Introductory statement to the press conference (with Q&A)

Jean-Claude Trichet, President of the ECB,
Vítor Constâncio, Vice-President of the ECB,
Frankfurt am Main, 13 January 2011

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. Let me wish you all a very Happy New Year. I would also like to take this opportunity to welcome Estonia as the seventeenth country to adopt the euro as its currency. Accordingly, Mr Lipstok, the Governor of Eesti Pank, became a member of the Governing Council on 1 January 2011. Following the adoption of the euro by Estonia there are now 331 million citizens using the euro as their currency. 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 confirmed that the current key ECB interest rates still remain 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 2 December 2010, we see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices, but this has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. Recent economic data are consistent with a positive underlying momentum of economic activity, while uncertainty remains elevated. Our monetary analysis indicates that inflationary pressures over the medium term should remain contained. 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 is of the essence.

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. Following the 0.3% quarter-on-quarter increase in euro area real GDP in the third quarter of 2010, recent statistical releases and survey-based evidence confirm that the positive underlying momentum of economic activity in the euro area remained in place towards the end of 2010. Looking ahead at 2011, euro area exports should benefit from a continued recovery in the world economy. At the same time, and particularly taking into account the relatively high level of business confidence in the euro area, 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.

In the Governing Council’s assessment, the risks to this economic outlook are still slightly 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. Moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. 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 2.2% in December, according to Eurostat’s flash estimate, after 1.9% in November. This was somewhat higher than expected and largely reflects higher energy prices. Looking ahead to the next few months, inflation rates could temporarily increase further. They are likely to stay slightly above 2%, largely owing to commodity price developments, before moderating again towards the end of the year. Overall, we see evidence of short-term upward pressure on overall inflation, stemming largely from global commodity prices. While this has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon, very close monitoring of price developments is warranted. 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.

Risks to the medium-term outlook for price developments are still broadly balanced but could move to the upside. 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, and price pressures in the production chain could rise further. On the downside, risks relate mainly to the impact on inflation of potentially lower growth, given the prevailing uncertainties.

Turning to the monetary analysis, the annual growth rate of M3 increased to 1.9% in November 2010, after 0.9% in October. This strong increase is in part related to base effects and volatile factors. The annual growth rate of loans to the private sector also increased, rising to 2.0% in November from 1.5% in October. Looking beyond the special factors that operated in November, broad money and loan growth is still low, corroborating the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term should remain contained.

The interest rate constellation continued to exert a significant impact on the growth of monetary aggregates. Looking at M3 components, the interest rates paid on short-term time deposits remained higher than those paid on overnight deposits. As a result, annual M1 growth continued to moderate, standing at 4.6% in November 2010, while the annual growth rate of other short-term deposits continued to become less negative. At the same time, the yield curve has lately become steeper again, implying that the attractiveness of short-term deposits included in M3 has declined somewhat compared with more highly remunerated longer-term assets outside M3.

The annual growth rate of bank loans to the private sector continued to increase in November, partly owing to special factors. At the sectoral level, this strengthening increasingly reflects the upward movement in the growth of loans to non-financial corporations, which stood at -0.1% in November, after -0.5% in October, thereby further confirming that a turning point was reached in the course of 2010. The growth of loans to households remained stronger, at 2.7% in November after 2.9% in October, but the latest data point to some signs of a levelling-off.

Over the past few months banks have expanded the provision of credit to the private sector in an environment in which the overall size of their balance sheets has remained broadly stable. 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 still 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 2 December 2010, we see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices, but this has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. Recent economic data are consistent with a positive underlying momentum of economic activity, while uncertainty remains elevated. A cross-check of the outcome of our economic analysis with that of the monetary analysis indicates that inflationary pressures over the medium term should remain contained. 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 is of the essence.

