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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, 4 March 2010

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 Rehn.

Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 4 February 2010, price developments are expected to remain subdued over the policy-relevant horizon. The latest information has also confirmed that the economic recovery in the euro area is on track, although it is likely to remain uneven. Overall, the Governing Council expects the euro area economy to grow at a moderate pace in 2010, in an environment marked by continued uncertainty. The outcome of the monetary analysis confirms the assessment of low inflationary pressures over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.

At today’s meeting we also discussed, in view of economic and financial market developments, how to proceed with the gradual phasing-out of our non-standard operational measures. In this respect, we decided to continue conducting both the main refinancing operations (MROs) and the special-term refinancing operations with a maturity of one maintenance period as fixed rate tender procedures with full allotment for as long as necessary – and at least until the end of this year’s ninth maintenance period on 12 October 2010. In the case of the special-term refinancing operations, the fixed rate will be the same as the rate used in the respective MRO. The Governing Council also decided to return to variable rate tender procedures in the regular three-month longer-term refinancing operations (LTROs), starting with the operation to be allotted on 28 April 2010. Allotment amounts in these operations will be set with the aim of ensuring smooth conditions in money markets and avoiding any significant spreads between bid rates and the prevailing MRO rate. Furthermore, the Governing Council decided, in line with its decision on the 12-month LTRO of 16 December 2009, to fix the rate in the six-month LTRO to be allotted on 31 March 2010 at the average minimum bid rate of the MROs over the life of this operation.

With today’s decisions, the Eurosystem continues to provide liquidity support to the banking system of the euro area at very favourable conditions, thereby facilitating the provision of credit to the euro area. At the same time, these decisions help to avoid distortions associated with maintaining non-standard measures for longer than needed. The Governing Council will continue to implement the gradual phasing-out of the extraordinary liquidity measures. In order to counter effectively any threat to price stability over the medium to longer term, the liquidity provided will be absorbed when necessary. Accordingly, we will continue to monitor very closely all developments over the period ahead.

Let me now explain our assessment in greater detail, starting with the economic analysis. Over recent quarters, the euro area has continued to benefit from the significant macroeconomic stimulus provided and the measures adopted to restore the functioning of the banking system, as well as from the ongoing recovery in the world economy. According to Eurostat’s first release, in quarter-on-quarter terms euro area real GDP increased by 0.1% in the fourth quarter of 2009, after growing by 0.4% in the third quarter. Available indicators suggest that the economic recovery in the euro area is on track, although it is likely to remain uneven. In particular, a number of special factors are at play, including adverse weather conditions in parts of the euro area in the first quarter of 2010. Given this uneven pattern, it is more appropriate to look through the quarterly volatility and to compare growth developments on a half-yearly basis. Looking ahead, the Governing Council expects real GDP growth to remain moderate in 2010, owing to the ongoing process of balance sheet adjustment in various sectors and the expectation that the low capacity utilisation is likely to dampen investment and that consumption is being dampened by weak labour market prospects.

This assessment is also reflected in the March 2010 ECB staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between 0.4% and 1.2% for 2010 and between 0.5% and 2.5% for 2011. Compared with the Eurosystem staff projections published in December 2009, the range for real GDP growth in 2010 is slightly narrower, while for 2011 the range has been revised slightly upwards, reflecting notably stronger activity worldwide

The Governing Council continues to view the risks to this outlook as broadly balanced, in an environment marked by continued uncertainty. On the upside, confidence may improve more than expected, and both the global economy and foreign trade may recover more strongly than projected. Furthermore, there may be larger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. On the downside, concerns remain relating to a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, the intensification of protectionist pressures and renewed tensions in some financial market segments, as well as the possibility of a disorderly correction of global imbalances.

With regard to price developments, euro area annual HICP inflation was 0.9% in February 2010, according to Eurostat’s flash estimate, after 1.0% in January. Inflation is expected to be around 1% in the near term and to remain moderate over the policy-relevant horizon. In line with a slow recovery in domestic and foreign demand, overall price, cost and wage developments are expected to stay subdued. In this context, it is important to emphasise that inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.

This assessment is also reflected in the March 2010 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 0.8% and 1.6% for 2010 and between 0.9% and 2.1% for 2011. Compared with the Eurosystem staff projections published in December 2009, the range for 2010 has been adjusted marginally downwards, while the range for 2011 has been adjusted slightly upwards.

