Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB
Frankfurt am Main, 2 October 2008

Jump to the transcript of the questions and answers

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.

On the basis of its regular economic and monetary analyses, at today’s meeting the Governing Council decided to leave the key ECB interest rates unchanged. We discussed extensively the recent intensification of the financial market turmoil and its possible impact on economic activity and inflation, recognising the extraordinarily high level of uncertainty stemming from latest developments. In this context, we stressed the crucial importance of keeping inflation expectations firmly anchored in line with our objective. Price stability fosters an efficient allocation of resources, contains inflation risk premia and longer-term financing costs, and preserves the purchasing power of our currency. In so doing, it supports sustainable growth and employment and contributes to financial stability. The most recent data clearly confirm that economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions. At the same time, annual inflation rates are likely to remain well above levels consistent with price stability for some time. With the weakening of demand, upside risks to price stability have diminished somewhat, but they have not disappeared. While the still strong underlying pace of monetary expansion points to upside risks to price stability over the medium term, the growth of broad money and credit aggregates is showing some further signs of moderation. It is imperative to avoid broad-based second-round effects in price and wage-setting. All parties concerned face exceptional challenges and are called upon to meet their responsibilities Accordingly, we confirm that we remain determined to secure price stability in the medium term and will continue to monitor very closely all developments over the period ahead.

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

When analysing current developments in economic activity, it needs to be stressed that we face an extraordinarily high degree of uncertainty, in large part stemming from the recent intensification of the financial market turmoil. This complicates any assessment of the near to medium-term economic prospects. As the world economy as a whole is feeling the adverse effects of the intensified and prolonged financial market turmoil, the most recent data clearly confirm that economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions. The fall in oil prices from their peak in July and ongoing growth in emerging market economies might support a gradual recovery in the course of 2009.

In the view of the Governing Council, the economic outlook is subject to increased downside risks, mainly stemming from a scenario of ongoing financial market tensions affecting the real economy more adversely than currently foreseen. Other downside risks relate to the possibility of renewed increases in highly volatile energy and food prices, disorderly developments owing to global imbalances and rising protectionist pressures.

With regard to price developments, annual HICP inflation has remained considerably above the level consistent with price stability since last autumn, standing at 3.6% in September according to Eurostat’s flash estimate, after 3.8% in August. This still worrying level of inflation is largely the consequence of both the direct and indirect effects of past surges in energy and food prices at the global level. Moreover, wage growth has been picking up rather strongly in recent quarters, in spite of a weaker growth momentum and at a time when labour productivity growth has decelerated. This resulted in a sharp increase in the year-on-year unit labour cost – to 3.4% – in the second quarter of this year, after several years of more moderate increases in the order of 1-1½%.

Looking ahead, on the basis of current commodity futures prices, annual HICP inflation rates are likely to remain well above levels consistent with price stability for some time, moderating gradually during the course of 2009. At the policy-relevant medium-term horizon, taking into account the weakening in demand, upside risks to price stability have diminished somewhat, but they have not disappeared. They include the possibility of previous commodity price rises having further and stronger indirect effects on consumer prices, as well as a renewed increase in commodity prices. In particular, there is a very strong concern that the emergence of broad-based second-round effects in price and wage-setting behaviour could add significantly to inflationary pressures. Moreover, unexpected rises in indirect taxes and administered prices could occur.

Against this background, it is imperative to ensure that medium to longer-term inflation expectations remain firmly anchored at levels in line with price stability. This is all the more the case in an environment of very high uncertainty. Broad-based second-round effects stemming from the impact of past energy and food price increases on price and wage-setting behaviour must be avoided. The Governing Council is monitoring price-setting behaviour and wage negotiations in the euro area with particular attention. We have repeatedly expressed our concern about the existence of schemes in which nominal wages are indexed to consumer prices. Such schemes involve the risk of upward shocks in inflation leading to a wage-price spiral, which would be detrimental to employment and competitiveness in the countries concerned. The Governing Council calls for these schemes to be abolished.

Turning to the monetary analysis, we need to recognise that the latest monetary data refer to the end of August and thus do not yet embody the impact of the recent intensification of the financial market turmoil. Further data on this impact will be carefully evaluated. As a general observation, previous episodes suggest that financial market tensions can have a relatively limited impact on monetary developments, but they have also been associated with large portfolio shifts and thus have exerted significant influence on monetary data.