Turning to fiscal policies, in view of the ongoing vulnerability to adverse market reactions, countries need to do their utmost to meet their deficit targets and put government debt-to-GDP ratios firmly on a downward trajectory. In this regard, the Governing Council takes note of the recently announced measures in some euro area countries to reduce their very large fiscal imbalances. Where necessary, additional corrective measures – preferably on the expenditure side – need to be swiftly defined and implemented. At the same time, all euro area countries should pursue ambitious and credible multi-year consolidation strategies. This will help to strengthen confidence in the sustainability of public finances, reduce risk premia in interest rates and improve the conditions for sound and sustainable growth. Any positive fiscal developments that may emerge, reflecting factors such as a more favourable than expected economic environment, should be exploited to make faster progress with fiscal consolidation.

Substantial and far-reaching structural reforms, complementing fiscal adjustment, 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. Such measures are crucial for enhancing productivity growth, which is one of the main drivers of long-term growth. All these structural reforms should be supported by the necessary improvements in the structure 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.

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, when I listen to your comments – especially about inflation developments – if we look at the inflation scenario, it really seems that we get inflation from the food sector, we get inflation from energy, from other commodities, maybe even from the labour market, possibly also from a bit of pressure on the euro importing inflation. From where do you take the confidence or conviction that there is not something a little like a “nasty brew” on the inflation front? We know from the past that once inflation starts gaining momentum, it is like a train that is difficult to stop, except with the emergency break. So could you give us a bit of an idea of where your confidence on inflation comes from right now?

And the other completely different story is, of course, that on everybody’s mind at the moment are the bond auctions this week in Greece, today in Spain, successful bond auctions and the bond-purchasing programme of the ECB. What is your idea, what is your stance on the discussions about an E-bond or about possible direct bond purchases from the Stability Mechanism? Could you please give us your opinion on that?

Trichet: As regards your first question on inflation: what we have observed is, as I have said on behalf of the Governing Council, that it is higher than expected and that it reflects increases in energy prices. Looking ahead, we feel that inflation rates could temporarily increase further and go over and above the 2% level before falling back to what we consider to be price stability towards the end of the year. That is our assessment. Naturally, it depends enormously, on the prices of energy and commodities. This is our judgement at present. We expect inflation to continue to be in line with our definition of price stability over the medium term – and over the long term. And, as I have already said, we consider inflation expectations to be firmly anchored. On that particular front, I would ask you to take note of three comments: My first remark is that we have made clear that we are permanently alert, that we are never pre-committed not to move interest rates, and our level of interest rates is designed to permit us to deliver price stability. And I can only remind you that in July 2008 we increased rates in a period that was not easy, because we judged it to be appropriate to take that decision in order to be able to deliver price stability. My second remark is that we have now had the euro for 12 years. The average yearly rate of inflation for the euro area over those 12 years was 1.97%. Not only is this in line with our definition of price stability, namely less than 2%, but close to 2%. I would say that it is – to be very clear – very close to 2%, but it is less than 2%. And this is something that is remarkable in terms of a track record. My third remark is that it is precisely when you compare our track record with previous track records, over the 1970s, 80s and 90s, of the founding fathers of the euro, the economies and currencies that merged to create the single economy with a single currency, that you see that our track record is better. And this is extremely important. We are in Germany, and I particularly want to mention this, but it is only one example among other countries that, over the past 12 years, the inflation rate in Germany has averaged 1.5% a year, and this is below what was observed in the 1990s when it was 2.2%, lower than the rate of 2.8% observed in the 1980s and much lower than what had been observed in the 1970s. I will not quote that latter figure here because global inflation was very high at that time. And I could go through all countries and the comparisons would all be flattering for us. But, now we have an Economic and Monetary Union (EMU). We are responsible for Monetary Union. The “E” in “EMU”, stands for “economic”. The “M” in “EMU” has delivered exactly what we were called upon to deliver. I insist on that. We will continue to deliver what is required, in line with our primary mandate. And, with our track record, our fellow citizens, the 331 million citizens of Europe can have confidence in our capacity and determination to deliver and to give them price stability.