Risks to this outlook remain broadly balanced. They relate, in particular, to further developments in economic activity and the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years.

Turning to the monetary analysis, the annual growth rate of M3 turned slightly positive in January 2010, rising to 0.1%. This reflects mainly a base effect and confirms the assessment of continued weak monetary growth. Together with the negative annual rate of growth in loans to the private sector (equal to -0.6% in January 2010), the latest data support the assessment that the underlying pace of monetary expansion is moderate and that, in the medium term, the inflationary pressures associated with monetary developments are low. The growth of M3 and loans to the private sector is likely to remain weak also in the coming months.

At the same time, actual monetary developments are likely to be weaker than the underlying pace of monetary expansion, on account of the downward impact of the steep yield curve. This fosters the allocation of funds away from M3 and into longer-term deposits and securities. On the other hand, the narrow spreads between the interest rates paid on different M3 instruments imply a low opportunity cost of holding funds in the most liquid components included in M1, which continued to grow at a robust annual rate of 11.5% in January.

The negative annual growth of loans to the private sector conceals ongoing opposite developments: positive, strengthening annual growth in loans to households on the one hand and negative, declining annual growth in loans to non-financial corporations on the other hand. Such differences are consistent with historical patterns and cyclical regularities, which suggest that loans to non-financial corporations can be expected to remain weak for some time after economic activity has picked up. At the same time, the cost of financing for enterprises has declined and the sector as a whole has continued to make extensive use of market-based financing as a substitute for bank financing.

Banks have continued to reduce the size of their overall balance sheets over the past few months, but the challenge remains for them to manage this adjustment while ensuring the availability of credit to the non-financial sector. To address this challenge, banks should use the improved funding conditions to strengthen their capital bases further and, where necessary, take full advantage of government support measures for recapitalisation.

To sum up, the current key ECB interest rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 4 February 2010, price developments are expected to remain subdued over the policy-relevant horizon. The latest information has also confirmed that the economic recovery in the euro area is on track, although it is likely to remain uneven. Overall, the Governing Council expects the euro area economy to grow at a moderate pace in 2010, in an environment marked by continued uncertainty. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressures over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.

As regards fiscal policies, high levels of public deficit and debt place an additional burden on monetary policy and undermine the Stability and Growth Pact as a key pillar of Economic and Monetary Union. It is of paramount importance that the stability programme of each euro area country clearly defines the fiscal exit and consolidation strategies for the period ahead. This requires determined efforts, notably on the side of countries with high deficit and debt levels. All countries will be required to meet their commitments under the excessive deficit procedures. Consolidation of public finances should start in 2011 at the latest and will have to exceed substantially the annual adjustment of 0.5% of GDP set as a minimum requirement by the Stability and Growth Pact. A strong focus on expenditure reforms is needed. The Governing Council issued, on 3 March 2010, a statement on the additional fiscal consolidation measures announced by the Greek government.

In all euro area countries, the key challenge in order to reinforce sustainable growth and job creation is to accelerate structural reforms. Policies should be adopted which open up market access and increase competition. Overall, it is essential to set the stage for long-term investment in innovation so as to create new business opportunities. Sectoral support schemes implemented to cope with the immediate effects of the crisis should now be phased out. In labour markets, moderate wage setting in several economies and sufficient labour market flexibility are required in order to avoid higher structural unemployment over the coming years. These structural reforms should be supported by an appropriate restructuring of the banking sector. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.

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: Mr Trichet, let me start where you have just finished, with Greece. We have been talking all morning, and I dare say all the TV channels are doing the same at the moment, about all sorts of scenarios on Greece and a lot of people are saying that Greece should leave EMU, should be shoved back into ERM II, and there are basically these kinds of crisis scenario which are being talked up. Put some sanity into the discussion, please, and tell us that this is not one of your baseline scenarios

