Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,
Vítor Constâncio, Vice-President of the ECB
Frankfurt am Main, 2 December 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.

Based on its regular economic and monetary analyses, the Governing Council confirmed that the current key ECB interest rates are appropriate. It therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 4 November 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Recent economic data are consistent with a positive underlying momentum of the recovery, while uncertainty is elevated. Our monetary analysis confirms that inflationary pressures over the medium term remain contained. We expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations are 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 is of the essence.

The Governing Council today also decided to continue conducting its 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 the third maintenance period of 2011 on 12 April 2011.

Furthermore, the Governing Council decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted on 26 January, 23 February and 30 March 2011 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.

Overall, the current monetary policy stance remains accommodative. The stance, the provision of liquidity and the allotment modes will be adjusted as appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature. 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. Euro area real GDP grew by 0.4% on a quarterly basis in the third quarter of 2010, following exceptional growth of 1.0% in the second quarter. Recent statistical releases and survey-based evidence generally confirm that the positive underlying momentum of the economic recovery in the euro area remains in place. In line with previous expectations, this implies ongoing real GDP growth in the fourth quarter of this year. Euro area exports should further benefit from a continued recovery in the world economy. At the same time, private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors.

This assessment is also reflected in the December 2010 Eurosystem staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between 1.6% and 1.8% in 2010, between 0.7% and 2.1%% in 2011 and between 0.6% and 2.8% in 2012. Compared with the September 2010 ECB staff macroeconomic projections, the range for 2010 has narrowed somewhat and shifted towards the upper end of September’s range, while the range for 2011 is slightly narrower. The December 2010 Eurosystem staff projections are broadly in line with forecasts by international organisations.

In the Governing Council’s assessment, the risks to this economic outlook are tilted to the downside, with uncertainty remaining elevated. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. At the same time, it is to be noted that the level of business confidence in the euro area remains relatively high. On the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Further downside risks relate to renewed increases in oil and other commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.

With regard to price developments, euro area annual HICP inflation was 1.9% in November, according to Eurostat’s flash estimate, unchanged from October. In the next few months HICP inflation rates will hover around current levels before moderating again in the course of next year. Overall, in the period ahead inflation rates should remain moderate. 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 December 2010 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 1.5% and 1.7% for 2010, between 1.3% and 2.3% for 2011 and between 0.7% and 2.3% for 2012. Compared with the ECB staff projections published in September, the range for 2010 is unchanged, while the range for 2011 is marginally higher. Available forecasts from international organisations provide a broadly similar picture.

Risks to the outlook for price developments are broadly balanced. Upside risks relate, in particular, to developments in energy and non-energy commodity prices. Furthermore, increases in indirect taxes 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 still expected to be contained.

Turning to the monetary analysis, the annual growth rate of M3 remained broadly unchanged at 1.0% in October, after 1.1% in September 2010. The annual growth rate of loans to the private sector increased to 1.4% in October from 1.2% in the previous month. Broad money and loan growth hence remained low, supporting the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained.

The steepness of the yield curve has continued to lessen somewhat, implying a gradual softening of the dampening impact on M3 that was associated with shifts of funds from monetary assets to longer-term financial assets outside M3. The interest rate constellation also includes a further widening in the spread between interest rates paid on short-term time deposits and those paid on overnight deposits. As a result, annual M1 growth has continued to moderate, standing at 4.9% in October 2010, after 6.2% in September, while the annual growth rate of other short-term deposits continues to become less negative.

The annual growth rate of bank loans to the private sector continues to conceal positive growth in loans to households, with 2.9% in October after 2.8% in September, and still negative growth in loans to non-financial corporations, which stood at -0.6% in October, unchanged from September. When correcting for the impact of derecognition of loans from bank balance sheets, the growth in loans to non-financial corporations continued to strengthen, further confirming that a turning point was reached earlier in 2010.

Over the past few months, banks have generally stabilised the size of their balance sheets while expanding the provision of credit to the private sector. However, the challenge remains to expand the availability of such credit when demand picks up further. To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalisation.

To sum up, the current key ECB interest rates remain appropriate. We therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 4 November 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon. Recent economic data are consistent with a positive underlying momentum of the recovery, while uncertainty is elevated. 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. We expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations are 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 is of the essence.