While the still strong underlying pace of monetary expansion points to upside risks to price stability over the medium term, data up to August show that the growth of broad money and credit aggregates moderated over the past few months, reflecting the monetary policy decisions taken since 2005 to address risks to price stability. As a more detailed examination shows, the flat yield curve and the structure of bank deposit rates have led to a number of substitution effects. First, there has been a substitution from longer-term maturity assets into instruments covered by M3, which offer similar remuneration but greater liquidity and less risk. As a consequence, the annual growth rate of M3 probably overstates the underlying pace of monetary expansion. Second, there have been substitution effects within M3. In contrast to the dynamic developments in M3, annual M1 growth has fallen to very low levels. This reflects relatively attractive interest rates for time deposits, which have increased the opportunity cost of holding cash or overnight deposits.

Although, at the level of the euro area as a whole, the availability of bank credit has, as yet, not been significantly affected by the ongoing financial tensions, the gradual moderation of growth in loans continued in the August data, as previously anticipated, with corporate demand for credit slowing. At the same time, the growth of loans to households continues to follow the downward trend observed over the past few years, as a result of higher short-term interest rates and housing market weakness in several parts of the euro area.

To sum up, we discussed extensively the recent intensification of the financial market turmoil and its possible impact on economic activity and inflation, recognising the extraordinarily high level of uncertainty stemming from latest developments. In this context, we stressed how crucial it is for monetary policy to keep inflation expectations firmly anchored in line with our objective. Price stability fosters an efficient allocation of resources, contains inflation risk premia and longer-term financing costs, and preserves the purchasing power of our currency. In so doing, it supports sustainable growth and employment and contributes to financial stability. The most recent data clearly confirm that economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions. The cross-check of the outcome of the economic analysis with that of the monetary analysis clearly confirms that annual inflation rates are likely to remain well above levels consistent with price stability for some time and, when taking into account the weakening of demand, that upside risks to price stability have diminished somewhat, but they have not disappeared. While the still strong underlying pace of monetary expansion points to upside risks to price stability over the medium term, the growth of broad money and credit aggregates is showing some further signs of moderation. It is imperative to avoid broad-based second-round effects in price and wage-setting. All parties concerned face exceptional challenges and are called upon to meet their responsibilities Accordingly, we confirm that we remain determined to secure price stability in the medium term and will continue to monitor very closely all developments over the period ahead.

Regarding fiscal policy, in the current situation of continuing economic uncertainty, it is essential that governments abide by the rules of the Stability and Growth Pact and ensure the sustainability of public finances. Maintaining sound public finances will enable governments to let automatic stabilisers operate freely and thus contribute to smoothing the economic cycle and to supporting private sector confidence.

Turning to structural policies, measures that foster competition and flexibility and promote moderate unit labour cost growth are of the utmost importance in the current economic circumstances. While moderate unit labour cost growth is crucial in all euro area countries, it is particularly pressing in those that have experienced a significant loss of cost and price competitiveness over recent years and where unemployment has already started to rise. Moreover, labour market reforms fostering employment and investment and promoting skills, innovation and efficiency remain essential to support growth and real incomes in the longer term.

We are now at your disposal for questions.

* * *

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: Mr Trichet, if I am reading you right, the economy is slowing faster than you anticipated, inflationary pressures are easing, albeit not enough, monetary growth is also easing – maybe even more than stated because of this substitution effect into the short-term end of the market – and the markets are deteriorating. Therefore, what is it about this present scenario that is stopping you from cutting rates?

Trichet: You are correct in your understanding of our judgement. We are observing a slowdown in the euro area economy and I said that this has contributed to alleviating somewhat the upside risks to price stability. They have not disappeared. In particular, I mentioned what we are observing in terms of unit labour costs increases in the second quarter of this year and I sent on behalf of the Governing Council a very clear message to social partners, as well as all price-setters, that we will not allow second-round effects to materialise. Our conclusion was therefore that we will continue to observe all developments very carefully.

Question: Was today’s decision unanimous and did you discuss the option of lowering interest rates today? Was this at all an option for you?

And my second question is: did you discuss your recent projections on economic growth, and if so, what was the outcome of your discussion? You talked about a recovery in 2009: do you still expect to see growing upside risks to this scenario in the light of the current turmoil? And did you get an update on the growth projections?