Trichet: I have already said that leaving the euro area is an absurd hypothesis and I confirm that. And, as you can see, as President of the ECB, I consider the decisions that have been taken to be very positive. You know that we have had a number of opportunities (Jürgen Stark, the Vice-President and myself, on behalf of the Governing Council and of the Executive Board) to pass messages to the Greek government. Messages, that have been of the same nature as the messages sent by the European Commission and by the Eurogroup. I myself vividly remember telling the Greek Prime Minister that it was extremely important for the new decisions taken by Greece to be convincing, because they would make the adjustment programme credible, something that was absolutely essential. And the Governing Council considers the decisions that have been taken, which are very substantial, to be convincing. This is certainly something that is very important. The European institutions have functioned. There has been the appropriate surveillance of the policy pursued by that particular country in accordance with the requirements of the Stability and Growth Pact. The Commission has done its job, and you will remember that, in the statement given by the Heads of State or Government that was published in Brussels, the European Commission was mentioned to be in liaison with the ECB. The ECB has itself been very active and I am very happy with the cooperation we have had with the Commission. The “peers” themselves have done their job, which is extremely important, and the Greek government has taken these decisions. This is the way in which the European institutions function: they adhere to the Treaty and they each fulfil their own role. We appreciate that.

Question: I have got two questions today. The first one is, you said that you would put an index on the final six-month tender but also continue with fixed rate full allotment in the one-month operations for as long as is needed. Is that a response to the tensions there have been on markets in recent weeks and was there any opposition within the Governing Council to this time scale for the gradual phasing-out of operations?

And then my second question is, in light of your latest statement on Greece, which is more positive – very nice to see – do you still intend to revert to the old collateral rules for what the ECB accepts at the end of this year?

Trichet: On your first question, we have taken some important decisions today, as you have heard, and we have continued to gradually and in a timely manner phase out the non-conventional measures that we have implemented. These decisions were taken on the basis of an overwhelming consensus and we judge them to be appropriate to the present circumstances, with the three-month operation returning to a variable rate tender, but they were also taken with all the caution I mentioned in the introductory statement. So I think we are, progressively and in a timely manner, accompanying the markets as they progressively return to normal, as we have done in the past, and I think this is important. I say again, as I said three months ago, that there should be no interpretation in terms of the monetary policy stance of this gradual and timely unwinding of the non-conventional measures, and, as far as the monetary policy stance is concerned, we consider it to be appropriate.

On your second question, I will only say that by virtue of these convincing decisions taken by the Greek government, we all expect, and it seems to me that we have already seen illustrations of this, that the credibility of the Greek government will increase, and that is the reason why we believe that it was absolutely necessary to take those decisions.

Question: On Greece again, is it really wise to impose on a country which is in a deep recession an austerity package which amounts to around 7 percentage points of GDP, which is, of course, a huge contractionary policy – and I wonder whether this is really good for Greece in the long run, and whether it is right for the EU to impose such measures on the country?

Trichet: I think that what is extremely important in the short run is to enable Greece to get back on its feet, which is the process we are observing now. Remaining in the previous situation would have been more adverse for the growth and the stability of the country. So what has been done is appropriate, we have no doubts about that, and it has given full credibility to the programme that had already been decided upon, but which, prior to these decisions, was lacking credibility.

Our own analysis, as you know, is that when there is the phenomenon of a loss of confidence, as it was the case, then you are punished, in terms of growth and job creation, by the loss of confidence much more than you would be by the adverse effect of the adjustment programme. So I have absolutely no doubt that, all things being measured appropriately, Greece is in a much better state today, taking into account its activity and output, than it was before. For us, for the European Commission, for the peers, there is no doubt about that. We appreciate enormously what has been decided because we judge it to be commensurate with the difficulty, as well as a convincing course of action. Lucas, do you want to add something?

Papademos: To clarify, you mentioned a 7 percentage points of GDP fiscal adjustment? The planned reduction in the deficit remains the same – i.e. 4 percentage points of GDP. The measures that were announced, which we described as necessary and appropriate, aim to ensure that this ambitious target will be met. So it is not the case that a greater adjustment will take place, but that the additional measures will ensure that the planned reduction in the deficit will be achieved. And if I can add a word in response to your question, I believe that if a fiscal consolidation programme is both credible and durable, it is going to help support economic growth over the medium term and also strengthen employment. This would occur by reducing the cost of financing – both, the public and the private sector – and also by strengthening confidence. As we said in our statement, permanent measures should also include structural reforms which can contribute to restoring the Greek economy’s loss of competitiveness, and this is an additional channel through which growth and employment will be supported in the medium term.

Question: Given your wholehearted support for the measures Greece has now taken, would you accept that there is perhaps now a stronger case for other euro zone governments helping Greece if necessary, if for instance the financial market volatility does not subside and the problems remain in the capital markets for the Greek government?