Turning to fiscal policies, while budgetary developments for some euro area countries are more favourable than expected, concerns about unsustainable fiscal positions and their vulnerability to adverse market reactions remain very high for others and have had repercussions throughout the euro area. In this environment, there is a clear need for the responsible authorities to strengthen confidence in sound public finances, thereby reducing risk premia in interest rates and supporting sustainable growth over the medium term. At the same time, all euro area countries should pursue ambitious and credible multi-year consolidation strategies and implement fully the planned corrective measures, focusing on the expenditure side. In their 2011 budgets, countries need to specify the necessary fiscal adjustment measures in detail, while standing ready to correct any slippages from the fiscal objectives announced.

Substantial and far-reaching structural reforms should be rapidly implemented to enhance the prospects for higher sustainable growth. Major reforms are particularly necessary in those countries that have experienced a loss of competitiveness in the past or that are suffering from high fiscal and external deficits. The removal of labour market rigidities would further support the adjustment process of these economies. Increasing product market competition, particularly in the services sectors, would also facilitate the restructuring of the economy and encourage innovation and the adoption of new technologies. Such measures are crucial for enhancing productivity growth, one of the main drivers of long-term growth. All 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 remain key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.

Finally, let me recall that the Governing Council welcomes the economic and financial adjustment programme which was agreed by the Irish government following the successful conclusion of the negotiations with the European Commission, in liaison with the ECB, and the International Monetary Fund. The programme contains the necessary elements to bring about a sustainable stabilisation of the Irish economy. It addresses in a decisive manner the economic and financial causes underlying current market concerns and will thereby contribute to restoring confidence and safeguarding financial stability in the euro area. The Governing Council welcomes the commitment of the Irish public authorities to take any further measures that may become appropriate to achieve the objectives of the programme.

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
 Vítor Constâncio, Vice-President of the ECB

Question: Monsieur Trichet, two questions. One about the ECB’s exit strategy with the latest decisions you made on the repos, on the three-month and on the one-month: it sounds as if the exit strategy, or the exiting from extraordinary measures, has been put on hold, at least until the second quarter of 2011. Is that a correct assessment?

Secondly, on bond purchases, can you tell us a bit more about the recent ECB activities on the bond purchase programme, also vis-à-vis some market demands about sterilisation or not sterilisation? Are you still fully sterilising whatever you do, whatever you buy in the bond markets?

Trichet: Your questions cover a wide range of issues that are important. I see five points in what I have said that are particularly worth noting in responding to your questions. First, for our monetary policy stance we consider the present interest rates to be appropriate to deliver price stability in the medium run. The second point, which is very important, is that our non-standard measures are there to permit the appropriate transmission of the standard measures, of the monetary policy stance, which I just said was appropriate. Third, we have decided to maintain full allotment for the first quarter of next year. Not only for the MRO – as I explained in the introductory remarks – not only for the one-month refinancing operation, but also the three-months allotment. Our judgement is that it is appropriate to pursue this non-standard mode of procedure, taking into account the transmission of monetary policy. A fourth point is that the Governing Council considers that, as I said two days ago, the SMP (Securities Markets Programme) is ongoing. I repeat: the SMP programme is ongoing. I will not comment on the observation of market participants. We will continue to withdraw the liquidity that we are injecting through the SMP programme, as we decided from the start. And you know pretty well the tool that we utilise to that end. Lastly, we will continue to be permanently alert, and to be sure that we have the right monetary policy stance. Our credibility rests on the fact that we deliver price stability, in line with our mandate. It is the Treaty mandate. We delivered 1.97% yearly inflation over the first twelve years of the single currency. You will tell me that I repeat that, but I think it is very important. By the way, I said this to the Members of the European Parliament in Brussels two days ago, and I could see the extent to which, as representatives of the European people, they appreciate the fact that we delivered our primary mandate over the first twelve years. We even had applause. I was quite moved.

Question: I have two questions. Would you still describe your government bond purchase programme as temporary?

And secondly, was there unanimity in delaying the exit strategy? If not, can you give us an indication as to what other options were debated, and did you also discuss ramping up the bond purchases?

