effects on wage and price-setting stemming from recent commodity price rises be avoided. To that end, any explicit or de facto indexation of nominal wages to prices should be eliminated.

The monetary analysis confirms the prevailing upside risks to price stability at medium to longer-term horizons. Money and credit have both continued to grow vigorously in recent months. The annual growth rate of M3 in October, at 12.3%, is likely to have been influenced by a number of temporary factors, such as the flattening of the yield curve, the financial market turmoil and specific transactions associated with the restructuring of certain banking groups. However, even taking these special factors into account, the underlying rate of monetary expansion remains strong. Moreover, the sustained expansion of loans to the domestic private sector, which grew at an annual rate of 11.2% in October, points to the continued vigour of underlying monetary dynamics. Monetary developments therefore continue to require very careful monitoring, both to detect underlying trends associated with inflationary pressures at longer horizons and to better understand shorter-term dynamics.

Such monitoring will also provide a more complete picture of the response of the private sector to the increased volatility in financial markets. A broad assessment of underlying trends in money and credit growth is particularly important at present given recent financial market developments. Heightened financial volatility may influence the short-term behaviour of money-holders and thereby complicate the extraction of the underlying trend monetary developments. At the same time, monetary and credit data can also offer an important insight into how financial institutions, households and firms have responded to the financial market turmoil.

For the time being, however, there is little evidence that the financial market turbulence since early August has strongly influenced the dynamics of broad money and credit aggregates, although specific balance sheet items, such as holdings of money market fund shares/units, may have been affected. Indeed, the growth of bank loans to households and non-financial corporations has remained robust in recent months, which may suggest that the supply of credit has not been impaired. Further data and analysis will be required to develop a more complete view of the impact of the financial market developments on bank balance sheets, financing conditions and money and credit growth.

To sum up, a cross-check of the outcome of the economic analysis with that of the monetary analysis fully confirms the assessment that there are upside risks to price stability over the medium term, in a context of vigorous money and credit growth and against the background of sound economic fundamentals in the euro area. At the same time, the reappraisal of risk in financial markets is still evolving and uncertainty about the potential impact on the real economy has continued. Consequently, the Governing Council will monitor very closely all developments. Our monetary policy stands ready to counter upside risks to price stability, as required by our mandate. In particular, for the recent increase in inflation to remain temporary, it is of the essence that no second-round effects materialise via an impact from current inflation rates on wage and price-setting behaviour. By acting in a firm and timely manner on the basis of our assessment, we will ensure that second-round effects and risks to price stability over the medium term do not materialise and that medium and long-term inflation expectations remain firmly anchored in line with price stability. This is all the more important in the current context. As regards the financial markets, we will continue to pay great attention to developments over the coming weeks.

Turning to fiscal policy, the European Commission’s autumn 2007 economic forecast generally confirms the picture of improving budget balances in the euro area this year. However, progress with structural fiscal consolidation in countries with remaining budget imbalances is generally disappointing. This lack of ambition unnecessarily prolongs the correction of remaining fiscal deficits and could lead to negative surprises should the macroeconomic environment turn less favourable. In this context, Member States should meet the commitment they made in the Eurogroup’s Berlin agreement of April 2007, namely that most euro area members would achieve their medium-term objectives in 2008 or 2009, and all should aim for 2010 at the latest.

With regard to structural reforms, it is important that governments continue their efforts to make progress. The improvements in the employment situation over recent years show the fruits of past reforms. It is essential that the reform momentum to enhance competition, productivity growth and labour market flexibility is maintained and that there are no reversals of the reform process in the countries of the euro area.

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, and Lucas Papademos, Vice-President of the ECB

Question:I have a number of short questions: I noticed you dropped the term that “economic fundamentals support a favourable medium-term outlook for economic activity”. ECB staff have lowered their economic growth forecast for 2008. Does that suggest that the Governing Council is more concerned about economic growth than may have previously been the case? Your staff have increased their inflation forecast for next year. You said you were ready to counter any inflationary pressures – how are you going to do that in light of a slowdown in economic growth? And thirdly, you said, if I look at the inflation forecast for 2009 correctly, the mid-point will suggest that you will achieve price stability on average, it will turn out at around 1.9 % on average, but you have said that staff assume there will be no second-round effects. On what basis is that? Particularly in a number of very large countries we have wage negotiations coming up next year. In Germany you have the public sector, which is very powerful. They have already asked for 7%. Food and energy prices are getting more expensive by the month. So how can you prevent second-round effects from emerging?