Second question, you say we should draw no inference from the decisions today on liquidity for the main policy rate. If I understand it correctly, markets now are pricing in an increase in the main policy rate only in August or September next year. I wonder if you are happy with them pushing out the first rise that far or whether you want to say anything to correct those impressions?

And the third question: Mr Nowotny made an interesting comment early this week about how the fate of Greece, the fate of Europe was hanging on the judgement of one rating agency. I think this was meant as a complaint about the role the rating agencies continue to play in your collateral arrangements. Would you like to comment on what he said?

Trichet: As regards your first question, I would stick strictly to the statement by the Heads of State or Government of the European Union. I was present myself, I publicly gave my support for this statement. And it says that “euro area Member States will take determined and coordinated action if needed to safeguard financial stability in the euro area as a whole”. As I already said publicly, I take that commitment to be very important. Let me add that I do not believe that it would be appropriate to introduce the IMF as a supplier of help through standby arrangements or through any such kind of help. I think the IMF’s contribution has been important. I mention the fact that we had experts in Athens with the European Commission and with the IMF. And when Commissioner Olli Rehn and Jürgen Stark were in Athens at the beginning of this week, colleagues from the IMF were also present. So the IMF’s technical assistance is very important, very much appreciated. And we had very good cooperation. The fact is that the conditionality inside the euro area has to be decided, in our opinion, by the peers, according to the Stability and Growth Pact and the European framework as it functions.

As regards your second question on the monetary policy stance, you know that it is not customary at all for me to comment on what the market might or might not think. All I would say is that the market knows that we will always take the decision that would permit us to deliver price stability in line with our definition over the medium term. And I think I am credible when I say that. Because through all the difficulties that existed at the global level, all the various shocks that we have had to cope with, at the end of last year the average inflation rate in the euro area since the setting-up of the euro – so over 11 years – was 2.01%. And at the end of this year, we will be below 2%, close to 2%. We will make the exact computation at the end of the year, but I expect something like a little bit more than 1.9 percent as an average over the first 12 years of the euro. It confirms the credibility of our determination to deliver price stability, in accordance with the Treaty.

And on the last point, it seems to me that the decisions which have been taken by Greece at this stage are convincing. They are convincing in our eyes, and I expect that they will be convincing in the eyes of many other observers. I have no other comment on your question on rating agencies at this stage.

Question: Mr Trichet, two questions. First, given the discussion about the role of rating agencies, would the ECB consider, or does the ECB consider perhaps coming up with their own set of ratings for countries, perhaps, in this regard?

And second in particular on the decisions on the adjustments in how you handle one-month, three-month tenders, was the decision on these unanimous?

Trichet: On your second question first, I said that there was an overwhelming consensus on the decisions on the unwinding of non-conventional measures. I could also say that there was unanimity for the monetary policy stance. On interest rates, that decision was taken unanimously.

As regards your first question, I have no comment on rating agencies at this stage.

Question: On the liquidity decision again: could you please give us some more information on the debate that led to this overwhelming consensus? What were the concerns of those Council members who had to be convinced during the discussions? Also, could you tell us when you plan to announce the amount to be allotted in the first three-month operation conducted as a variable tender?

Finally, with regard to inflation again, the forecast has been revised down; in January we saw a fresh low, and core inflation is expected to go down further. Is that of any concern to you at the moment?

Trichet: I would say that we always have to take every aspect into consideration, as we usually do – this was the case, of course, when we took the previous decisions to introduce the non-conventional measures and then to progressively and in a timely manner phase them out. Be sure that we are doing what is appropriate to accompany the financial markets and the money market as they get back to normal. This is a progressive phenomenon and that is why we took the previous decisions. As you see, there is logic in our decisions. First, we phased out the 12-month operations, then we phased out the six-month operations, and now the three-month operations are going back progressively to a variable tender. We will start the first operation exactly in line with what we said: from the second quarter.

As regards inflation, we are publishing the ECB staff projections. Today, you can see that the ranges are quite wide, as always. In our opinion, risks are balanced, but it is clear that uncertainty remains quite high and we see upside and downside risks. Looking at growth, there is practically no change in the projection for the year 2010 in comparison with the previous projection that we published three months ago. For 2011, looking at the ranges, the projection is 0.3 percentage point higher. So, this reflects the pick-up of global growth, which and of course has an impact on us, but we are close to the projections that were published three months ago: practically no change for 2010 and a slight upward revision for 2011. With regard to inflation, our projections are also very close to what our staff thought three months ago. We project 0.1 percentage point less inflation this year and 0.1 percentage point more next year. All that being said, on growth you may also remember that we were more prudent and more cautious than many observers, commentators and economists. And we always said that we were not expecting growth to be particularly buoyant and that we were looking at growth as being uneven. I myself spoke of a bumpy road, and I remain very cautious and prudent. All that we have seen up to now confirms that we were wise to be prudent and cautious.