Trichet: On the first point, our actions have to correspond to what we observe in the functioning of the various transmission channels for our monetary policy. We always act in line with what we observe in terms of market disruption and/or absence of normal functioning. Our working assumption is that we will return to normal functioning. When we are functioning normally, we interrupt all non-standard measures by construction, by definition. They are temporary precisely because they correspond to the absence of normal functioning in some markets or market segments. To reiterate: they are temporary in nature.

As regards the decision we have taken, we have a consensus for the decision on the three-months, and we have an overwhelming majority as regards the SMP. And what counts, of course, is the college, the Governing Council. This is the entity that is responsible for delivering price stability to the fellow citizens of Europe – as we have done, and will continue to do.

Question: Mr. Trichet, there is a view in Ireland that the ECB forced Ireland into seeking external financial assistance and that this may not have been done with Ireland’s best interest at heart, but in the interest of the euro. And I am just wondering what your reaction to that would be?

Trichet: It goes without saying that it was the decision of the government of Ireland. And that all those involved in discussions with the government of Ireland concluded that it was necessary to engage in this adjustment programme. This includes the IMF, the Commission – in liaison with us – and also those of the European governments, namely the Eurogroup, that have decided to support these necessary efforts.

Question: Can I just ask to you elaborate on your earlier answer? You said that there was an overwhelming majority in support of your position on the SMP. Does that mean there were some in favour of you coming out with something stronger by way of statement today?

And secondly, you say that the SMP will be calibrated according to your perceptions of the degree of disruption in the markets – could you give us some flavour of how you assess the level of disruption in the markets at the moment, considering the apparent high risk of default seen for countries, even countries such as Spain, perceived by financial markets? Would you not say that at the moment the levels of disruption in financial markets are pretty high?

Trichet: I repeat what I just said about the SMP, which is ongoing and which is observed closely by the markets: it is designed to permit the best possible transmission of our monetary policy under the present circumstances. And that is the perspective from which we view not only the SMP, but all our non-standard measures. It is also for that reason that we have decided, in particular, to maintain the full allotment fixed rate for the three months window for refinancing. I have no further comment. And I repeat: we are constantly alert. We are constantly looking at the situation of the markets and at the acute tensions that I mentioned in the introductory remarks. We continue to apply our doctrine, which is to separate standard and non-standard measures. The non-standard measures are there to permit the appropriate transmission of the standard measures. I already mentioned the decisive importance of the decisions taken by the executive branches, by the governments, in the present circumstances. Again, we ourselves have a mandate, and the mandate is clear. We provided the benchmark ex ante, before the start of the euro. We have delivered exactly as we said we would deliver. Everybody can judge that, and we have, according to observers and markets, the credibility to deliver the same level of price stability in the years to come. We observe tensions and we have to take these into account to ensure that we continue to deliver price stability to our fellow citizens. And we expect the executive branches, the governments, to do what we trust they have to do, according to the Treaty.

Question: Mr Trichet, commenting on the Irish crisis, the President of Iceland Mr Grímsson pointed out a couple of days ago that Iceland’s solution of separating the domestic debt of the banks from the foreign debt of the banks allowed the country to be much better off today. The government was not only able to protect its citizens, but also did not have to avail itself of the full amount of the IMF loan. My question is what prevented you from acknowledging the success of this solution and suggesting the same for Ireland?

My second question is related to the disclosure yesterday of Federal Reserve data on zero interest rate loans given to banks in the United States, which is creating some backlash, especially because of the long list of European banks which used Federal Reserve money. The author of the Disclosure Bill, Senator Sanders, who is an independent and has been re-elected, said yesterday in a press conference that Congress will now monitor Federal Reserve loans abroad much more closely, adding that this will give Congress more authority to push for a reintroduction of bank separation, i.e. the famous Glass-Steagall Act. I am not going to ask you my regular question on this because I know what your opinion is. My question is: how will this affect Europe?

Trichet: First, I have no particular comment on the declaration of the President of Iceland, as I haven’t read it and I do not usually comment on declarations that I have not read. The plan for Ireland, which, again, we considered to be a good one, was discussed thoroughly by the IMF, the European Commission in liaison with us.

On your second question, I would only say that those European banks that are on the list pursue business activities in the United States within the framework of the global financial system. We are all interconnected. In my opinion, it is extremely important that we continue to have an interconnected global financial system, but with a level playing field and fair treatment, refraining from protectionism in the various market places. We need fair and open treatment, with the same rules being applied to all those who are participating. And I think this is what we are doing at the global level. I fully trust all other partners – not only the United States and the Federal Reserve, but also all other partners in the world, including the emerging world.