Trichet: As regards economic growth projections, as you have said, these are the staff projections; they are made according to the best professional standards and of course with a very high level of skill. They are not underwritten by the Governing Council, as you know; we are not in a concept where we would ourselves say “these are the Governing Council projections”. These are the staff projections. And they are an important input that we have, but they are an input. They are not our own projections. We look at all information that is provided by our staff, as a very important input, and also through other channels. What the staff has worked out as far as economic growth is concerned seems to me very much in line with the sentiment of the Governing Council that I expressed in the previous press conference, when I said that, in our opinion, we would be around potential, potential being around 2%. I don’t want to say anything else but that. As you know, we always publish ranges and not mid-points. You yourself expressed the computation of some mid-points, but what we are publishing is ranges, in order to reflect the level of uncertainty that exists for growth as well as for inflation.

As regards the inflation projections, I said last time, that, as far as we were concerned, new information on oil price increases and on food products were suggesting that we would have a hump which would be higher, more protracted and longer than what had been previously projected. And this, not surprisingly, is captured in the work which has been done by the staff, with the range for 2008 of 2% to 3% and for 2009 from 1.2% to 2.4%. Again, as far as I am concerned, I give the range, I don’t give the mid-point. It is your own responsibility to do what you think you should do with the ranges that are published by the ECB as regards the staff projections. As regards your last question: it is very important for me to restate that what is absolutely decisive for all members of the Governing Council is that this working assumption of the staff as regards the absence of second-round effects be fully confirmed by what will really happen in the reality. It is absolutely fundamental, it is a key working assumption, and we will do all that is necessary to ensure that there is no materialisation of second-round effects. We must not have second-round effects. We will do what is necessary. You know that we are alert. We call upon social partners, we call upon price-setters; we call upon the corporate constituency to be fully aware of the fact that we will not tolerate second-round effects. It is essential. It is essential for the meeting of our mandate and the achievement of our primary goal of price stability in the medium term. It is essential to meet the clear demands of our 320 million fellow citizens and it is also essential to continue solidly anchoring inflation expectations and therefore to pave the way for sustainable medium and long-term growth and job creation.

Question: Many economists nowadays say that the reason for the high inflation rates now is the fact that the ECB waited too long in 2005 to increase rates, it was only in December and many economists then said much earlier that the economy was going up. What do you say to this reproach?

Trichet: I think this reproach, if any, comes a little late, because I remember that when we increased rates in December 2005, most of the economists were telling us that we should not, that their economic analysis strongly recommended not doing so. I have a clear memory that the IMF said “you should not do that”, and the OECD said “you should not do that”, and I do not have many memories of editorialists, either the major international media or the national media, telling us “you should do that”. Not to mention, of course, that at the time an overwhelming majority of executive branches thought it useful to say that we should not do that. But despite the comments of executive branches, of a large majority of economists and of the two important international financial institutions I mentioned, the Governing Council decided to do it, and now we have been fully vindicated for having done what we did in December 2005. And as I have said on a number of occasions, we did it on the basis of our economic analysis and on the basis of our monetary analysis. The monetary analysis was decisive in telling us “you should do that now, even if the large majority of market participants, economists and international institutions are against it”. But again today we have been fully vindicated. At the present level of headline inflation, a number of price hikes have been observed in food products, as well as this creeping oil shock that we continue to observe. I should also mention that, at the very moment I am speaking, it seems that the impact of the VAT increase in Germany might be of the order of magnitude – at the level of the euro area – of perhaps 0.4%. It is not negligible, and it is something which was decided on the basis of very good reasons, but it had an impact, and we knew at the time that it would have a significant an impact on headline inflation. But all that being said, what is important is that we continue to anchor inflation expectations. We have this protracted hump in front of us now, and we know why. Our staff is projecting that in 2009 we are likely to be back to our definition of price stability, but it is absolutely essential that the working assumption that there will be no second-round effects is fully confirmed. And it relies on our own capacity to do whatever is necessary to prevent these second-round effects.

