Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference here in Helsinki. I would like to thank Governor Liikanen for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of the meeting, which was also attended by Commissioner Rehn.
Based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged following the 25-basis point increase on 7 April 2011. The information that has become available since then confirms our assessment that an adjustment of the very accommodative monetary policy stance was warranted. We continue to see upward pressure on overall inflation, mainly owing to energy and commodity prices. While the monetary analysis indicates that the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. Furthermore, recent economic data confirm the positive underlying momentum of economic activity in the euro area, with uncertainty continuing to be elevated. All in all, it is essential that recent price developments do not give rise to broad-based inflationary pressures. Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. With interest rates across the entire maturity spectrum remaining low and the monetary policy stance still accommodative, we will continue to monitor very closely all developments with respect to upside risks to price stability. Maintaining price stability over the medium term is our guiding principle, which we apply when assessing new information, forming our judgements and deciding on any further adjustment of the accommodative stance of monetary policy.
As stated on previous occasions, the provision of liquidity and the allotment modes for refinancing operations will also be adjusted when 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.
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 fourth quarter of 2010, recent statistical releases and survey-based indicators point towards a continued positive underlying momentum of economic activity in the euro area during the first quarter of 2011 and at the beginning of the second quarter. Looking ahead, euro area exports should be supported by the ongoing expansion in the world economy. At the same time, taking into account the high level of business confidence in the euro area, private sector domestic demand should contribute increasingly to economic growth, benefiting from the accommodative monetary policy stance and the measures adopted to improve the functioning of the financial system. However, activity is expected to continue to be dampened somewhat by the process of balance sheet adjustment in various sectors.
In the Governing Council’s assessment, the risks to this economic outlook remain broadly balanced in an environment of elevated uncertainty. 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 currently expected. On the other hand, downside risks relate to the ongoing tensions in some segments of the financial markets that may potentially spill over to the euro area real economy. Downside risks also relate to further increases in energy prices, particularly in view of ongoing geopolitical tensions in North Africa and the Middle East, and to protectionist pressures and the possibility of a disorderly correction of global imbalances. Finally, there are still potential risks stemming from the economic impact on the euro area and elsewhere of the natural and nuclear disasters in Japan.
With regard to price developments, euro area annual HICP inflation was 2.8% in April according to Eurostat’s flash estimate, after 2.7% in March. The increase in inflation rates during the first four months of 2011 largely reflects higher commodity prices. Looking ahead, inflation rates are likely to stay clearly above 2% over the coming months. Upward pressure on inflation, mainly from energy and commodity prices, is also discernible in the earlier stages of the production process. It is of paramount importance that the rise in HICP inflation does not translate into second-round effects in price and wage-setting behaviour and lead to broad-based inflationary pressures. Inflation expectations must remain firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term.
Risks to the medium-term outlook for price developments remain on the upside. They relate, in particular, to higher than assumed increases in energy prices, not least on account of the ongoing political tensions in North Africa and the Middle East. More generally, strong economic growth in emerging markets, supported by ample liquidity at the global level, may further fuel commodity price rises. Moreover, increases in indirect taxes and administered prices may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years. Finally, risks also relate to stronger than expected domestic price pressures in the context of the ongoing recovery in activity.
Turning to the monetary analysis, the annual growth rate of M3 increased to 2.3% in March 2011, from 2.1% in February. Looking through the recent volatility in broad money growth caused by special factors, M3 growth has continued to edge up over recent months. The annual growth rate of loans to the private sector remained broadly unchanged at 2.5% in March, after 2.6% in February. Overall, the underlying pace of monetary expansion is gradually picking up, but it remains moderate. At the same time, monetary liquidity accumulated prior to the period of financial market tensions remains ample and may facilitate the accommodation of price pressures in the euro area.