Question: You described the SMP programme as an instrument that enables you to implement your monetary policy in abnormal circumstances. If circumstances get worse, would you be willing to extend this programme?

Trichet: From the very beginning, the aim of the programme has been to help us restore the functioning of our monetary policy transmission mechanism, and it is for the Governing Council to judge how best to do this. It is not quantitative easing; we are withdrawing all the liquidity that we are injecting.

Question: I wanted to ask if the Governing Council has today discussed very high levels of spreads in Italy and Spain, with regard to the SMP programme.

Trichet: As I said in the introductory remarks, we examined the whole situation. I also mentioned that there were tensions. It is of course a general observation, which explains why, in particular, we decided to maintain the full allotment for the one-week, one-month and three-month supplies of liquidity.

Question: Why have bond purchases stayed at relatively low levels despite the sovereign debt market turmoil? Do you think the ECB could buy larger amounts when Ireland gets the package, in the same way as it did after the Greek crisis in May?

And my second question: you said that you expect governments to do what they should. Do you think that the euro zone governments have the capacity to respond to this crisis?

Trichet: On your first question I would say you know what we publish every week. So I would ask you to look at that.

On the second question, we all expect governments to do what they have committed themselves to do. They all have their own medium-term adjustment and stabilisation programmes. We expect very strongly that they will improve governance in the euro area. And I should not have to tell you again how attached we were to the idea of implementing the Stability and Growth Pact strictly, fighting – as we did in 2004 and 2005 – for the Pact to be preserved, and not to be weakened. And to be clear, I have to say we defended the Pact in a fierce opposition to the Governments of the big countries in Europe, because they wanted to weaken the Pact at the time. We expressed our grave concerns in 2005 and we are on record for that. More recently, we have been calling for quasi-automaticity, reinforcing sanctions very substantially. I have been asking for a “quantum leap” on behalf of the Governing Council, in order for both the Stability and Growth Pact itself, which monitors fiscal policies, and for macro policy surveillance, the surveillance of competitive indicators, the surveillance of imbalances to be given a legal basis and to be as strong as possible.

Question: Mr Trichet, why do you think that the support package for Ireland hasn’t had the desired effect on the sovereign markets for debt, for Ireland and other peripheral nations? What is needed to restore confidence there?

Trichet: I believe confidence is always regained progressively, so it is up to the responsible authorities, and I am sure that they will act to redress the situation progressively. I have never personally seen very sharp and abrupt changes in the attitude of investors and savers. They have to be convinced progressively. I am confident that the authorities in charge will progressively convince observers, savers and market participants.

Question: Is the level of disruption of the transmission mechanism at a higher level than one month ago?

Trichet: I was quite clear in telling you a moment ago that we judged that it was appropriate today to maintain the full allotment at a fixed rate, which we had envisaged changing. We had envisaged that we could return to tenders. This is a matter of judgement. It means that we do not exactly judge the situation in the way that we would have done if we had gone back to those tenders.

Question: In the opening statement you mentioned the risks to the inflation outlook as being broadly balanced. I think in the past you have said “slightly tilted to the upside”. Is there a change in your assessment of inflation, and what are some of the reasons for that change?

I also have a technical question on the balance sheet of the Central Bank of Ireland. There has been an increase in other assets, which could mean some kind of emergency lending. Are national central banks able to make emergency loans available outside the normal ECB financing operations? Is this something that the ECB discusses or votes on?

Trichet: On your second point, we have a doctrine covering the emergency liquidity assistance (ELA) and I have nothing to add to it, this is a standing concept.