As regards your second question on the auctions and markets behaviour, let me only say that we are observing what happens very closely. We feel that what is decisive is the credibility of the executive branches, the policies pursued in all domains – fiscal policies, structural reforms, and macro-policies, in general – and you know to what extent we encourage policy-makers individually and collectively to live up to their responsibility. On our Securities Markets Programme, let me only say that it is an ongoing programme and that I have no comments beyond that. You see what we have done when we publish the amount of our interventions every Monday. I will not elaborate on other measures. You also mentioned the Stabilisation Fund – let me only say that I have already said publicly, on behalf of the Governing Council, namely that we have sent the executive branches the message collectively that we are of the opinion that this Stabilisation Fund should be improved quantitatively and qualitatively. I am only repeating what I have already said – it is not a scoop.

Question: Given your higher alertness on inflation, would you be surprised if your remarks fuelled speculation about an upcoming ECB rate hike? And what is your message for countries such as Greece and Ireland that are already worried about the high interest payments they have to make on the bail-out loans?

My second question is: investors have faced negative real interest rates now for some time – what does this mean for the policy outlook?

Trichet: As regards your first question let me only say that as regards our monetary policy, it is absolutely crystal clear that we will always do what is necessary to deliver price stability and to be credible in the delivery of price stability. I have nothing to add to that. The position of the Governing Council is evident, as is the fact that we consider our present interest rates still to be appropriate.

As regard your second questions I have no particular comment on the monetary policies of other central banks

Question: What progress have you made in finding a solution for the persisting bidders problem? And is finding a solution for this problem a precondition for exiting from the full allotment mode for your other refi operations?

And the second question I have regards Ireland in particular. Have Irish banks asked for more emergency liquidity assistance since November?

Trichet: As regards your first question on the persistent bidders, it is an issue which we are examining on an ongoing basis, and it is a complex issue. We will continue to do all we can to discourage such attitudes. And we also have those particular banking sectors that have particular problems because of sovereign debt problems.

As regards your second question on the non-standard measures, namely the full allotment mode, I have nothing special to say. As you know, we had decided to maintain this three-month full allotment mode as well as the one-month and the one-week. Therefore it is important that this is well understood: On one hand we have our monetary policy stance, we have our interest rates – they are fixed to be sure that we deliver price stability in the medium term. And on the other hand we have the non-standard measures, including the full allotment mode at a fixed‑rate, and we have the Securities Markets Programme in particular. These non-standard measures are there to allow the transmission of the monetary policy of the ECB to be as effective as possible in the circumstances. So: we take decisions regarding the non-standard measures independently from the decisions that we take in relation to the interest rates to help restoring a more normal transmission of our monetary policy decision, being commensurate with the disruption or anomalies that we are observing in some market segments.

Question: Mr Trichet, allow me one remark and two questions. My remark is that I am pleased to see that the ECB has posted a working paper which at least partially supports my views on Glass-Steagall.

Trichet: We are very flattered to be on your side and I don’t comment any more on the Glass-Steagall Act …

Question: My questions are the following: First, we get a little bit worried, when we read and hear that the ECB with its assets purchase programme is almost becoming a bad bank and that there is even a threat of insolvency if this goes on for the ECB. So the sudden decision of the ECB to increase its capital is not easing this concern, and therefore I would ask you if you can categorically rule out that there is even a distant threat of insolvency for the ECB.

The second question is on the European bail-out fund. Now if the EFSF is not expanded and the governments do not take the burden of bailing out the banks and this burden is left entirely to the ECB, then is this insolvency threat in this case becoming real?

Trichet: As regards your first question on the ECB, let me only say that the issue of a possible insolvency of the ECB is absurd. As regards the capital increase, we started with €5 billion, as you know. The idea that it would, after a number of years, be appropriate to go from €5 to €10 billion – more precisely from €5.76 to €10.76 billion – was already envisaged, in 2000, more than ten years ago, and was judged appropriate by the Governing Council of the ECB. We have a rule whereby we made provisions in our own institution at the level of the capital. We were at the maximum level of provisioning, so we thought it was time to increase the capital in order to enable us to continue to make the appropriate provisioning in view of the increased volatility of foreign exchange rates, the interest rate risk that we - and all central banks of the world - have, the increased volatility of the gold price and all kinds of risks, including credit risk, that we might have. This is, I would say, good management, sound management for an institution like ours.