Looking at M3 components, the annual growth rate of M1 remained broadly unchanged in March, while that of other short-term deposits increased. The development partly reflects the gradual increase in the remuneration of these deposits over recent months. At the same time, the steep yield curve implies a dampening impact on overall M3 growth, as it reduces the attractiveness of monetary assets compared with more highly remunerated longer-term instruments outside M3.
On the counterpart side, there has been a further slight strengthening in the growth of loans to non-financial corporations, which rose to 0.8% in March, after 0.6% in February. The growth of loans to households was 3.4% in March, compared with 3.0% in February. Looking through short-term volatility, the latest data confirm a continued gradual strengthening in the annual growth of lending to the non-financial private sector.
The overall size of bank balance sheets has remained broadly unchanged over the past few months, notwithstanding some volatility. It is important that banks continue to expand the provision of credit to the private sector in an environment of increasing demand. 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. In particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency.
To sum up, based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged following the 25-basis point increase on 7 April 2011. The information that has become available since then confirms our assessment that an adjustment of the very accommodative monetary policy stance was warranted. We continue to see upward pressure on overall inflation, mainly owing to energy and commodity prices. A cross-check with the signals coming from our monetary analysis indicates that, while the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. Furthermore, recent economic data confirm the positive underlying momentum of economic activity in the euro area, with uncertainty continuing to be elevated. All in all, it is essential that recent price developments do not give rise to broad-based inflationary pressures. Inflation expectations in the euro area must remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. With interest rates across the entire maturity spectrum remaining low and the monetary policy stance still accommodative, we will continue to monitor very closely all developments with respect to upside risks to price stability. Maintaining price stability over the medium term is our guiding principle, which we apply when assessing new information, forming our judgements and deciding on any further adjustment of the accommodative stance of monetary policy.
Turning to fiscal policies, current information points to uneven developments in countries’ adherence to the agreed fiscal consolidation plans. There is a risk that, in some countries, fiscal balances may fall behind the targets agreed by the ECOFIN Council for the necessary and timely correction of excessive deficits. It is essential that all governments meet the fiscal balance targets for 2011 that they have announced. Where necessary, additional corrective measures must be implemented swiftly to ensure progress in achieving fiscal sustainability. The implementation of credible policies is crucial in view of ongoing financial market pressures.
At the same time, it is of the utmost importance that substantial and far-reaching structural reforms be implemented urgently in the euro area in order to strengthen its growth potential, competitiveness and flexibility. In particular, countries which have high fiscal and external deficits or which are suffering from a loss of competitiveness should embark on comprehensive economic reforms. In the case of product markets, policies that enhance competition and innovation should, in particular, be further pursued to speed up restructuring and to bring about improvements in productivity. Regarding the labour market, the priority must be to enhance wage flexibility and incentives to work, and to remove labour market rigidities.
The Governing Council, in line with the ECB’s opinion of 17 February 2011 on the six legislative proposals on economic governance, urges the ECOFIN Council, the European Parliament and the European Commission to agree, in the context of their “trialogue”, on more stringent requirements, more automaticity in the procedures and a clearer focus on the most vulnerable countries with losses in competitiveness.
Finally, the Governing Council welcomes the economic and financial adjustment programme which was agreed by the Portuguese 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 Portuguese 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 Portuguese public authorities to take all the necessary measures to achieve the objectives of the programme. It considers very important the broad political support for the adjustment programme, which enhances the overall credibility of the programme.
We are now at your disposal for questions.* * *
Question: First, was today’s decision unanimous and were there any calls to raise interest rates next month in the light of faster inflation and higher inflation expectations?
Second, what did the Survey of Professional Forecasters show in terms of inflation and growth expectations?
Third, are you concerned that the EONIA overnight rate shot up after you raised rates last month, effectively tightening monetary policy or monetary conditions even further?
Trichet: In response to your first question, yes – we were unanimous.