As regards your first question, it is true that we consider that the risks are broadly balanced when we look at the medium-term risks to price stability. They are broadly balanced overall, taking into account all the risks on the upside and all the risks on the downside, and also taking into account, as you have perhaps seen that we consider the risks for the real economy to be slightly on the downside. That is something we have had to take into consideration. I say that, but for me your question is interesting because I also have to say, as you could see today, that since the start of the recovery, which began in the third quarter of last year, we have been constantly surprised on the upside by what we have been observing. So we have revised our projections upwards, and the results, when they have come in, have been a little better or substantially better than what we were expecting and what international institutions were expecting. I mention that because from time to time observers are perhaps losing the sense of what is going on in the real economy. In the real economy, things are constantly proceeding. Today, as I have said, the staff narrowed the ranges of the projections. We also forecast that growth in 2010 would be 0.1 percentage point higher than we thought three months ago. It’s not much, but nevertheless, it’s been a constant factor since the third quarter of last year: increases in the real growth for 2010 in the new projections by comparison with the previous projections. This is no time for complacency, and I would not say that we are fully satisfied as regards the real economy. But nevertheless, I think it is something which is interesting to note and I would say that not all advanced economies are surprising on the upside when you look at the real economy.

Question: Mr Trichet, the markets were really expecting some kind of bazooka announcement today, which they did not get. Are the markets getting ahead of themselves or was it misinterpretation?

Trichet: Today I have said a number of things and I do not want to repeat the five points that I made in responding to one of the first questions. I think that every observer can see what we have decided, what our intentions are, what mode we are in, and how alert we are. I think that this indicates as clearly as possible the Governing Council’s position. We will remain permanently alert and that is something that has always been part of our doctrine: credible alertness, as I call it, which means credible alertness as regards standard measures and credible alertness as regards non-standard measures.

Question: Mr Trichet, would you say that right now there are many speculators in the market for bonds? Who is driving the prices of the bonds?

Trichet: I never comment on market behaviour in real time. Everybody knows that in the market some hold long positions and others hold short positions, and that is the way the market functions. I am not speaking of the markets on a real-time, day-to-day basis. Instead, let us look at the situation on a longer-term basis. All the countries in Europe, without exception, are pursuing fiscal stabilisation programmes and adjustment programmes. On a consolidated basis, this year and next year the euro area is in much better shape than the other big advanced economies as regards public finance deficits. That might surprise some observers – perhaps it is not exactly the way they see it. But let me give you the figures: this year the consolidated fiscal deficit in the euro area is 6.3% of GDP. According to present estimates, it is 11.3% in the United States and 9.6% in Japan. Next year – and we call upon all governments to honour their commitments – the consolidated public finance deficit of the euro area is estimated to be 4.6% as a proportion of GDP. For the United States the figure is 8.9%, and for Japan it is 8.9%. And I could cite other big advanced economies that are in this category. So this is worthy of note. And I have already said that the real economy in Europe has so far – and I was able to confirm that today – delivered more surprises on the upside than on the downside, which is not the case for all economies. The latest data from the Purchasing Managers’ Index are quite encouraging, and the German citizens in this room are aware of the results of the latest Ifo Institute survey, which are the best recorded since reunification. These elements must also be incorporated in the assessments of observers, investors and savers.

Question: Do you have any indications that the big institutional investors like hedge funds have already started to buy less bonds from the PIGS countries?

Trichet: I will certainly not comment on that. But those of you who are the most lucid will probably see that you would be wise to take everything into account when making your own judgements, including the information I have just given, which is a little bit of an underestimation in my opinion. And you should also take into account the determination of European authorities and governments to preserve Europe and euro area stability.

Question: Do you expect growth differentials to widen further next year and are you concerned about this prospect?

And second, what effect has the Fed’s quantitative easing had so far on Europe and the euro?

Trichet: On the second point I will not comment.

On the first point I would say that, we have projections for each particular economy. The fact that we have a large proportion of the euro area that is now on its way to growing in a significant fashion, after having been very flat in terms of growth over the last years, is something which is offsetting the fact that other economies have to adjust after having grown rapidly. As you have seen, our projections are suggesting that we are going to have significant growth over the coming years. So taking all this into account, there is the offsetting that I have mentioned, which is the same phenomenon as that which we observed during the first years of the euro.

Question: Just two very quick questions about the Irish bail-out. The first one is that, while there seems to have been a lot done on the capital front, markets seem concerned that very little has been done on the liquidity front. Would there have been scope to do more to improve the Irish banks’ liquidity? And then in terms of Irish banks’ reliance on the European Central Bank’s funds, does the European Central Bank ultimately want to get Irish banks’ borrowings back to the level pre-crisis or do you accept that they will permanently be higher?

Trichet: I have indicated that we consider the decisions we took to be commensurate with the situation as regards the non-standard measures. I have no particular comment on any particular commercial bank. We apply our own supply of liquidity channels.