As regards your second question on the EFSF, I have already responded that our message has been and is an improvement in quantity and in quality, namely in terms of flexibility of intervention, of this fund.

Question: First of all, let me draw the attention back to my colleague’s question saying that investors are really facing negative real interest rates at the moment, and not only at the moment, but also for quite some time, and what kind of implications for your policy outlook that might have looking forward.

Second, if we are really looking at the rising economic divergences in Europe again, to what extent can you adapt your policy to really address these issues, in particular since we see a contraction in the periphery and record growth for 2010 in Germany.

Trichet: On the first question, I have said that, taking into account our economic analysis and our monetary analysis, we considered our present interest rate appropriate to deliver price stability in the medium run in line with our definition. We are never pre-committed, and we’ve proved that in the past by deeds and not only by words and by track record and not only by theory. So, it is important to have that in mind. This is the reason why our inflation expectations are very well anchored in comparison with a number of other inflationary expectations the world over.

With regard to your second point on the dispersion of economic indicators - “divergences” as you said - I have said several times that there is in a very vast continental economy of the size of the euro area, or the size of the United States, more dispersion than, for obvious reason, in a small, relatively small or medium-sized economy. If I take, for instance, the lowest GDP growth and the highest GDP growth in the euro area on one hand and in the United States on the other hand in 2008, the lowest GDP growth in the euro area was -3.6%. The lowest in the United States was -3%. The highest in the euro area was 5.8%. The highest in the United States was 7.5%. If you calculate the difference between the highest and the lowest, it was more stretched in the United States than in our case. In 2009 it was the same. The lowest was -8.4% in Europe and -6.4% in the United States. The highest growth was +6.6% in the United States and -1.7% in the case of Europe. I don’t make the argument that this is something that is entirely comparable. We have countries and nations in Europe that are not exactly like the states in the United States and the number of entities is not the same. To take only some of the states or countries, I mentioned, Louisiana and Florida on the one hand are not Oregon, Utah or North Dakota. And, in our case, Ireland and Greece are not Slovakia or Finland. So, again, we have differences that we have to take into account as a normal feature of a very vast economy. That is not to say that I would “sing the praises” of the dispersion in question. In the past we had Germany going very slowly. I had to respond to a number of questions all over the world on Germany, wrongly called the “sick man of Europe”: “They have structural problems which are so dramatic that they will never grow!” people were saying. I have the memory of that, and some of the remarks were even made by wise and enlightened persons. So I responded: “They are working very hard to regain competitiveness. They are doing a very difficult job. They are working for the improvement of their competitiveness and making some structural efforts”. Now we see that the results are there and they are very impressive. Other economies were going very fast and had some kind of buoying episode which is now being corrected as it should be. And my feeling is that the gross divergences which peaked in 2009 declined somewhat in 2010. So, if you look at the evolution of this “standard deviation”, it has diminished in 2010 and we expect a further decline of this dispersion in 2011 and 2012. So we don’t see at the moment a deepening or aggravation of the divergences. On the contrary, we see some re-converging tendencies. And, everything we say to the different countries will help them to face up to the difficulty that they have. One of the by-products would be to reduce the divergences, because the consolidation of public finances in the medium term will progressively help reducing the divergences, because we have asked them to correct their loss of competitiveness and because we are also asking them to embark on structural reforms that will permit them to elevate their growth potential. Again, the messages are: It is not abnormal that a very large economy comprehends states or countries which have significant differences. I could have taken unemployment also, and you would be surprised to see that the unemployment level differences in the states in the United States are not that different from what we are also observing in Europe. Again, that being said, I don’t want to “sing the praises” of the dispersion. On the contrary, we consider that we are on the way towards less dispersion.

Question: A couple of questions on the situation in Ireland. You mentioned the wise and enlightened; there are many people who are deemed wise and enlightened that would say that the interest rate on the Irish bail-out loans is too high. The sense is that the Eurogroup finance ministers are going to examine whether that rate should be lowered at their meeting on Monday. Do you think that is a good idea? What do you say to people who say the rate is too high and will hamper the recovery of the Irish economy?

