Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,
Vítor Constâncio, Vice-President of the ECB
Frankfurt am Main, 10 June 2010

Jump to the transcript of the questions and answers

Ladies and gentlemen, Mr Constâncio, the new Vice-President of the ECB, and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting, 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 new information which has become available since our meeting on 6 May 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Global inflationary pressures may persist, while domestic price pressures are expected to remain low. The latest information has also confirmed that the economic recovery in the euro area continued in the first half of 2010, but quarterly growth rates are likely to be rather uneven. Looking ahead, we expect the euro area economy to grow at a moderate pace, in an environment of continued tensions in some financial market segments and of unusually high uncertainty. Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, 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 our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.

Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term. This is the necessary and central contribution that monetary policy makes to fostering sustainable economic growth, job creation and financial stability. All the non-standard measures taken during the period of strong financial market tensions, referred to as “enhanced credit support” and the Securities Markets Programme, are fully consistent with our mandate and, by construction, temporary in nature. We remain firmly committed to price stability over the medium to longer term, and the monetary policy stance and the overall provision of liquidity will be adjusted as appropriate. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.

Let me now explain our assessment in greater detail, starting with the economic analysis. After a period of sharp decline, euro area economic activity has been expanding since mid-2009. According to Eurostat’s first estimate, euro area real GDP increased, on a quarterly basis, by 0.2% in the first quarter of 2010. While adverse weather conditions, in particular, dampened growth in the early part of the year, the latest economic indicators suggest that a rebound took place during the spring. Looking ahead, the Governing Council expects real GDP to grow at a moderate and still uneven pace over time and across economies and sectors of the euro area. The ongoing recovery at the global level and its impact on the demand for euro area exports, together with the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system, should provide support to the euro area economy. However, the recovery of activity is expected to be dampened by the process of balance sheet adjustment in various sectors and weak labour market prospects.

This assessment is also reflected in the June 2010 Eurosystem staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between 0.7% and 1.3% in 2010 and between 0.2% and 2.2% in 2011. Compared with the March 2010 ECB staff macroeconomic projections, the range for real GDP growth this year has been revised slightly upwards, owing to the positive impact of stronger activity worldwide in the short run, while the range has been revised somewhat downwards for 2011, reflecting mainly domestic demand prospects. The June 2010 Eurosystem staff projections are broadly in line with forecasts by international organisations.

In the Governing Council’s assessment, the risks to the economic outlook are broadly balanced, in an environment of unusually high uncertainty. On the upside, the global economy and foreign trade may recover more strongly than projected, thereby further supporting euro area exports. On the downside, concerns remain relating to renewed tensions in some financial market segments and related confidence effects. In addition, 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, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances, may weigh on the downside.

With regard to price developments, euro area annual HICP inflation was 1.6% in May 2010, according to Eurostat’s flash estimate, after 1.5% in April. The rise in inflation over recent months mostly reflects higher energy prices. During the second half of this year some further slight increases in HICP inflation cannot be excluded. Looking further ahead, inflation rates should overall remain moderate. Upward pressures on commodity prices may persist, while euro area domestic price pressures are expected to remain low. Inflation expectations over the medium to longer term continue to be 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 June 2010 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 1.4% and 1.6% for 2010 and between 1.0% and 2.2% for 2011. Compared with the ECB staff projections of March 2010, the ranges have been adjusted somewhat upwards, mainly reflecting higher euro prices for commodities. Available forecasts from international organisations provide a broadly similar picture.

Risks to the outlook for price developments are broadly balanced. Upside risks over the medium term relate, in particular, to 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. At the same time, risks to domestic price and cost developments are contained. Overall, the Governing Council will monitor closely the future evolution of all available price indicators.

Turning to the monetary analysis, the annual growth rate of M3 was unchanged at -0.1% in April 2010. The annual growth rate of loans to the private sector increased somewhat further and turned positive, but remained weak at 0.1%. Together, these data continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained. Shorter-term developments in M3 and loans have remained volatile and, given the renewed tensions in some financial market segments, volatility in M3 and its components may well continue.