Question: Given the gradual unwinding of the exceptional liquidity measures, what message do you have for Irish commercial banks which have been beneficiaries of these schemes?

Trichet: Exactly the same message as for all banks. And this message was in the introductory statement. We consider it very important that they take appropriate opportunities to reinforce their balance sheets in order to be fully able to do their job, which is to supply credit and loans to the real economy. It is a global recommendation that banks have to concentrate on financing the real economy; we have helped them considerably in the past and we are continuing to help them, as you can see by the decision that we have taken today, with a view to permitting the real economy to be correctly and appropriately financed by the financial sector. This is important − I am sure that it is of great importance to repeat this message – in the euro area as well as in the rest of the world.

Question: Mr Papademos, could you please give us your view on Greece’s proposed public administration reform that is known as the Kallikratis Plan? Does this Plan go far enough? And how important is it that the Greek Government really sticks to the proposed timetable in implementing the reform?

Papademos: First of all, I would say that the prompt implementation of all measures that have been announced and all reforms that either have been announced or are going to be introduced in the next two years is very important in order to achieve the desired objectives. In particular, the reform of public administration is essential because it will contribute to reducing spending and the deficit, and even more importantly, it will contribute towards the more efficient, transparent and effective functioning of the State. So, without going into details, I think this is an important proposal and its swift implementation is of the essence.

Question: The IMF Chief Economist, Mr Blanchard, has suggested that central banks should consider higher inflation targets, at around 4%, in order to leave monetary policy more room to react to shocks like the financial crisis. What is your answer to him in this regard? His thinking was that the net cost of inflation at, say, 4% is not that much higher than at 2%. And also to anchor inflation expectations at 4% might not be that much of a problem, but you have more room to manoeuvre in the next crisis.

Trichet: I would say that it is plain wrong. That is my opinion and I believe it is the opinion of all central banks I know. First, it pays very little attention to the conclusions of academic research concerning the fact that at around 2% you probably minimise the counterproductive effects of inflation. Then I think it is totally counterproductive in the present period, when we have to cope with a difficult situation, to contribute to unanchoring inflation expectations. We ourselves have observed how extremely important it was to solidly anchor inflation expectations. By introducing such a change, you would drastically unanchor inflation expectations. And once you do that, of course, you suggest that any new change is possible, in any direction. So it is extremely dangerous. That is the second reason why I am totally opposed to that. Third, I think it would be very counterproductive in the present period of recovery, because it would have as an immediate consequence an increase in all medium and long-term interest rates, to incorporate the new inflation expectations, which would be tentatively 4% instead of less than 2% but close to 2 %. On top of the 2% increase which would be the arithmetic consequence of such a measure, you would also have to pay a risk premium because, if you start changing inflation expectations dramatically, the market can expect further changes. So the increase in market interest rates would be very high. Fourth, in a period when we have to remain as credible, well-anchored and as regards the financial environment, as favourable to growth and to job creation as required, it is clear that creating an inflationary shock could trigger an accelerated inflation phenomenon, which would be very dangerous. These are four reasons that I see immediately. I imagine I would find other reasons if we had more time to consider your question.

Question: Two questions, Mr Trichet. First, the US Justice Department has recently launched an investigation into whether hedge funds work together to bet against the euro. What is your view of this investigation?

And my second question is about Greece. Do you believe the Greek government will be able to raise enough money in the bond markets to cover its short-term refinancing needs?

Trichet: On your second question I will only say that I expect that these convincing measures will be convincing in the eyes of all observers. And that is the working assumption I will make.