Secondly, there is renewed instability at the very top level of the Irish government. Is this a matter of concern for you, given that the finance bill which gives effect to the budget has yet to be passed by the parliament?

Trichet: As regards your first question, I did not mention Ireland in the introductory statement. You might remember that we mentioned Ireland in our last introductory statement. We had said on behalf of the Governing Council in December that we welcomed the economic and financial adjustment programme agreed by the Irish government, and that we considered that the programme contains the necessary elements to bring about a sustainable stabilisation of the Irish economy. And we also welcomed the commitment of the Irish authorities to take any further measures that may become appropriate to achieve the objectives of the programme. On the interest rates, of the stabilisation fund it is the responsibility of the governments of Europe. And they have in their own hands this stabilisation fund. I would say our message is: improve the effectiveness of that instrument both in quantity and in quality.

As regards your second question I will make no comment on the political situation.

Question: My first question is: is it very urgent to improve the effectiveness in terms of quantity and quality?

And secondly, as regards the stress tests, will they be conducted in February and be different from the previous ones? I think the liquidity standard should be changed; maybe you can elaborate on that if you have some plans?

Trichet: On your first question, everything is urgent in the present circumstances. And we are asking authorities in general – public authorities, European authorities and governments – to be up to their responsibilities, and this has been our message for months. So yes, I would say there is certainly a sense of urgency, and we call also for a sense of direction and a sense of responsibility.

As regards your second question on the stress tests, this is something which has to be decided. They will be run by the appropriate new authority - in liaison with other institutions. We have our own role to play as ECB. And according to the new legislation, the ESRB is also in the picture. All that being said, it is work in progress and I do not want to comment on this work in progress right now.

Question: I have a question for you on Portugal. It seems like the financial markets are looking at Portugal now as the most vulnerable country in the euro area. It seemed like in Greece there was an obvious fiscal crisis and in Ireland there was an obvious bank crisis. It does not seem that there is necessarily an obvious crisis in Portugal and I wanted to know what your thoughts are as to why the markets are looking at Portugal so closely now?

Secondly, why do you think that fiscal consolidation will reduce divergences in the euro area? It seems that the countries that are already weak will have to embark on larger-scale deficit reduction, and that would be something that would widen divergences.

Trichet: On your first question, it is not for me to comment in real time on what the market does or does not think. If you look at the evolution of the market, you would see that market sentiment can change every hour, every day or every half a day. So I never comment on market sentiment on a short-term or real-time basis. Our message for all countries, without exception, is “be up to your responsibilities and ahead of the curve”. This is not a new message. It is what we have been saying over the last twelve years. I need not remind you again of the time we had to fight to preserve the Stability and Growth Pact, and the way it was attacked by a number of countries and so forth. So, it is a long battle for us to ask the responsible authorities of the “E” in EMU, i.e. Economic Union, to be up to their responsibilities. This is essential and is true for Portugal as it is true for others. Everything depends on the capacity of all countries concerned to be “ahead of the curve”.

Regarding your second question, fiscal consolidation makes it possible to regain the appropriate creditworthiness and reinforces confidence by clearly demonstrating to economic agents, savers and investors that things are going in the right direction. It is a way to correct what might otherwise significantly hamper growth. This is the reason why we believe that the decisions that have been taken will progressively help to move things in the right direction. But even now, looking at observations from 2009 and 2010 as well as the projections for 2011 and 2012, we can already see a progressive reduction in divergence across countries.

Question: Firstly, regarding inflation, I wonder if you could give us a flavour of the discussion in the Governing Council which ended up with the word “formula” that we have in the statement. I wonder, for instance, whether there was unanimity in agreeing that price developments will remain in line with price stability over the policy-relevant horizon. And, in that context, I wonder if you might comment on the current profile of market interest rates. I know it is complicated by the non-standard measures, but you always seem to know what the market expectations are – is there anything you might want to say on that point?

Secondly, and just briefly regarding the responsibilities of government, you referred to additional corrective measures that may be necessary. Can we take that as a reference to Portugal and do you think Portugal should be accepting a bailout?