Question: Three questions, maybe starting with today’s decision, the decision to leave interest rates unchanged, was it a unanimous decision and did you discuss an increase as well as a decrease? Second question: regarding your projections for 2009, what conclusions for monetary policy can we draw from those projections? And third question: when would you see the effects of the sub-prime crisis petering out?

Trichet: On the first question, as always, we examine all pros and cons, all assets and liabilities associated with the possible decisions, the possible decisions being increasing rates or maintaining rates as they were. We exchanged all views on the situation. We finally decided on the basis of a consensus after having exchanged all views and weighing up the two possibilities very, carefully.

On your second question, as regards 2009, we have in front of us the projections of our staff, and we also have other work which has been done by the public sector, by the OECD, by the private sector. We take all of that. What we have to do is to deliver price stability in line with our definition in the medium term. That is the needle of our compass. That is the primary goal, the primary mandate. We will do what we have to do to deliver. And the credibility of this delivery is essential to anchor inflationary expectations. We will be constantly alert. And, as you know, we never pre-commit, we are never blocked, we never tie our hands. Everybody knows that we will do whatever is necessary to deliver.

As regards your third question on the sub-prime issue, I said that there is certainly a significant level of uncertainty. What I can say is that, in the figures that we are observing at present, in the figures that are available, we do not see a materialisation, in the various data, in particular in the components and counterparts of M 3, of anything which would be substantial and would correspond to major changes, to significant changes induced by the present market correction. I do not say that we will not see that in the future; on the contrary, we will have to continue to look at it very carefully and extract all information. But we are entirely pragmatic and we see the facts and the figures that we have before our eyes. This remark is also true for the real economy: at the present moment, we see the risks for the real economy on the downside, for a number of reasons that we have listed, the same reasons that I listed at the last press conference. That being said, what we have, as far as facts and figures before our eyes, and what the other institutions that are looking at us also see – and they publish their own projections and forecasts – is that we are around our potential. But that does not mean that I am sure that we will continue to have that. At the present moment, we have to be humble in front of the facts and the figures.

Question: A couple of points. Firstly, you said that the decision today was agreed by consensus. Can I take it from that that it was not unanimous? In that context, I was interested by comments made by one of your colleagues on the Executive Board, Mr González-Parámo, during the week when he said that the circumstances in which a central bank would reduce its interest rates with a view to strengthening asset prices and banks’ balance sheets were “unthinkable”. I wonder whether you would agree with that comment? He also went on to say that it would be a different issue if financial turbulences developed into a broader crisis and growth prospects were affected and that, in those circumstances, a lower interest rate may be appropriate. I wonder whether you would also agree with that? Also, one issue which seems to be of particular interest to financial markets at the moment is the extent to which other economies can decouple from the developments in the US. Perhaps you might just update us on your thinking on that? And then finally, are we likely to see any additional measures to help restore the functioning of financial markets?

Trichet: First of all, I do not comment on any particular declaration by colleagues. I comment on the sentiment of the Governing Council as a whole. It seems to me that what has been said corresponds to the fact that we have one needle in our compass. Very often we are asked: how do you compare balance the balance of risks to inflation and the balance of risks to growth? We do not reason in that fashion, as you know. And I make the point regularly here and this was probably the intention of my colleague. We have one needle, not two, and of course the balance of risks to inflation is influenced by what we have as regards the pressure coming from the real economy, or absence of pressure, and all the other parameters that have an influence on the risks to inflation. So, no other comments on that.