The actual growth in M3 continues to understate the underlying pace of monetary expansion, but the downward impact of the rather steep yield curve and the associated allocation of funds to longer-term deposits and securities outside M3 appear to be gradually waning. The same holds for the shifts within M3 that have been observed as a response to the narrow spreads between the interest rates paid on different M3 instruments. At 10.7%, annual M1 growth is still very strong.

The still weak annual growth rate of bank loans to the private sector conceals the fact that monthly flows have now been positive for a number of months. At the same time, these aggregate developments continue to reflect mainly an ongoing strengthening in the annual growth of loans to households, while the annual growth of loans to non-financial corporations has remained negative. A lagged response of loans to non-financial corporations to economic activity is a normal feature of the business cycle.

The latest data confirm that the reduction in the size of banks’ overall balance sheets has not continued since the turn of the year. However, further adjustments cannot be ruled out and the challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up. To address this challenge, banks should turn to the market to strengthen further their capital bases 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 new information which has become available since our meeting on 6 May 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Global inflationary pressures may persist, while domestic price pressures are expected to remain low. The latest information has also confirmed that the economic recovery in the euro area continued in the first half of 2010, but quarterly growth rates are likely to be rather uneven. Looking ahead, we expect the euro area economy to grow at a moderate pace, in an environment of continued tensions in some financial market segments and of unusually high uncertainty. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, 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 our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.

As regards fiscal policies, the Governing Council welcomes the recent decision by euro area countries to formally establish a European Financial Stability Facility. This needs to be accompanied by decisive action at the level of governments. It is essential that all countries stick to their commitments to correct high budget deficits and government debt and reduce fiscal vulnerability. To this end, the concrete adjustment measures needed to achieve the budgetary targets should be fully specified. All countries must ensure that confidence in the sustainability of public finances is guaranteed. The Governing Council welcomes the fact that a number of euro area governments with the highest deficits and strongly increasing debt levels have adopted additional fiscal consolidation measures and set out more ambitious fiscal targets. In this context, we took note of the spring 2010 orientations for fiscal policies in euro area countries agreed by the euro area finance ministers on 7 June, and welcome the commitment to take additional measures, where needed, in order to ensure the achievement of the budgetary targets for 2010 and beyond. It is indeed key that the new budgetary targets be achieved. The Governing Council fully agrees with the ministers on the priority of halting and reversing the increase in the debt ratio and welcomes the commitment to take immediate action to that effect.

For all euro area countries, structural reforms leading to higher growth and employment are crucial to support a sustainable recovery. Existing competitiveness problems, as well as domestic and external imbalances, need to be urgently addressed by the countries concerned. To that end, wage-bargaining should allow wages to adjust appropriately to the competitiveness and unemployment situation. Likewise, measures that increase price flexibility and non-price competitiveness are essential. Finally, an appropriate restructuring of the banking sector should play an important role. 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, job creation and financial stability.

We are now at your disposal for questions.

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Question: Mr Trichet, I have a couple of questions.

First, on the bond purchasing programme: what changed your mind about it? Last time in Lisbon you said you did not even discuss it in the Council, and after that, a couple of days later we heard about this bond purchasing programme. What prompted you to do it? And how do you view it now in its necessity and effectiveness?

Secondly, there are enormous amounts of money parked yet again. We had this a couple of years ago at the ECB and the deposit facilities which are clogging up the banking system, how concerned are you by this that the banks yet again do not start lending to each other and hence possibly hamper the economy?

And lastly, Jean-Claude Juncker said in Luxembourg this week with a degree of exasperation: “I wish politicians did not talk too much and I wish central bankers did not talk so much”. Hearing what we hear sometimes from other ECB Governing Council members as a concert, would you sometimes wish that central bankers would not talk so much?

Trichet: You are very privileged. You asked three questions. I warn you all in advance; the other journalists will have just two as a maximum!