With regard to your second question, we will publish the Survey of Professional Forecasters later on. But let me tell you what we have borne in mind, namely that medium-term and longer-term inflation expectations are anchored in line with our definition of price stability, which means that we continue to have a solid anchoring of inflation expectations over the medium long-term. I expect that we will see that this is in line with the forecasts by all observers and international institutions for the long-term. In the short-term everybody expects the push upward in inflation, which is due to the rise in oil prices.
As far as the EONIA is concerned, we are looking very carefully at what is going on. I have to say that it is not surprising that the decision we took in April was reflected in the EONIA. Let me say with prudence and caution that it is up to the market to function, and the EONIA is the result of market functioning. However, it seems to me that the volatility that we observed in the EONIA’s behaviour on certain occasions in the past has reduced quite significantly and we have taken note of this.
Question : First, markets now expect that the ECB may raise interest rates again or may be in the mind of raising interest rates again in July, obviously depending on your own forecasts next month. Are you comfortable with that?
Second, if you are so concerned about inflation pressures increasing, why were you not in a mode of strong vigilance today?
Third, how would you describe the movement of the euro against the dollar in the past month, because this has also considerably tightened monetary conditions in the euro area?
Trichet: I will not comment – I never comment – on the market on a short-term basis. The market and all observers know that we take our decisions whenever we judge it to be appropriate in order to be able to deliver price stability in the medium run, as we have done in the first twelve years of the euro area. So I have just said everything on our position on behalf of the Governing Council at this present meeting. As you know, we are never pre-committed and we can always increase rates whenever we judge it to be appropriate.
As regards the exchange rate of the euro against the dollar, we always incorporate the exchange rate situation in our own analysis. Fully in line with what we have always done. It is one of the parameters that we incorporate, but we have also all other considerations. Again it is one of the parameters among others. Let me only say that I took particular note when, on 26 April 2011, the United States Secretary of the Treasury, Timothy Geithner, said “Our policy has been and will always be, as long, at least, as I am in this job, that a strong dollar is in our interests as a country. And we will never embrace a strategy of trying to weaken our currency to gain economic advantage at the expense of our trading partners.” Of course, the US Secretary of the Treasury was referring to the relationship between the dollar and the other major floating currencies. On 27 April 2011, the Chairman of the Board of Governors of the Federal Reserve System said that the Federal Reserve System believes that a strong and stable dollar is both, in the American interest and in the interest of the global economy. Here, Ben Bernanke was also alluding to the position of the dollar vis-à-vis the other major floating currencies. I consider these statements to be important and I also share in full the analysis of these two authorities.
Question: It is likely that the ECB staff macroeconomic projections for inflation in 2011 are going to have to be revised upwards significantly in June. Are you not at all concerned that the release of such forecasts, without offering an immediate policy response in June, could undermine your credibility?
My second question is on your non-standard measures. You have refrained from intervening in the bond markets for five weeks now and some of your colleagues have suggested that we might continue to see little activity. Are you going to actually announce a formal end to this programme at some stage in the near term or are you instead going to leave the facility open but just inactive?
My third question is on the liquidity framework going forward. Did you discuss this at all at today’s meeting and are we likely to see a return to competitive bidding in at least some of your operations in the third quarter?
Trichet: As regards your first question, you will have to wait until our next meeting to see what we decide. As regards our credibility, let me say that the fact that we were the first big central bank in the world to increase rates does not create any problems with our credibility, particularly in view of our record of achievement in terms of meeting our definition of price stability over the first 12 years of the euro – you know the yearly average figure by heart: 1.97%.
In answer to your second question, you see every week what we do with regard to the Securities Markets Programme. We are transparent in this respect, as we have always been.
On your third point, we did not discuss the liquidity framework at today’s Governing Council meeting.
Question: First, I would like to come back to inflation. You sound more relaxed about inflation than you have in the past few press conferences. Does that mean that there are fewer risks of second-round effects now? I would also like to get a little more flavour of the discussion you had today and to know what has changed in the inflation picture.