Trichet: As regards your first question, our decision was unanimous. We examined two options: first, leaving interest rates unchanged; second, decreasing interest rates. Our unanimous conclusion was that it would be right to leave interest rates unchanged. As I have said several times on behalf of the Governing Council, there is currently an extraordinarily high level of uncertainty. As always, I will also say that we are totally free to do all that is necessary at any time in order to be able to guarantee our fellow citizens that we will ensure price stability over the medium term. This, of course, depends on our judgement of the balance of risks to price stability, as well as the evolution of the situation that influences the balance of risks to price stability.

On the second question, by definition, we have not changed our projections, which are the responsibility of staff and not of the Governing Council itself. I therefore cannot say that we have any new projections, but we are incorporating all the new elements stemming from the international situation, as well as from the situation in Europe, into our discussions. Again, I confirm that our judgement is that there is a visible weakening of economic activity and that the risks for future growth are on the downside.

Question: Just to be absolutely clear about this. If we were to write that your baseline scenario has changed perceptibly, would we be wrong?

And my second question is: does the Governing Council have a greater sense now that inflation in 2010 will be at levels consistent with price stability?

Trichet: Since our last meeting we have seen changes, as I mentioned in the introductory statement on behalf of the Governing Council. In the judgement of the Governing Council, we have both the intensification of the financial turbulence, which creates a high level of uncertainty that we have to consider, and we have the weakening of growth. We have seen a reduction in the upside risks for inflation but, in the judgement of the Governing Council, while they have diminished, they have not disappeared.

As regards your second question on the delivery of price stability in the medium term, in line with our definition, we consider that the mandate we have received from the people of Europe through the Treaty is to do at any time what is necessary to deliver price stability in the medium term. The medium term is the time which is necessary for a decision to materialise in the CPI – that is some 18 to 20 months. And I confirm that our 320 million fellow citizens can have confidence that we will deliver price stability in line with our definition in this period of 18 to 20 months – which means the beginning of 2010.

Question: My question is about inflation expectations and whether they have moderated somewhat over the last month?

Trichet: This is a very important question. The solid anchoring of inflation expectations is extremely important for growth, job creation and financial stability for reasons that are very simple to understand. If there is an unanchoring of inflation expectations, then medium and long-term market interest rates will go up, whatever you do on the short-term side of the yield curve, and it would be detrimental to growth and job creation. There would also be considerable danger of price increases in the long run. The future inflation would be adversely influenced by these expectations and it is absolutely clear that for us it is crucial, as I said on behalf of the Governing Council, to solidly anchor expectations. Where do we stand in this respect? I would say that thanks to the decisions we have taken, we have stabilised a tendency to have higher inflation expectations, that had been observed and which we considered a threat. And as regards the information we extract from financial markets, we have a stabilisation of the inflation expectations according to the information we extract from the swap markets. In particular, if we look at five-year forward break-even in five years. And I am happy to say that we see a good development of inflation expectations when we look at the information we extract from the bond market. We see that we have somewhat regained control of inflation expectations in a fashion which is now visible.

Question: Unless I’ve missed it, and I’m sure you’ll correct me if I have, the sentence from last month’s statement, “the current monetary policy stance will contribute to achieving our objective”, is not in this month’s statement. Why?

Secondly, you have taken pains in the past to be predictable, notwithstanding never pre-committing: are you still committed to being predictable?

And finally, the ECB generally has been extremely active in money markets lately and interbank lending rates are not showing signs of responding to so much extra liquidity, so I wonder if you can talk a little bit about that and tell us whether you considered narrowing the band between the marginal lending and the marginal deposit facility as perhaps another way of aiding the market?

Trichet: On the last question, no, we did not discuss that.

On your first question as regards the wording of the introductory statement, let me repeat that we are in a situation of an exceptionally high level of uncertainty. It is a situation which we have never encountered before in the time since we were set up. The situation is clearly absolutely exceptional in terms of the level of uncertainty and, as I have already said, as always we are totally free to do at any time what we judge to be necessary to take into account the evolution of the situation in terms of the balance of risks to price stability. I stress that we have only one needle in our compass. It is the balance of risks to price stability.