As regards your first question as you know, I have had a number of occasions to explain why we embarked on the Securities Markets Programme, not only in the communiqué and also in speeches and interviews, but I repeat the reason. The Securities Markets Programme is designed to ensure the effective functioning of the monetary policy transmission mechanism by helping to resolve a malfunctioning of some segments of the euro area debt securities market. This malfunctioning became very acute in the afternoon of the Thursday following our Governing Council meeting on 6 May and during all of Friday, 7 May. This was not only observed by us, by market participants or by financial institutions in Europe, it was observed the world over as a major event that was threatening the functioning not only of the European economy and market but also of the global financial markets and the global economy. And that is the reason why, as you know, not only were a number of decisions taken by us and by others, but there was also international support through a communiqué of the G7 and a communiqué of the G20. A second important element of this decision was that we did not change the monetary policy stance, just as we have not changed the monetary policy stance today. We considered that the monetary policy stance had to remain unchanged, that it was appropriate. We confirmed that in our decision of 9 May; it was communicated on 10 May. We said very clearly that we would withdraw all the liquidity that was to be supplied through this Securities Markets Programme, and you have been able to observe this withdrawal of liquidity functioning week after week. Of course, in taking that decision, we had taken note – as was said immediately and repeated during all the communication which was undertaken – of the commitment of euro area governments. I quote the statement of the Heads of State and Government in which they agreed “… to take all measures needed to meet fiscal targets this year and the years ahead”. They also made a solemn statement saying that each one of them was ready – and again I am quoting – “… to take the necessary measures to accelerate fiscal consolidation”.

This is my third point: Finally, I would say that as far as we are concerned, as you heard me say a moment ago, we are inflexibly attached to price stability. We have the best track record on price stability over 11½ years that you can find in Europe – including among the legacy currencies – since the Second World War. You also know how proud I am, together with all the members of the Governing Council, that our inflation expectations are exceptionally well-anchored in comparison with all comparable currencies and comparable economies. So this is something which is of the utmost importance.

On your second question, I would say that clearly we are in a period where we have an unlimited supply of liquidity in particular through the one-month window and the main refinancing operations. You will remember that we also took additional decisions on the occasion of our set of decisions of 9 May. We see clearly that there is an illustration of these tensions that I mentioned on behalf of the Governing Council as regards the demand for liquidity and of course in what we are observing in our deposit facility. It means that we have a money market which is not functioning perfectly. That is clear.

And on your last point, I would only say that there is one currency, there is one ECB, there is one Governing Council. And because we have to take decisions on the basis of, among other things, this credible alertness which characterises our institution, there is always only one decision. And I would add that there is only one Governing Council explanation, which I am very proud to give you.

Question: Can you provide details of your bond purchase programme ‑ that means I would like to know: how much will you spend, for how long will you buy, and what are you actually buying? Part of that question also is: why have purchases slowed down since the programme was started?

And my second question would be: are you going to issue debt certificates to mop up liquidity from the system?

Trichet: On your first question, as you know, we are withdrawing the liquidity that we are injecting, and each week you can see what we are doing. We don’t give any additional information. But you could see that the first week we withdrew approximately 16.5 billion euros, the second week 10 billion more, the third week an additional 8.5 billion, in the fourth week 5.5 billion. So you have this information. We withdraw exactly the level of liquidity that we inject. No other indication.

As regards your second question, we are looking at all possible instruments, but there is absolutely nothing immediate in this domain.

Question: On the bond purchases: we have seen spreads in some countries widening, which has led some people in the market to question the ECB’s commitment to the purchases, given that there does appear to be some discordance on the board about the effectiveness of them.

And secondly, do the estimates for growth and inflation take into account the austerity measures ‑ are they built into the forecasts?

Trichet: On your first question: again, there is one decision, one institution, one currency ‑ and I already responded to a similar question. We are pursuing the exact objective that I mentioned earlier. We are not changing the monetary policy stance and we are helping to restore the appropriate functioning of a number of markets that were disrupted, and that were hampering the monetary policy transmission.