As regards the decoupling, we are living in a world, a global economy, which is extraordinarily complex, with trade links, financial links, confidence links, direct influences, indirect influences... So, I would say, coupling or decoupling is very much a way of seeing things as white or black which does not capture the complexity of the situation. We are all interdependent. We are all mutually influencing one another and if we have unexpected events that would come from the US or from our neighbours or from Asia and Asian emerging economies, then it has an influence. I made the point a number of times that the US was a partner, a trade partner that was less important than the UK for us when you look at the figures. I also made the point that of course the US had an influence on the rest of the world which was indirectly also influencing our own economy. I mentioned the fact that we have very buoyant economies in the emerging world and that that was certainly something which was contributing to our own baseline scenario of a global economy continuing to be relatively robust, even if a little bit less than before. But again we will see what happens. I will not get into the debate on coupling or decoupling. If any part of the world is behaving more properly, we are positively influenced. If it is behaving less properly, we are negatively influenced. And the United States is of course an important part of the global economy. That being said, all observers looking at the economy in Europe are seeing elements that suggest that we have a sound economy. It was said recently by the IMF when looking at us that they see a healthy economy with a growth which is based very much on domestic demand, as I have said. In domestic demand it is also striking that over the last twelve months that are known, so adding up the four last quarters that are known, we have a contribution to growth of investment, or gross capital formation, which is of the order of magnitude of 0.9%; a contribution of consumption which is also of the order of magnitude of 0.9%, that is for private consumption; then on top of that we have the export contribution, the net exports; we have also public consumption. Well, this makes a level of growth and a balance of contributions to growth which is obviously healthy. But again this is what we see today and we know that there are uncertainties.

Your last question on the financial market functioning gives me the opportunity to restate that we have a primary goal of delivering price stability. We are inflexible on that. Anchoring inflation expectations calls for a certain monetary policy stance. And today we confirmed that 4% is what we think is appropriate, but we have also the responsibility of having the money market functioning as properly as possible at that level. This has been disputed a little bit, you might remember, in August, after the 9th and 10th of August. Now it is not disputed by anybody that we have to be up to our responsibility in this respect. It does not solve the problem. We have tensions coming from the functioning of the market and they are persistent, but it permits us to stabilise at the level that we judge appropriate the very short-term rate of the yield curve. It is certainly essential to have this solid anchoring both of the inflation expectations and of the very short-term rates, for which we have direct responsibility, at the level which we judge to be in line with the delivery of price stability. And I would say that particularly in periods of turbulences, to have a steady hand and solid anchoring is absolutely essential.

Question: I have two questions. First, since the last ECB lending survey, have the staff of the ECB noticed further tightening of credit for companies and households? And compared with your assessment in September, do you think there is no chance of the financial crisis spreading to the real economy? And the second question concerns Mr Sarkozy’s measures, announced last week, to boost purchasing power. One of them was to put pressure on French retailers to cut prices. Do you think this can curb inflation expectations, and would you encourage other European countries to do likewise?

Trichet: Again, we have to be prudent as regards the tightening of credit standards. The latest information we have comes from our last survey, and it has been made public. You can see exactly what was observed. The figures that we have do not confirm that this tightening of credit standards – which was undoubtedly the result of this survey – has materialised in the growth rate of outstanding credit or outstanding loans. You know the figures, which remain very dynamic. The most striking figure I can think of is that of loans to non-financial corporations, which are still growing at a rate of 13.9%, which is extraordinarily rapid and does not suggest that we are experiencing a credit crunch. That being said, this is an ongoing process, and we will continue to monitor it very carefully, looking at the succession of data and of surveys available to us.

As regards the issue of competition, I take your question on recent French measures as confirming that the issue of competition is essential. I have mentioned wages and salaries, and I have mentioned price setting where we must avoid second-round effects. It is absolutely clear, as regards the price setters, that the more you have a high level of intense and fierce competition in any particular economy, the more you are protected from these second-round effects. The less appropriate competition you have, the more you are vulnerable in terms of second-round effects. So we call on the whole of the euro area – not any one economy in particular, but the whole of the euro area – to reinforce competition, having competition which is as fierce as possible, in the interests of consumers, in the interests of the economy as part of the completion of the Single Market, and of course in the interests of avoiding second-round effects.

Question: I have a question regarding the staff projections. They are based on the assumption of certain market interest rates. Can you tell us a bit about the market interest rates in the staff projections and, perhaps more importantly, do they take account of any premia as regards the tensions in the money market?