On your first question regarding the investigation, I must confess that I was not aware of that. So I will be cautious and prudent, and I will only say – and I am not speaking for any particular country or issuer – that I believe that we have to continue working very seriously – as we do – at a global level and through the methodology that we have agreed upon, with the G20, the Financial Stability Board, the various working groups and working parties that we have created, to understand exactly the nature of the potential impact on global financial stability of the size of this hedge fund industry. This is a highly leveraged and speculative industry. I have no definitive response at this stage. But I believe that this will form part of the effort which we have to make at a global level to ensure that the financial system is much more stable. And, I repeat, we cannot afford to return to a situation of financial instability such as what we have been experiencing for two and a half years. We would not be forgiven for that by our own people in our own democracies. Nor would we be forgiven by the rest of the world, which has confidence today in our capacity to correctly apply the rules of the game of the market economy. So we must be sure that we have a global financial system which is reasonably stable. And some of the observations that have been made and that you refer to suggest that, perhaps, because of this particular industry, among others, we have a problem with regard to stability. So I will not give you a definite response, but it is a very serious question.

Question: President Sarkozy said today in Marignane, in the south of France, that we have some structural problems to solve and he mentioned exchange rate imbalances. He said that if you produce in the euro area and you try to sell in the dollar zone and the dollar is 40% below the value of the euro, it is not possible to match this and that, as the President of the G20 as of the end of this year, he will try to organise a new international monetary system. Can you perhaps say a few words on this?

Trichet: You know that for the euro area – which has a single currency, the euro – my goal is that executive branches would speak with one voice. This is extremely important. Let me just say that, as far as I am concerned I consider it is important that the US authorities say – as they do – that a strong dollar is in the interests of the United States. It is also, I believe, in the interests of the partners of the United States. I am talking about those currencies that float freely. This is the case for the euro, of course, and a number of other major floating currencies. It is not necessarily the case for currencies that do not float freely.

Question: You have extended the unlimited liquidity option until October, I think, which is longer than your other extensions. Do you think this will be your final extension for unlimited liquidity?

And my second question is on your growth forecast. Next year’s growth forecasts have, as you have said, been revised upwards slightly. To what extent is this a reflection of increased confidence in the economy? Or is this basically the result of a technical assumption, such as the lower trade-weighted euro?

And one final question: One of my colleagues asked you earlier about whether you would repeat the comment you made earlier this year and late last year that you would not change the collateral rules to suit Greece. Can you answer the question this time?

Trichet: On your first question, let me just say that what I have said on behalf of the Governing Council is pretty clear. I said “for as long as needed and at least until the end of this year’s ninth maintenance period on 12 October 2010”, and the date covered the third quarter. So we are not committed as regards anything else, and we will judge what needs to be done when the time comes.

As regards your second question, I really believe that what we are doing is accompanying the markets’ return to normal functioning. And, as I have said, this does not affect the monetary policy stance itself. As regards growth, the information we have – and I think the staff of the ECB are very much in line with the position adopted by the staff of the Eurosystem three months ago – is extremely close to most of the public and private sector projections. I would say that it is true that the main reason why we see the upward revision of growth data for 2011 is that the global environment is more favourable. That is undoubtedly the main reason.

As regards your third question on the collateral rules, I said what I was expecting, taking into account the very convincing decisions taken by Greece, and I have no other comment on that.

Question: Going back to Greece, is there something in the Treaty that makes it legally impossible for Greece to knock on the door of the IMF without the consent of all the countries of the euro area? If there is nothing that prevents this from happening, what would be the consequences – apart from shame – for the European Union and the European Central Bank?

Trichet: I do not want to enter into some kind of fantasy scenario. Let me just say that belonging to the euro area is something which helps you considerably. When you are in the euro area, you have a kind of automatic financing of your current account. And when you have a current account deficit, as has been the case for Greece for a long period of time, you get the financing of your current account deficit, because the other economies of the euro area take care of that. So we are, in a way, in a system which is very different from the usual environment. When you are inside the euro area, you are helped by the very fact of belonging to the euro area, and you are helped considerably. Adding up the current account deficits year after year, for instance gives a considerable proportion of GDP. On the other hand, you also have to respect the rules – the Stability and Growth Pact in particular. And you know the determination which with the ECB defended the Stability and Growth Pact at a time when it was regarded as “stupid”. We can see now that it is not stupid; it is a fundamental pillar of the euro area. The fact is you have to respect the rules in advance. You have to permanently respect the rules of the Stability and Growth Pact. So, being in the euro area obviously means being in a situation which is very special. I would always insist very much on that.

Question: Mr Trichet, Thomas Mayer of Deutsche Bank wrote an article and suggested the foundation of a European Monetary Fund equivalent to the International Monetary Fund to help in case of a crisis like this. What do you think? Do you share that opinion? Should we have something like that in Europe?