As regards your second question on our own projections, these are the projections of the staff of the Eurosystem. As I said, in comparison with the projections that were made by the ECB staff three months ago ‑ because we are alternating between ECB and Eurosystem staff every three months ‑ there is a little bit more growth this year, and a little less next year. All things considered, if you take the two years, we have approximately the same level: the difference is 0.1%. Why do we have this difference? It is complex, because it is totally multi-dimensional and all new information is incorporated. It is our understanding that, after having had a first quarter that was not buoyant we will have a much more buoyant second quarter. And that explains the fact that for the full year we might have this revision up, which is not totally negligible, because it is plus 0.2%. We do not see similar changes in the profile for next year, and, all things considered, including the profile and the carry-over, we have this slight revision down. But what is important in what we say is the level of uncertainty: we clearly are both as regards our own economy and as regards a large number of other industrialised economies, in a situation which remains uncertain. Growth is not something that is already written somewhere and that is imposed on us: growth depends on us, and, crucially, in our opinion, depends on confidence. We try to continue to be an anchor of confidence ourselves. Our fellow citizens can have confidence in our capacity to deliver price stability and defend their purchasing power. These are not just words ‑ look at our track record of 11½ years, which is fully in line with our definition of price stability. It is extremely important, that all institutions, authorities and entities ‑ public and private ‑ do all what they can to improve confidence, as we already called upon them to do.

Question: You said in your Introductory Statement that overall liquidity provision will be adjusted as appropriate. Does that mean that you are considering additional liquidity operations, especially in light of the expiry of the 442 billion one-year loans?

And also, once these loans are being paid back, do you expect banks to compensate for that by the upcoming three-month tender or do you expect the liquidity conditions to tighten significantly?

Trichet: Let me only say that, when we say “as appropriate”, we really mean “according to the market situation” and with the inflexible needle in our compass aimed at delivering price stability, which – again – is our major asset. In all circumstances, also when we face major difficulties, I believe it to have been extremely important that the anchoring of inflation expectations could work against inflation, but also – in the period we experienced after the collapse of Lehman Brothers – against the materialisation of inflationary risks. So, a solid anchoring is something that is absolutely of the essence for us.

Now that having been said let me tell you that the Governing Council decided today to adopt a fixed rate tender procedure with full allotment in the regular three-month longer-term refinancing operations to be allotted on 28 July, 25 August and 29 September 2010, i.e. for a full quarter. So, this is a decision taken by the Governing Council today.

It is a response also to your second question, it seems to me.

Question:What effect are the banks’ continuing low interest rates having on low prices in relation to inflation?

And secondly, is the Bank concerned about inflation in the new EU countries?

Trichet: On your first question, again we consider our current interest rates to be appropriate taking into account all the information we have gathered. And in conclusion, as I have said, on the basis of both our economic analysis and our monetary analysis – after cross-checking both analyses –we have a monetary policy stance and interest rates that are, in our view, appropriate. That having been said, as you know, we are never pre-committed and we always do what is necessary to deliver price stability. And, again, we have a track record that speaks by itself.

As regards your second question on the new EU countries: you are aware of the requirements of Europe, of what is required of all of us. We are all devoted to price stability. This is in the Treaty, which is valid for all 27 countries. But it is the responsibility of the central banks, which have to be devoted to ensuring price stability for the various nations, to fulfil their obligations within the framework of the European Union as a whole. As far as we are concerned, we are following very carefully what is happening in the central and eastern European countries, as well as in the international community as a whole. And it is important that we are all united in purpose, because we are all dependent on global features, on the global economy and global inflation, in particular.

Question: A couple of questions, firstly on the Securities Markets Programme – the buying of government bonds. I know that you are not going to give us any more information, but I think it would help a lot of people if we had a flavour of the discussion within the Governing Council on whether you regard the work as having been mostly done with that programme, because there have been some improvements in the functioning of markets – obviously not in the spreads, but there has been some improvement. So, is the fact that the amount you are buying has gone down perhaps an indication that the bulk of this programme is over or that the work is largely done?

Secondly, perhaps you could give us a flavour also of the discussion on the extension of the three-month unlimited offers. Was that agreed unanimously? I know some people talked about returning to an exit strategy in July. But perhaps you could tell us about the flavour of that?

And on the euro, is the lower euro another reason why growth is higher this year in your forecasts?