As regards your second question on the pre-commitment, as you know, we are never pre-committed and we do at any time what we judge to be appropriate according to the circumstances. The predictability is to be attributed to the extreme acuteness and lucidity of the observers.

Question: Given the two options you discussed, Mr Trichet, would you say you have a bias?

Second question, you talked about the acceleration of unit labour costs in the second quarter. Given the slowdown of the economy, how likely do you think is the scenario that this will affect price-setting, so how likely is the danger of let’s call it “third-round effects” in your view?

Trichet: On your first question, I will repeat that we are in a situation of an exceptionally high level of uncertainty and we are free to do at any time what is necessary.

As regards your second question on labour costs, we clearly have a level of unit labour costs which is very high in the second quarter reading, much higher than what we observed one year ago, two years ago, and that is due to two phenomena. One is that the slowing-down of the economy has counterproductive effects as regards labour productivity. This is what we are observing in the European economy in general and in the euro area in particular in a period of slowing-down in the business cycle. There are also increases, nominal increases which are abnormal in our view and explain the level of unit labour costs that we see. Let me add that the Governing Council looks at the situation at the level of the 320 million citizens and 15 countries of the euro area. The situation in the various countries is not the same, and our message of moderation and avoiding second-round effects goes very strongly to those that have nominal developments that are, in our view, very abnormal in terms of nominal wage and salary increases, price increases and other nominal developments. This is something which is very important: we have a general message, but we also have a message for those who are moving up abnormally in terms of nominal developments.

Question:Given the diminishing upside risks to price stability and the exceptionally high level of uncertainty, and also the fact that today the Governing Council discussed a rate cut as one of the two options, will a rate cut at the next meeting be a good option?

Trichet: I’ll look forward to seeing you at the next meeting. It will be a great pleasure for me to tell you at that point in time what we have done.

Question: One more question. It’s about the Fortis situation. You were involved in the bail-out for this institution, in the discussion with European leaders. It would be difficult to go into details, but please give us some kind of a glimpse of the kind of general recommendations you made to European leaders at that time.

Trichet: It was not to European leaders in general. It was in particular, with my colleague, the Governor of the Belgian central bank, to those who were directly involved in this particular matter. I transmitted the message that it was very important in the present circumstances for central banks to do what they have to do. You know that we have been exemplary in terms of providing liquidity to the euro area as a whole, in terms of taking appropriate decisions at the very beginning. You remember that it was on 9 August 2007 that we decided to take important decisions, at a time when some observers were not sure that the situation was that acute. After a very short span of time, everybody recognised that we were lucid and right in acting without waiting. And we proved that recently: as you know, we have agreed with the Federal Reserve on a swap of 240 billion dollars that permits us to ensure liquidity also in dollars, not only in euro, on this side of the Atlantic. We are ourselves doing what we have to do. And in a period when it appears that the situation calls for government responsibility, I confirm that we judge it appropriate that governments take up their responsibilities. I think they did well in the case you mentioned, they did well in other cases, including in this country: I confirm that I think the government did well in Germany. We will continue to live up to our own responsibility. The times are demanding, as I said, the situation is demanding and uncertain, and of course in such circumstances it is important that all of the private sector as well as the public sector, that all authorities live up to their responsibilities..

Question:You mentioned the lucidity of observers. Financial markets are now pricing in a 75% chance of a cut in November. Are they showing an acceptable level of lucidity at the moment?

Secondly, in September 2001 you cut interest rates by 50 basis points unexpectedly and also in conjunction with the US Federal Reserve. Is that a possibility, that we might see something comparable in the weeks and months ahead?

My third question: could you tell us what you think would be a reasonable outcome from this meeting you are attending in Paris on Saturday with the EU leaders?

Trichet: As regards your first question, I commented that I would attribute predictability to the wisdom and lucidity of observers, but I never comment on immediate reactions that the introductory statement could trigger in the market. I consider it would be absolutely inappropriate to comment in real time, it would be a dialogue with a mirror. So I trust the lucidity of observers, but I don’t comment on their immediate reaction.

As regards your second question on the possibility of having close cooperation with the other central banks, be aware of the fact that when we do something, it is on the basis of our assessment of the balance of risks to price stability. We cannot do otherwise, because if we were acting in a different scheme, in a different concept, then we would suggest to those lucid observers and market participants that have been mentioned that they can unanchor our inflation expectations, because we would be introducing other considerations than this solid anchoring of inflation expectations which is based on our determination to deliver price stability in the medium term. And if we loosened this unachoring, it would be a very poor one, including in terms of financial stability. It would introduce volatility in all market interest rates: It would be very bad for financial stability, as well as for price stability.