Second, I have a question on the money markets: it seems like the process of normalisation went on for quite a while, but now it seems to have hit something of a brick wall. Do you share that assessment or do you think that the money markets are still improving?
Trichet: Could you repeat that question, please?
Question: Yes, of course. Do you think that the money markets are still normalising or do you think that lately there have been some bumps in the normalisation process?
Finally, I would like to ask about Portugal. What is your message to politicians here in Finland about the Portugal package? We seem to be very intent on derailing it…
Trichet: To answer your first question I would not say at all that we have changed in any respect our attitude towards inflation. Our present analysis was explained clearly a moment ago and I repeat: “With interest rates across the entire maturity spectrum remaining low and the monetary policy stance accommodative, we will continue to monitor very closely all developments with respect to upside risks to price stability”. It is our judgement that there are upside risks to price stability. “Maintaining price stability is our guiding principle, which we apply when assessing new information, forming our judgments and deciding on any further adjustment of the accommodative stance of monetary policy.” We will always do everything that is necessary to deliver price stability. We have been clear on this for more than 12 years. We give the benchmark, we give the yardstick, and you judge on the basis of what we deliver in the medium term. We are looking at the threat of second-round effects and are monitoring all developments very closely. This is certainly not benign neglect in any respect and our message to price-setters, as well as social partners to the extent that they are themselves price-setters, is crystal clear.
With regard to your question on the money markets, yes, we are seeing a progressively more appropriate functioning of the money markets, which is visible in the positioning of the EONIA. It would be good if it were confirmed that the volatility of the EONIA is now less pronounced than before. It is also clear from the liquidity situation of banks and money markets all over the euro area that there are signs of a more normal functioning. That being said, it is not yet been fully achieved.
As regards Portugal, the very clear message from the Governing Council is that we expect all countries to live up to their responsibilities in the present circumstances.
Question: Just on your comments with regard to the fiscal efforts of some other countries trying to reduce their deficits at the moment, you said that those which are lagging behind targets should be taking more steps. Are you referring to Greece?
And also, one of the members of the ECB’s Governing Council, while ruling out the idea of restructuring Greek debt, has mentioned the possibility of extending the maturities on Greek loans. Is that actually an option in your view?
Trichet: First of all, I think I have been clear that our message on fiscal policies was a message to all countries concerned, and our message has always been to all countries – including Greece. But it is absolutely clear that the key issue for credibility, the key issue for creditworthiness, the key issue as regards taking full advantage of the ongoing recovery in Europe is credibility in achieving fiscal sustainability. Again, this applies to everybody – and particularly those who have the most hard work to do.
As regards the question of restructuring, we consider that what is important is, again, to do the job, to adjust. There is a plan, and we call for the implementation of the plan! That’s all to say, full stop!
Question: Mr Trichet, a couple of members of the Governing Council have talked in speeches about the normalisation of monetary policy. Does the ECB have a policy of normalising monetary policy?
My second question is on Portugal. I know there have been briefings going on in Lisbon today. Could you explain what the ECB’s role is going to be as regards providing liquidity to Portuguese banks? Will it be the same as in the case of Greece and Ireland in that you will continue to provide liquidity on an unlimited basis for the foreseeable future, but there will be no special vehicle, no special measures for those three countries? There seems to be confusion as to how exactly this is going to work for Portuguese banks. Perhaps you could help by clarifying that.
And since there seems to be a bit of question inflation – everyone’s going for three – can I just ask what you thought of Mr Bernanke’s first press conference? Did you give him any tips beforehand?
Trichet: First, on the question of normalisation, I never use that word. I don’t think we have a policy of “normalisation”. We have a policy of setting interest rates, at any particular moment in time, at the level which would allow us to deliver price stability. And this is based on an analysis which incorporates all the elements that are at stake. As I have already said, this is a multidimensional analysis. So, again we take the decisions necessary for the delivery of price stability over the medium-term.