Trichet: On your first question, we took the decision unanimously based on our assessment that the level of interest rates remains appropriate and that we saw evidence of short-term upward pressure, but that we thought that, in the medium run, price stability would be in line with our definition. We were unanimous on all of this. I do not comment on the profile of expected market interest rates. It changes constantly. In any case, the market knows that, as we have proved in the past, including in July 2008, we take the decisions that we trust are appropriate to deliver price stability and it is the judgement of the market participants that trust that we will deliver. We might have to do this or that in the future, but I do not confirm anything. I would say we will do whatever is necessary and we are not pre-committed as you know.

As regards your second question on government responsibilities, we consider them to be absolutely fundamental. I will not comment further on Portugal. I have already said, and it applies to all other countries, being ahead of the curve is absolutely essential.

Question: You said earlier that all your non-standard measures are there to permit monetary policy decision transmission. Do you think that transmission is working appropriately right now and, especially, do you think that the bond-buying programme of the ECB has been a success?

And my second question would be, if we can go back to the banks that are dependent on ECB funding, I would like to get a little more flavour of what sort of options you are discussing. Do you think it would be a good idea to have some sort of Europe-wide “bad bank” which would take bad debt off commercial banks’ balance sheets?

Trichet: On your first question, let me say again that all our non-standard measures are there to help restore a more correct transmission of our monetary policy stance. We are at present still in a difficult situation as regards financial markets. That is not particular to us, as you know. The non-standard measures are also important in the United States, in Japan, and in the United Kingdom in particular. In our case, we have been clear from the very beginning that we were disconnecting the monetary policy stance from the non-standard measures. The monetary policy stance is there to deliver price stability. The non-standard measures are there to help the transmission of the standard measures in the best way possible in the circumstances. And I would not say more than that. It is true for the full allotment mode that is still in place, it is true for the Securities Market Programme which is ongoing.

As regards your second question on the options for the banks, I would say that this is already an old story. We had to cope with all these issues a long time ago at the level of the world as a whole, at least in the advanced economies and in Europe. I have no comment at this stage on any new spectacular pan-European measures such as those you mentioned.

Question: On inflation, one question: You do not seem to be too concerned about the emergence of inflation at the moment, but is it not true that inflation is exposing the ECB to a trade-off between sticking to its mandate and helping countries out of the crisis?

And secondly, on the comparison between divergences in the euro zone and in the US, the big difference between the two is that the US is a country with a government, a federal budget and transfers which we only have to very limited extent in Europe. So I wanted to know whether you are happy with the emergence of better euro zone governance that will provide some of what the United States already has, or not?

Trichet: On your first question I would say that we do not see any dilemma. We have never changed our position. Monetary policy stance, interest rates – they are there to allow us to deliver price stability and to be credible in that delivery. As I have mentioned a number of times, when we decided to increase rates at the end of 2005, we had ten governments publicly urging us not to increase rates. We also refused to decrease rates in 2004 although we had the three heads of government of the major countries in the euro area asking us publicly to decrease rates. We were at 2%; the United States was at 1%. We refused to decrease rates. And July 2008, as I have already mentioned, we increased rates. In 2007, in the period of the start of financial turbulences we were the first to embark on non-standard measures, on 9 August 2007. So there is no problem, there is no dilemma; we do not see a dilemma in terms of hampering growth. Because again, what would be the most dramatic way to hamper growth? In our understanding, it would be to un-anchor inflationary expectations because that would immediately and by definition be transmitted to market interest rates due to the very functioning of the market. So we see no dilemma. We will do whatever we have to do. I would not say that we regard the situation quietly and with great tranquillity. We consider that we will deliver price stability in the medium run and that the present interest rates are appropriate, but we have said that very close monitoring of price developments is warranted and we are on permanent alert as always.