Trichet: Let me only say that I have no position of the Governing Council of the ECB to give on such an idea. Again, we are in a situation in the euro area which is special because you have a level of help to the financing of the balance of payments which is given ex ante by the sole virtue of belonging to the euro area. As regards the statement which has been made by the Heads of State or Government, I have already read it and I see it as committing the Heads of State or Government in case we would have to safeguard financial stability in the euro area as a whole. It is good to look at all ideas on possible initiatives, but I have no particular comment at this stage.

Question [Translation from French]: I would like to ask you about the ECB’s rates which have been very low for almost one year now. If you compare this with the rates which stayed low for a long time in the United States and created the financial bubble which caused the problems we are now experiencing, should we be concerned about the formation of a new bubble? If so, or if not, why? I am referring in particular to consumer credit as lending to households is reported to be rising.

Trichet [Translation from French] : I believe I can reassure you about credit itself because corporate lending is actually decreasing and consumer credit is increasing but only a little. Therefore, we cannot say that we are observing a credit bubble due to the low level of interest rates. This is not the case at all. That said we have to always remain alert. I have said how vigilant we have been in not maintaining non-conventional measures which would no longer be warranted by market circumstances. And as for monetary policy and interest rates, we are very careful to do what is necessary, without pre-commitment, without being obliged to behave in too lax a manner, or perhaps on the contrary in too tough a manner, because we would have made a commitment previously.

So to summarise [in English of the above answer given in French], we are far from having a credit bubble now, but we have to remain cautious and alert in order to avoid having for too long a time the non-conventional measures that could be inappropriate in this respect. With regard to our monetary policy stance, as you know, we never pre-commit, we always take the decision that we judge appropriate so that we are never trapped by a pre-commitment that would appear not exactly appropriate later on. That is part of our overall concept of monetary policy.

Question: Mr Trichet, could you envisage two southern Europeans at the head of the ECB?

Trichet: You should ask the ministers and the Heads of State or Government that question.

Question: I am a bit puzzled by your statements on the monetary stance. I remember quite well when you introduced the liquidity assistance and the unconventional measures that you put emphasis on the fact that although the main interest rate was kept at 1%, you managed to bring down the market interest rate, namely EONIA, almost as far or even further than the other central banks. Now, you are withdrawing the assistance – did that logic only work in one direction?

Trichet: I would not say that, because what we are expecting is a normal behaviour of the market. By the time we reach the end of the twelve-month period since we had our twelve-month “jumbo refinancing”, we expect that we will still have a level of liquidity which would be very abundant. So, we continue to handle the money market with this level of liquidity. We will see exactly what is appropriate. I have always said that the way we were operating ourselves the supply of liquidity had an impact on the EONIA rate that is true. So, we will see exactly what happens, but again it is not our intention at this stage to give a signal in terms of monetary policy interest rates.

Question: So, you are not expecting EONIA to move back closer to the main interest rate then?

Trichet: Not in the short run.

Question [Translation from French]: I would like to know what the key message of Olli Rehn was at your meeting and if he was there upon your invitation?

Trichet [Translation from French] : Olli Rehn was here upon my invitation, but also because according to the Treaty he has the right to attend our meetings. We appreciate enormously the cooperation which has been established very rapidly in the case of Greece and also of course in other areas with the Commissioner and I think it was very good that we could cooperate confidently on this very important issue.

That was the last question. But because we have taken a lot of decisions today, I still have to tell you that the Governing Council has given an opinion on the appointment of the Vice-President of the ECB. The Governing Council has no objection to the proposed candidate Mr Vítor Constâncio, who is a person of recognised standing and professional experience in monetary or banking matters, and I am quoting the Treaty itself, as required by Article 253(2) of the Treaty on the Functioning of the European Union. So, if I summarise everything that we have decided in the Governing Council yesterday and today, I have the judgement on the recovery programme of Greece; I have the opinion on the Vice-President, which is proposed by the executive branches; and I have also the approval of the accounts of 2009. I do not want to embark on the precise details of the accounts, there will be a press release giving all these details. Let me only say that we earned a surplus of €2.218 billion in 2009, compared with €2.661 billion in 2008. There is a technical adjustment to our risk provisions, so the net profit for 2009 amounts to €2.253 billion. The new projections will also be explained in detail in a communiqué. And, finally, additional information will be provided on the phasing-out of the non-standard measures and the monthly report on the covered bond purchase programme.

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