Question: I just want to double-check something: you said earlier that the original pre-disposition of the Governing Council going into this meeting was to go back to tenders and to auctions of the three-month loans and that this has now been delayed for the first quarter and into the second quarter. So I was just wondering if the pre-disposition is now that you would return to the exit then in the second quarter and, following on from that, that you would hope that, on the MROs, you could also proceed with the exit.

Trichet: We had no pre-disposition…

Question : But you said you “envisaged” that you could return

Trichet: It was a possibility. We had a possibility of either going back to the normal tenders or maintaining these non-standard measures, which is to have the full allotment. We had no pre-disposition. And so we decided the way we did. But we were not pre-committed to any of the two options. We had two possibilities — they were obviously open — and we decided, as you know now, to maintain this full allotment fixed interest rate.

Question: The Bank of Portugal pointed to financial risks in its country if the government did not consolidate enough. Does the ECB share this view? I did not hear anything about a possible domino effect within Europe if Portugal does not ask for help.

Trichet: I would say that, for all countries, it is extremely important to substantiate the decisions that would allow the goals for fiscal deficit next year, i.e. 2011, to be attained, also taking into account what is going on this year, of course. But I am concentrating on next year. This is the very, very firm message that we have for all countries, including Portugal. We are in liaison with the Commission and with the various administrations on that mode. Of course, I would certainly say that what you have mentioned as regards the Bank of Portugal’s position is a very important message, fully in line with the message that we have for all countries.

Question: Mr Trichet, on Tuesday you told the European Parliament in Brussels that observers should not underestimate the willingness of Europeans and Europe to overcome the current problems. Could you clarify what you mean by this willingness and why you are so sure that there will be this willingness?

My second question focuses on Germany. One of a number of recent surveys found that 47% of Germans want their Deutschmark back. How worried are you by this? And why do you think so many Germans are against the euro?

Trichet: Well, there are German citizens in this room. They can say that the euro has given the 330 million citizens of the euro area, including their compatriots, price stability, with inflation standing at 1.97%. Nobody ever challenges this when I say it. In Germany, the figure is even better. For Germany, inflation has stood at around 1.5% since the inception of the euro, the best result for Germany and indeed the euro area as a whole in 50 years. Frankly, for an institution that was called on by the citizens of Europe to have a primary mandate of delivering price stability, I think this is worth repeating. Let me tell you that I never comment on surveys with questions on going back to this or that currency. Of course, it is, in my opinion, totally, totally out of the question. And I trust that if you were to ask a question which would try to check whether it is a real question or a fancy question, you would probably see that nobody really thinks that it is a real question. Again, I think it is very important that we have this strong institution that is the ECB, that strong institution that is the Eurosystem, and that solid Governing Council which is delivering price stability and credible in doing so over the next 10 years. That being said, we need improvement in governance of the “E” letter in EMU. It seems to me that we have a good “M”. Of course, I do not want to be complacent in any respect. As I said, we have to be permanently alert, ready to take the appropriate decisions at any time without prior commitment. So, there is no complacency at all. But we have a track record for monetary union. The “E” must be improved, and I trust that it will be.

Now on your first point, my general remark on the fact that observers should never underestimate the determination of Europeans in any circumstances is based upon my own experience. When times are very demanding, Europeans are taking decisions. And when I say Europeans, I am not referring to us. I am referring to the executive branches, when and where needed, and the European Parliament. But that is my own personal experience.

Question: I have a follow-up to my colleague’s question regarding the attitude in Germany. I think what most Germans fear is not really inflation. Maybe that is a fear too, but the biggest fear at the moment is that there will be a transfer union, where German taxpayers have to pay for many other countries. In addition, economists, who used to be in favour of the euro, are now arguing that it might have been a mistake to introduce a monetary union without a fiscal union and without a strong central government. What would you tell these economists and these Germans?

Trichet: I appreciate enormously the fact that they believe that we have delivered price stability in a way that is historically impressive. Do not forget that this is the mandate of this institution. I hope that nobody forgets – not only in Germany, but also in France and Italy – that in 2004 and 2005 there was a meeting of minds of respective Governments with a view to destroying the Stability and Growth Pact. I have to say, in retrospect, that I am a little surprised that our fight to maintain what is absolutely obvious – the necessity of a very strong and solid governance in terms of fiscal policies, because we have a single currency – was not supported by those people who are now saying that the system does not work very well. We were on the record as saying in 2005 that we had “grave concerns”. So, this is a process of “learning by doing”. Again, I am absolutely convinced that the Europeans will improve governance. Now, as you know, this is a matter, which is being discussed between the Council, the Parliament and the European Commission, in accordance with the rules of Europe.