Trichet: As regards your first question I have said what was the purpose and the design of the Securities Markets Programme that we have embarked on, and you can observe yourselves what we do in terms of weekly operations and weekly withdrawal of liquidity. I will only say that we continue to have the same role as regards the programme.

As regards your second question on the three-month operations, we were unanimous in taking that decision.

As regards your third question on the exchange rate of the euro with the US dollar or vis-à-vis other currencies, I will only say that the euro is a very credible currency, with an exceptional track record in preserving price stability, and that this capacity to preserve its value over time in an very credible way is a major asset for domestic and external investors.

Question: At the last press conference, Mr Trichet, you might remember, I asked you a question on the separation of banking activities. So I was very happy to see that in the Financial Stability Review of the ECB there is one chapter dedicated to the issue. It is called “Separating banking and securities business: Glass-Steagall revisited”. Then I read it and I was disappointed because basically you reject it on the basis of two arguments, one of which I consider ideological and the other one is technical. So the ideological argument is that this is not in the European tradition of universal banking. Well, traditions can be changed. Before Glass-Steagall was introduced this was also the tradition in the United States. And before firewalls were eliminated in Europe in about 1995 or 1996, so more than ten years ago, we had this tradition. So, the technical argument which you are making in the report is that separation of banking activities between commercial banks and investment banks might disturb the functionality of the market and might also hamper the integration of the markets. Now you said a few minutes ago that the markets are not perfectly functioning now, which I think is an understatement. Therefore, the main point which is missed here is that through a separation the issue of protection is clear. Governments can protect deposit-taking banks and commercial banks and the rest is not protected. So, we have all these toxic assets, we have an open-ended guarantee for quadrillions now. How are we going to solve this?

Trichet: I know your position because you expressed it last time, and I have already said that one can defend that position. This is a debate that has been going on in the United States for a very long period of time. The position of the ECB, which you reflected very well, is that this is not something that we consider urgent or even appropriate in our present situation. But I do not deny that you are entitled to your opinion. You have your opinion, we have ours.

Question: Are markets still dysfunctional and which indicators have to change that you would say one day: “… well, markets are functional again and we could stop the programme, the buying programme”, first question.

And the second one is: Would the ECB go on buying bonds of euro countries when there would be a clear threat of a sovereign default?

Trichet: Again, what we have done and what we are doing, with the same purpose, is to permit, or to help restore, an appropriate functioning of the monetary policy transmission mechanism. And we consider, at the moment I am speaking, that it is appropriate to continue to do what we decided previously. I am not giving any information other than that. We are sticking to the decisions we have taken, which have the same purpose as they had when they were made. And I should repeat the very important message that we are withdrawing all the liquidity that is injected in order to fully preserve the monetary policy stance, which we considered should not be changed and which we have again today considered does not need any change. The stance is appropriate and, moreover, as you know, inflation expectations are solidly anchored, which is essential.

As regards your second question I have no further comments to make. We are doing what we have decided to do.

Question: You were saying that the solution of the crisis is relating to more integration within the EU. What do you mean exactly by that? Are you supporting for instance the idea of an economic stronger government?

Trichet: I am and we all are, I have to say, supporting stronger governance, stronger governance at the level of the 27 and at the level of the 16.

Question: … within the EU?

Trichet: … within the EU and within the euro area, both. And I think that what we are observing at the present moment is a clear demonstration that first, rigorous implementation of what already exists – the Stability and Growth Pact, in particular – is absolutely of the essence. As you know, that has always been our position and we have been inflexible on that position. We have, unfortunately, had to fight against opposing views. And, most unfortunately, we have seen how the spirit of the Pact has been weakened, even if the letter of the Pact has been saved against attempts to dismantle it. Also, as we the Governing Council have always said, we must not only apply rigorously the Stability and Growth Pact, in all its fiscal aspects, but also follow, very carefully, unit labour costs and competitiveness indicators inside the euro area, as well as monitoring structural reforms. All this is relevant to the very sizeable and far ranging work that has been started, having been decided upon by the governments, under the presidency of Mr. van Rompuy. And it is extremely important that we make a quantum leap in this domain, in Europe as a whole, but particularly in the euro area. We share the same currency – a single currency – and we share a common destiny. We have to improve drastically the governance of the euro area member states.