Let me also say that we have an extraordinary level of cooperation among the central banks. This is true of all the central banks. It is true of the Federal Reserve. It is unprecedented to have a swap agreement of 240 billion dollars. It is unprecedented to ensure, with several windows, dollar liquidity on this side of the Atlantic, in close cooperation with the Federal Reserve. We cooperate also with other central banks in particular with the Bank of England and other European banks as well as with the Bank of Japan. I think I have to stress the high level of mutual confidence that we have which permits this cooperation. Some decisions we have taken in a very short span of time across the Atlantic, despite the time lag. I think it’s heartening that we are in such intimate and confident cooperation.

As regards your third question on the Paris meeting, I think that we will have the occasion to exchange views. I don’t want to prejudge – as you know, I never say in advance when I participate in any meeting what the meeting will produce. That is the case when I participate in a G7 meeting or in the G10 or the G20. We are having an exceptional meeting in the context of this exceptionally high level of uncertainty that we are presently experiencing. I expect that it will, overall, permit the authorities that will meet to exchange views in circumstances that are uncertain, to compare notes and to see how they could be enlightened by the conversation with others. Then I would say exactly the same as I say to the question on what we will decide at our next meeting: I would say there will be a press briefing by the Presidency of this meeting, after the Paris encounter and we will communicate what we have discussed there.

Question: You said that you discussed a rate cut. Was that only on the basis of 25 basis points or was there a possibility of more?

My second question: you also talked about the possibility of growth recovering gradually in 2009. Is there a possibility that it might not recover and that Europe is going to experience a long recession?

And one final question: would you, as the ECB, back the idea of a European-wide fund for Europe’s banks – a safety net as it would be – that has been floated this week?

Trichet: In response to your first question, I said that there were two options, but I also said that we were unanimous in making the decision that we made. I think it is very important to recall that we were unanimous in today’s decision.

As regards your second question on the evolution of growth, I draw your attention to the fact that I have been saying for a very long time that growth would be very weak, i.e. there would be a trough in the second and third quarters, and that the risks to growth are on the downside. It is therefore clear today that some of the risks that were clearly highlighted in previous messages from the Governing Council in the previous months have materialised. From this point of view, our analysis has been consistent. We have never hidden the fact that there were downside risks to growth after the trough observed in the second and third quarters of this year.

As regards your third question on the European fund, I have read about it a lot in the media, but as you see, I wait until after the meeting to make any declarations. I would confirm, however, that Europe is not a political federation. It does not have a federal budget and so the idea that we would be able to do the same as has been done on the other side of the Atlantic does not fit in with the political and institutional structure of Europe. That being said, in response to a question about a particular bank a moment ago, I also said that, in exceptional cases in which financial stability is at stake and we have done everything we can in terms of providing liquidity – and everybody can have confidence in the fact that we will do all that we can – it is important that governments also make the appropriate decisions.

Question: More and more economists are talking about the big danger of a liquidity trap in Europe too. I would therefore like to ask you and Mr Papademos how high you assess the risk of a liquidity trap to be here in Europe? I mean recent figures on the deposit facilities have shown that banks really do not like to lend, and just put the money back into the ECB’s deposit facility. So how high do you see the risk that this is going to strain? More specifically, just referring to my colleague from the Wall Street Journal: what is the problem with just decreasing the deposit facility interest rate, i.e. decreasing this rate, but leaving the others constant? Would that not be a good thing to do in this situation?

Trichet: First of all, I would say that what we are observing in all markets, not particularly in the euro market, is that it is difficult to have a normally functioning market, with banks engaging in active borrowing and lending in the interbank market. This is not at all something that is specific to the euro area, we observe this everywhere. I have to say that it is something that we have observed to a much greater extent since the fall of Lehman Brothers, which has had enormous, very unfortunate consequences. That being said, we are doing what we judge to be appropriate in order to cope with this situation and I will not comment on any modification of the deposit rate. We confirm the present level of the deposit rate.

Question: You said that now you feel free to act as you think is good for price stability. Does that include ending this operation of using monetary policy to fight money market tensions if those tensions hit the economy strongly?