As regards Portugal, we have no new concept or new window. We will apply our rules and decisions on refinancing will be taken on the basis of our framework – the framework decided by the Governing Council. So there is nothing new or special that I could mention in this respect.
As regards your third question, I will not pass judgment on this press conference. You know that we have always ourselves – since the very beginning of the euro – thought it was appropriate to have press conferences, and you know that better than anybody, because you actively participate in these press conferences. It’s a way of clarifying the way the Governing Council – and, on the other side of the Atlantic, the Open Market Committee – sees things. We have always thought that this was useful. We perhaps had an additional reason to think it was useful, given that we are issuing a currency for what are now 17 different countries, and this calls for appropriate unification of communication. And you know that I have immense respect and esteem for Ben Bernanke.
Question: You mentioned earlier that you are the first big central bank to raise interest rates and that you don’t think from that standpoint that you have a credibility problem. Could you explain that a little bit more? Do the banks that aren’t raising interest rates have a credibility problem?
Trichet: I didn’t say that. We all have our own economy, and our economies all have their own structures, features, shocks to cope with rigidities and flexibilities. We each have our own overall responsibilities, and we each take our own decisions taking all of that into account. At times our interest rates are above others, and at other times they are not. You have seen that since the setting-up of the euro, and it is normal.
Question: There is still a wide gap between the countries that are doing well in the euro area and the countries that are doing poorly. Was the fragility on the periphery a factor for you today in deciding not to raise interest rates again, despite the rise in inflationary pressures?
Trichet: I will respond very simply: absolutely not. We are responsible for price stability in the euro area as a whole. It is on that basis that the euro is judged and assessed by all observers, economists, institutions, market participants and so forth. We will continue to deliver price stability in line with our definition. Again, I have made the point quite regularly that we currently have countries that have a very encouraging level of growth and we have others that are lagging behind. Not so long ago – say four to five years ago – it was exactly the opposite: the countries that are now adjusting were growing very fast – some of them, at least. And some of the countries that are today growing very fast were experiencing very slow growth. So again, we are an immense economy with 330 million people, so you expect some differences in behaviour. What counts is the average. And as regards the average, as I have said, we see the risks for the economy of the euro area as a whole as being broadly balanced. We see risks on the upside and risks on the downside. We also see that, since the start of the recovery, when we have corrected our projections every quarter we have tended to increase them. Particularly for the first quarter of this year, we have the sentiment that both the survey and other data were confirming that growth was there. Again, this is not the time to claim victory. Certainly not. We have to remain very prudent and cautious. But from this perspective, the recovery has, to date, been confirmed without too much doubt. Again, we will see, what are the facts, and we are never complacent.
Question: I have another question on Portugal. In the case of Greece, it looks more and more likely that the package that was agreed on Greece is not going to be sufficient to allow Greece to go back to the markets in the time frame foreseen. Are you optimistic that what you have agreed on Portugal today will allow Portugal to be in shape to go back to the markets in the time frame foreseen and that the money will be sufficient? Perhaps also Vice-President Constâncio would like to comment on that.
Secondly, on normalisation, there are some Board members who do use the word “normalisation”. Is there a conceptual difference, a difference of substance within the Board when this is referred to, or is this just a question of semantics?
And one last thing. It was the first meeting that the Bundesbank president Jens Weidmann attended. Could I perhaps have a comment from the participating panellists on how his first meeting went?
Trichet: I am the porte-parole of the Governing Council and I already said what I had to say on normalisation. I don’t know exactly to whom you are alluding. My understanding is that if there is something there, it is pure semantics. Because I don’t see any difference of views in the Governing Council on what I said, namely that we are always doing at any moment what we judge necessary to deliver price stability in the medium-term. Again, we were unanimous today, as we were unanimous, as you might remember when we increased rates in our last meeting.