Question: …What should the response reach?

Trichet: We will be more explicit on that when we transmit our own proposal, but it would mean improving massively the ex-ante monitoring of the position of the various governments. For instance, in the fiscal area, we are very strongly in favour of the European semester. And I trust now that practically all countries – even those who were resisting – are now on board. We need more effective sanctions. We need much more effective monitoring of what is happening, with the quasi-automaticity of sanctions and of the capacity to impose appropriate behaviour on countries that would behave improperly. This is across the board and I would say a first step would be to exploit all the possibilities that the secondary legislation of Europe permits in all domains. And we consider that we have to go up to the limit of what the legal framework permits. Again, it is absolutely of the essence and what we are experiencing today and have been experiencing for a number of months is a wake-up call in this respect.

Question: Mr Trichet, a question on Spain. Was Spain and the tensions on the banking market there discussed in the Council today? And how would you assess the situation?

And a second question is: what could be done from the side of the ECB or other sides just to avoid systemic risks from Spain to the European markets?

Trichet: As regards your first question we rely on the Spanish banks very much. We rely very much on the Bank of Spain, which is a member of the Eurosystem, has the responsibility for banking surveillance and is very active in exercising its mandate. The Bank of Spain has always been impressive in this respect. They invented dynamic provisioning, which is considered one of the best concepts globally, and we support the Bank of Spain in all its present efforts.

On your second point, as regards banks in general, and not only the Spanish banks, you can see what we have said in our own introductory statements, but it is not new. We have been saying for years and with a lot of strength that they have to improve their own balance sheets, they have to take every opportunity to put aside their earnings in order to reinforce their capital, and they have to be very cautious as regards remuneration. We also said that they have to embark on issuance of new shares and stocks when possible, and to have recourse to governments and to the recapitalisation options that were established in the past and are still necessary in a number of cases. That is very clear. And I would say we are treating all countries in the same way and we call on all countries – not just Spain – to be very keen themselves in putting their house in order.

Question: You have just praised in very clear terms the performance of the Spanish central bank. I am sure you are aware that in the last 24 hours the Irish government has published two reports on the implosion of the Irish banks. One of those was by Patrick Honohan, a member of your own Governing Council, and the other was by Klaus Regling, a man who I am sure is known to you. Those reports were quite critical of the pretty poor performance of the Irish central bank in fulfilling its mandate to oversee the Irish banks. Are you concerned about the poor performance of the Irish central bank in that context, and do you believe its very poor performance reflects badly on the Eurosystem and on the ECB, which is led by you?

Trichet: One of these reports, if I understand correctly, has been written by the central bank itself. So, the central bank itself says that it can improve. This is the case for all of us and I would certainly not say that the Banco de España cannot improve. So do not consider that I am giving good marks and bad marks. We are all – the Eurosystem as a whole – learning all appropriate lessons from what has happened. In any case, the improvement of banking surveillance is a global problem. Not just a European problem or a national problem, but a global problem. And as you know, we are all working very actively to improve prudential rules and regulations at the global level. But I understand that these reports are specifically on the lessons to be learned from the events that have very unfortunately been observed in Ireland – as they have in a number of other countries. It would be difficult for me to say that “Patrick is criticising himself, but he is wrong in criticising” – well, not himself, but what has been done in the past. In any case, lessons have to be learned. And to embark on personalisation doesn’t exactly seem appropriate to me. Again, we have to improve the system, which proves – it’s true – that it was not sufficiently resilient.

Question: One question to Mr Trichet. Recently Mr van Rompuy said that if the facility to support euro zone countries in difficulties was not sufficient, it could be increased, putting more money into that facility. I would like to know, what is your opinion about that, because you were part of the negotiations for that facility.

And if I can use the two question facility, I am from Portugal, and I would like to hear the new Vice-President: when you say that the prospects are for moderate growth in Europe, does it take into account the facts of the austerity measures that are being put in place in different countries?