Trichet: We have since the very beginning indicated that we were making a strict separation between the monetary policy stance and the implementation of monetary policy, namely the refinancing that were engaging in with the commercial banks. We are on this line, and I have already explained why it is a line which is very important: not only because it is necessary for our mandate and for us to provide what the people of Europe are asking for, but also for financial stability. And I confirm that we will continue to go along this line. Our decisions on the monetary policy stance are based upon our assessment of the balance of risks to price stability. And I said that we were today seeing that there was some reduction in the upside risks to price stability but that we still had upside risks to price stability. And of course we will continue to do what is necessary. I tell households, our fellow citizens in Europe, that they can trust us to deliver price stability. They can count on us, and we are fully conscious of the fact that it is their main concern today. I am speaking there of our fellow citizens, not of economic agents. But for economic agents and market participants, it is also extremely important that we continue to be the solid anchor of expectations, because we then diminish the volatility of the financial markets. That being said, we have proved that we were agile in refinancing the market and we will continue to be agile. The banks can count on us. I call on all to be up to their responsibilities. It is true that we do not have a real market. We are in a situation where, collectively, the banks have a tendency, probably, to over-assess the risks that they are taking in engaging in loans with other commercial banks. Market participants were underpricing risks before the financial turmoil, and we said that publicly. In some cases it is absolutely clear that we now have the reverse phenomenon. The pendulum has gone too far, and a large number of market participants are behaving in a way that means they are not optimising their behaviour at all. They are going too far in the other direction. I call upon them to keep their composure.

Question: On Tuesday you were saying that you were hoping that the parliament in the US will approve the package. So what do you hope that the governments in Europe will decide to come out of this very difficult situation, a sort of fund? There are many options which are at stake. Can you maybe say which would be the best for you?

And with these very, very high liquidity injections, you give the idea that no solvent bank will go away without money. Do governments need to give the message that no bank will fail in Europe like Lehman in the US?

Trichet: First of all I would say that all authorities, all entities, whether public or private, have to be up to their responsibilities, particularly in this period, which is demanding, as I already said. And all governments – but not only governments – have to be up to their responsibilities. Of course we are not the United States of America as far as the institutional framework is concerned.

In responding to your first question, I was also responding to your second question. All governments have to be up to their responsibilities.

Question: What are the risks for an emerging market such as Romania, which is at the outskirts of the European Union, given that most banks are foreign-owned, with some 90% of banking assets in the country belonging to international groups? What are the risks of contagion if the global turmoil were to come closer or develop further in Europe?

Trichet: I will only say that what we have observed since the turbulence began in August last year has been a remarkable resilience of the emerging economies. This has been the case everywhere, in Asia, Latin America and central and Eastern Europe. It was something worth noting because it was the first time that we had seen more resilience in the developing world and the emerging world than in the industrialised world. So it was a premiere in terms of the evolution of the global economy. That being said, it is no time for complacency: certainly not in the industrialised world, as we can clearly see, but also not in the emerging world either.

Question: The Polish government recently revealed preliminary plans to aim to adopt the euro in 2012. Can you comment on how realistic that is?

Trichet: We will examine that very carefully, of course, with the Polish central bank and the Polish government. I think it is certainly a very important political move and a strategic statement of primary importance, taking into account the importance of Poland in Europe and also taking into account the previous signs coming from Warsaw. So I take it that it is a very important statement and that we now have to discuss and see exactly what would be the appropriate conclusion to be drawn from, again, what I take to be a strategic statement. The dates themselves have to be examined but what counts is the strategic statement that has been made.

Question: You said that the Belgian government acted well on the Fortis case that the German government also acted well. But, if I am not wrong, you haven’t said anything about the Irish government. What do you think about that?

Trichet: I would say that they made, in exceptional circumstances, a very hard decision. But I could go on and on and give praise to all governments in Europe!

By way of conclusion, let me only say, again, that our fellow citizens in Europe can count on us. We will deliver price stability. We have proven that we have been able to take the appropriate decision whenever necessary and to be credible in saying that. I would also say that we are living in a situation which is exceptional, where there is a very high level of uncertainty. We will continue to examine the situation carefully. At the present moment, we have seen the upside risks to price stability somewhat diminishing but not eliminated. They have diminished, but are still there.

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