Question: Going back to what you said about economic growth, although it has been surprising on the upside, isn’t it also true that there has been sharper divergence between countries like Germany that are performing very well and countries like Ireland that are not performing as well? And does this make it increasingly difficult to fashion a monetary policy that is appropriate for all countries?

And secondly, if I can take another run at the bond purchase question: Is there any upper limit to how much money the ECB is prepared to commit to the SMP in order to ensure that you are transmitting monetary policy, or are you willing to do whatever it takes?

Trichet: On your first question, all vast continental economies such as the euro area and the United States have a degree of deviation in the growth rates of the different states or countries, deviation in their unit labour costs, deviation in their inflation rates and so forth – even deviation as regards unemployment. For instance, in the United States, the best state, if my memory is correct, has around 2.5% unemployment and the worst state has around 14%. As you can see, there are also big differences, and it is very easy to explain because you have different specialisations, and so, necessarily, you have business cycles that are not necessarily the same, although they are all correlated. So, I would just repeat that it is fortunate that those parts of the euro area economy that have regained competitiveness through hard work – as is the case for the German economy, but not only the German economy – can now be a source of growth, and this is, of course, to the benefit of the euro area as a whole. It was the reverse before, and that is the way you would expect things to be in a vast continental economy.

On the SMP, I have never mentioned on behalf of the Governing Council limits of the programme and so I will not do so now either.

Question: Irish central bank governor Patrick Honohan, who is a member of the Governing Council, had suggested an alternative to the further recapitalisation of the Irish banks. He said that his preference would be for a risk insurance scheme where Europe, or the IMF, but he asked Europe as well, would provide a guarantee to the Irish state to cover potential losses in the banks, because the Irish state itself felt that it had covered enough of the losses with the capital that it had provided already. In your view, would that be a better option or does the European Central Bank need more tools to tackle problems like capital in the banks?

Trichet: We have a programme for Ireland, and the Governing Council supports this programme. I will not embark on any further discussion about that.

Question: I have two questions. First, do you consider that the measures taken by the Spanish government are sufficient and appropriate?

And second, how do you view the reaction of the financial markets regarding Spain?

Trichet: I would reply in exactly the same way as I did to the question on Portugal. We are telling all countries, without exception, to implement as completely and convincingly as possible all the measures necessary for them to attain the fiscal goals that have been fixed for next year. And that is not a message particularly for Spain, but for all countries. It is absolutely essential in order to be totally credible. Governments have to be totally credible.

Question: Last Wednesday, Mr Weber said that he thinks that the EU should increase the ceiling of the EFSF, if necessary. Do you share his opinion?

Trichet: It is a decision which has to be taken by the governments, and we call on all authorities to live up to their responsibilities. Every authority and institution has to live up to its own responsibility. I trust that we will remain in permanent contact with the authorities in question, namely the governments, so that they can demonstrate as clearly as possible that they are living up to their own responsibilities. It is extremely important that governments are credible. At the start of the turbulences, it was very clear that we were able to contain the pressure because we all had authority as public authorities. And clearly, what we have to do now — and this is not a remark just for Europe, but for all the advanced economies of the entire world — is to preserve, reinforce and consolidate the authority of the public authorities.

Question: A very quick question, you talk about the determination of European authorities and you included specifically the ECB within that. There are reports since you started speaking this afternoon that the ECB has been buying peripheral eurozone government bonds in large quantities. Is this maybe, when it comes to the determination of authorities, a question of actions speaking louder than words?

Trichet: I never comment on market observations in real time.

Question: I know that you would be very disappointed if you did not have a question on the euro. So I have to ask you one. The euro has gone from about a little over 1.43 at the beginning of November to just under 1.30 this week. Is this the kind of move that might be considered brutal?

Trichet: Excessive volatility is not welcome, as you know. It is not good for global prosperity, global growth and for financial stability at the global level. I will say nothing more, which will not surprise you.

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