As regards your second question on the US economy, we rely very much on the judgement and assessment of the Federal Reserve. What I can say, and not regarding the United States in particular, but with regard to the global economy as a whole, and us, practically all the hard data and facts and figures that we have observed since the start of the recovery (for us this was in the third quarter of 2009 and in sync with the global recovery) have been better than expected. You have to correct a little, perhaps here and there, there was a slight disappointment. I do not want to mention any particular economy in Europe, but it is obvious that some economies are behaving very properly. If I take the recent Purchasing Managers’ Index (PMI) and the European Commission survey of the industrial sector, we have seen improvements, and I expect that the hard data to come will confirm the soft data suggesting that production was quite good. There have been questions in past press conferences on whether we considered the double-dip an important risk and I was relatively prudent, but positive. As you can see, the observations we have made since then have confirmed that the recovery is there and has continued to see its momentum confirmed.

Question: What do you think of Commissioner Rehn’s proposal to strengthen the EFSF and do you think it goes far enough?

Trichet: I have already said what I think as regards the EFSF, and we will see what the governments themselves decide.

Question: If the EFSF gets the mandate to buy sovereign bonds on the secondary market, would that be a reason for you to think about your own programme and to reduce it or stop it?

Trichet: I have nothing to add to the comments I have made regarding the Securities Market Programme. We are asking governments – and this is one of the messages – to improve the EFSF in terms of both quantity and quality, meaning maximum flexibility in the intervention of the EFSF.

Question: You were talking about the dilemma between monetary policy and non-standard measures and whether non-standard measures should be withdrawn first and only then to increase interest rates. I think you said already once that you can also increase rates first and then withdraw the measures?

Trichet: I have only said that these two concepts are not connected. We do what is necessary as regards the monetary policy stance to deliver price stability and to be credible in that delivery. On the other hand, we have to address the disruption of markets, with particular difficulties in some segments of the markets, and the non-standard measures are commensurate with the difficulty we face in transmitting our monetary policy. There are four possibilities: we could withdraw the non-standard measures while decreasing or increasing the interest rates. And we could maintain or increase the non-standard measures while increasing or decreasing the interest rates. The two modes are not correlated. Non-standard measures and standard measures are not connected.

Question: Well, you say that these two models are disconnected. But is the economy also taking them to be disconnected?

Trichet: Again, the economy needs us to deliver price stability. This is important, and it is dependent on our monetary policy stance and the transmission of this monetary policy stance.

Question: I have a problem understanding something. Right at the beginning, you said you were buying bonds to improve the transmission mechanism of monetary policy impulses. Then, I read in the paper that the ECB was in the market yesterday with high volumes to help Portugal. What is true? What is the ECB doing? It would not hurt Portugal if the interest rate for Portugal for its placement of loans was cheaper. Now, is that true? What are you doing? Are you helping Portugal by buying bonds to get the interest rate lower for Portugal or are you doing something on higher perspectives to help the transmission mechanism? For me, that is not the same.

Trichet: Indeed, it is not the same! Specifically I said the programme is an ongoing programme to help restore a better transmission mechanism. Full stop! That is our only goal. I never comment on any intervention, so you will find out what we have done when the time comes, namely next Monday. Each Monday we say what we have done in terms of volumes of purchases. But we do not comment on what we buy or on what we do not buy. It is as simple as that. That is our rule.

Question: So it is pure coincidence that you bought these bonds yesterday?

Trichet: I do not say that what the market says is right. I do not comment at all.

Question: On inflation, I do not really understand the part on the inflation risks, and I would like to ask you for some clarification. Maybe it is because I am not a native speaker, but you say the risks for the inflation outlook are broadly balanced and in the same sentence you say they are risks that could move upside. I mean this exactly is a risk, right? How can you say so? I mean that either risks are balanced or they are tilted to the upside.

Trichet: We all warned that, taking into account the present level of the price of energy and commodities, we see CPI being above two percent and rising in the short term, before going down to be in line with price stability, i.e. below, but close to, 2% towards the end of the year. That is what we said. And that is why we have not changed interest rates today. We considered them to be appropriate because we consider that we will deliver inflation of below, but close to, 2% in the medium term. Is that clear?

Question: No. Well, possibly a bit clearer. If you see a risk for a risk, it still remains a risk, right?

Trichet: Again, our goal and definition of price stability is below, but close to, 2% in the medium run. What I was mentioning was the “hump” in inflation, which is in the shorter run rather than the medium run. But we remain constantly alert.

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