Trichet: The methodology applied is not new; there has been no change of methodology. Interest rates and both, oil and non-energy commodity prices, are based on market expectations with a cut-off date of 14 November 2007. With regard to short-term interest rates as measured by the three-month EURIBOR, market expectations are derived from a forward rate, reflecting a snapshot of the yield curve on the cut-off date. So this is the methodology that we usually apply, and this implies an average level of 4.9% in the fourth quarter of 2007, falling to 4.5% in 2008 and 4.3% in 2009. We have not changed our methodology in any respect. One can always say “well, you could use another methodology”. But it is very important that we stick to this methodology, and the staff believe that we should stick to this methodology.

Question: Mr Trichet, some economists are now comparing the current situation with the situation in 2000 when the new economy bubble burst – now the housing bubble is bursting. At that time we also had very high inflation and it took quite a while for the facts and figures to show what was really going on. Approaches were different: the Federal Reserve cut interest rates early; the ECB took a while longer but cut them eventually. In what way do you think the situations are comparable and in what ways are they not?

Trichet: Our situations are not the same. We always have structural evolutions that are of great importance and are different, and I would certainly not rely on making what I would call too naïve a comparison. What is clear is that we are all placed in various situations. We have different economies. We certainly have very responsible central banks on both sides of the Atlantic, but again, we do not have the same economies. Fortunately we do not have the sub-prime mortgage issue, even if we are affected by it and know that we are affected by it. But it is not in continental Europe – it is not in the euro area – and, again, the two economies do not have the same structure. So, I will not comment on what is done on the other side of the Atlantic. I will comment on what we do taking into account all factors: the upside risks for price stability that are fully confirmed, the uncertainty in which we are presently and which is fully captured by the Governing Council, taking into account the fact that we remain constantly alert and are ready to act at any moment in order to deliver price stability. All that is part of our own understanding of the overall situation. There is nothing new in our attitude. I have always told you that we have never pre-committed; we have always been alert and have refused to make medium long-term pre-commitments. It has been the case in other economies but it is not the way that we are looking at it. We have proved in the past that this alertness and this capacity to do things, even when we were advised not to do things, was of the essence.

Question: Mr Trichet, from listening to your presentation on the pattern of risks, I must ask a very unsophisticated question. Why didn’t you increase the interest rates today by 25 points?

Trichet: I thought I had explained as clearly as possible that the reappraisal of risk in financial markets is still evolving and is accompanied by continued uncertainty of the potential impact on the real economy. And that is why we consider that it is not opportune to decide today. But again, it does not mean that we are in any way mixing the present situation of the market correction – the significant market correction with episodes of turbulences and so on and so forth – with the monetary policy stance. The monetary policy stance is there to deliver price stability and we have – at the level at which we consider ourselves able to deliver price stability – this responsibility to have a correct functioning on the money market.

Question: Just following on from that question. So, it almost sounds like monetary policy is being held hostage by the money markets at the moment. Would you consider 4% appropriate in light of inflation being at a six-year high and M3 being at a 28-year high? Are current interest rates appropriate?

Trichet: I have just said that we did not mix the two responsibilities. So I say no to your question as it was presented. We did not mix the two responsibilities. Taking everything into account we consider that 4% today is what is needed to deliver price stability and we simultaneously say that we will do whatever is necessary to prevent any second-round effects. The prevention of any second-round effects is essential in today’s message. And perhaps you have noted that the Governing Council also says that we should eliminate all traces of indexation in our economies, including wage and salary indexation, and we should reinforce as fiercely as possible competition for price-setters so that there are no second-round effects.

Question: You said there were two options that were discussed, an increase or maintaining rates, but agreement was made on a consensus basis at the end. But were there many voices in favour of an increase?

Trichet: There were some.

Question: Today, the Bank of England decided to cut rates by 25 basis points. As you said, the United Kingdom is the biggest trading partner of the euro area. In this sense, do you welcome this? Are you in favour of this, in the sense that the biggest trading partner may get inflation from this?

Trichet: As I once said, the central bank governors are a very impressive brotherhood of mutual admiration. So, what is done by colleagues is certainly fully justified by what they are observing in their own economy. They are all totally committed to deliver price stability, as we are.

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