Trichet: On your first question, I must confess that I did not see what President van Rompuy said, so I am very cautious. I do not like to comment on declarations or text that I have not read. So, at this stage I would only say that we called on governments to assume their responsibilities in a situation which was and is very demanding. I said that we welcomed the signing of the document that started to give flesh to this decision taken by the Heads of State and Government on 10 May. At this stage I would say that what is important is that this facility is alive and active, as a result of the very strong determination of all governments concerned, which I was able to observe myself. I was, I have to say, impressed by the rapidity with which the facility was ratified and obtained parliamentary approval. At this stage I have no other comment. I will read very carefully President van Rompuy’s declaration.

Constâncio: As regards your second question, we take into consideration – as does anyone trying to forecast what will happen to our economies in the near future – what will be the effects of fiscal measures in order to reduce deficits in all countries. And there we have to distinguish between the short-term effects and the medium- and long-term effects. It is, in a way, unavoidable that in the short-term those measures can have a restrictive effect on the economy. But we have in the first place to compare that with the alternative of doing nothing and what could happen to the fiscal situation of those countries that would lead in a few years’ time to programmes that would have to be much harsher, much stricter, with all the consequences that that would have. Secondly, if we take the medium- and long-term view – and I stressed that several times when I was in Portugal, calling for measures to consolidate our public finances – we also have to consider that if economic agents in general can feel more confident that in the near medium-term future the public finance situation will be better, that will have a positive effect on expectations and can help also on a medium-term basis to create the conditions for faster growth.

Question: Could you detail what you mean by the role of the government bond markets in the transmission mechanism of monetary policy in a banking-based financial system as we have in continental Europe?

And second, I understand you stepped in and bought government bonds because we were on the eve of a financial crisis and governments would not have the means to provide the funds in time. But now we will have a vehicle that will provide the funds from the fiscal side, from the governments, and it is actually their job to do that. Would it not then be the right time to get out of the programme, when the vehicle is in place?

Trichet: On the first question, I would say that we are living in market economies and it is clear that when markets – not only government bond markets, but securities markets – are totally disrupted, the monetary policy transmission mechanism does not function. That is obvious. It does not mean that it is easy to help restore the appropriate functioning of the mechanism, but at least you can immediately observe that it is not functioning normally. The monetary policy impulses are totally blurred in this environment.

As regards your second question, I will not comment on the future. I said that we had a very clear target, which was not to change the monetary policy stance and to help restore the appropriate functioning of the monetary policy transmission mechanism.

Question: Two questions. First, in 2000 the euro fell on a trade-weighted basis by about 11%, and the drop since the beginning of this year has been almost equal to that. Do you now think that the drop has been brutal or do you agree with some other Governing Council Members who say that the euro now reflects fundamentals?

And the second question is about bank stress tests. What is shown in the preliminary results, which I believe you have seen by now, and do they show that there is any improvement in the ability of banks to carry risks at this point?

Trichet: As regards your first question I have already responded on the issue of the foreign exchange market. The euro is credible, keeps its value and is a major asset for external and domestic investors. I have no other comment.

As regards your second question on the stress tests, this is a process which is being carried out at the level of the CEBS and at this stage we should let the process operate. We will see what exactly they do and what we do. But it is a process which has started through the CEBS and on the basis of parameters that have been discussed between the Commission and the ECB.

Question The use of the dollar funding facility has been very low. Would you favour perhaps narrowing the swaps spread in order to make that facility more attractive?

Trichet: No, it is not something that we envisage at this stage. This back-stop facility exists. It is not necessarily utilised, but I would say that it is good that it exists. If it is not utilised, that is also good because that means that there was no need for it. I would say that we have no particular intentions as regards the margin.

Question: Back to the question about bank stress test – Mr Trichet, would you encourage national regulators to publish the detailed results of the bank stress tests once they have been completed. And, if so, how do you assess the chances that they will listen to you.

Trichet: Well, we will call upon all of them to fulfil their responsibilities. What is extremely important is to improve the understanding of the market, of the environment at stake in the various banks. And we are encouraging them to do whatever is necessary to improve the sentiment of the market because that is the real issue today. That said we are working actively with supervisors on this at the current stage.

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