As regards Portugal, I said a moment ago on behalf of the Governing Council exactly what we think which is: we clearly consider that the programme contains the necessary elements to bring about a sustainable stabilisation of the Portuguese economy. We also mention the fact that it is important that there is broad political support for this adjustment programme, which is the case, meaning that we have a large array of political sensitivities behind the programme. On this basis, we are confident. Of course, it calls for the present government in the time that it has and future governments to do their job, to adjust, which is – as I said already – absolutely essential.
On your last question, as chairman of the Governing Council I very warmly welcome Jens Weidmann as our new member. I also had the opportunity – and you were a witness, it seems to me – to welcome him at the Bundesbank itself when there was the “passing of the baton”, between Axel and Jens. Again on behalf of the Governing Council, I very warmly welcome our new member, whom I have known personally for a significant period of time.
Question: Is the ECB going to need more capital from national central banks this year?
Trichet: The Governing Council took a decision a certain number of months ago, and we have no new decision which would be in the pipeline.
Question: You said some governments are falling behind the targets for the correction of excessive deficits. In which countries do you see that risk, and what could be the consequence?
And my second question. There is a discussion that restructuring of Greek debt could become necessary, but the ECB – some members of the Board – said that this is a bigger risk than Lehman was. Could you explain that? What is the big danger if that happened?
Trichet: First of all, our message on fiscal policies is directed at all countries, and we feel that it is not only the case in Greece or in Portugal, or in the countries that are under a programme. We feel that fiscal balances may fall behind the targets agreed by the ECOFIN Council, and, you know, there is monitoring of all countries according to the Stability and Growth Pact. Experience has demonstrated that this was absolutely essential. We are on record as having said, when several, very important countries wanted to “demolish” the Stability and Growth Pact in 2004 and 2005, that in a single currency area without a fully fledged political federation we need a fiscal framework, which is essential. So we call permanently on all countries, not only on those who have difficulties or major difficulties today, but on all countries to be extremely alert in this area.
Again, I already responded as regards the restructuring. We consider that it is not on the cards. We apply a plan, and the plan is, as soon as possible, to get the country concerned into a situation in which it has a primary surplus in its own fiscal position. This would be absolutely key to reinforcing credibility, restoring creditworthiness and having the appropriate kind of interaction with its own financial environment.
Question : I have a question for each of you gentlemen. First for Mr Trichet: The IMF and the EU announced today a funding package for Portugal, and part of the funding would come from the European Financial Stability Facility (EFSF). The activation of the EFSF requires a unanimous decision by all the Eurogroup countries, and, in turn, the Finnish participation in the EFSF requires parliamentary approval in Finland. As of now, the majority of the deputies in the Finnish Parliament oppose the Finnish participation in the EFSF, and my question is: if the Finnish Parliament refuses to authorise Finnish participation in the EFSF in support of Portugal, do you think this could block the whole funding package, or just the EFSF portion of it, or, as a third option, will the funding package be fully activated regardless of the official Finnish stance?
And my question for Mr Liikanen: You have been a policy-maker in the European Union at multinational level ever since Finland joined the EU in 1995, and, during its membership of the EU, Finland has gained a sort of track record as being a model student in the European cooperation. Have you received any queries from your colleagues about why the political mood in Finland has now changed to being so uncooperative in the European framework?
And, finally, my question for Mr Constâncio: What is your personal message to the Finnish people? Why should Finnish taxpayers guarantee funding for Portugal?
Trichet: I will respond to your first question for my part. I must be very cautious because these decisions have to be taken by the appropriate bodies, including the IMF, but, as far as I understand, what is perhaps envisaged, depending on the decision of each particular institution, would be a contribution from the IMF of one third and a contribution from the Europeans of two thirds. In the contribution from the Europeans you have to take into account the fact that we have two bodies, the EFSF and the EFSM, which, as has been the case before, could each contribute one third, so the two thirds would be shared between the EFSF and the EFSM. I would only add that we, the Governing Council, are calling on all countries to live up to their responsibility in the circumstances.
Liikanen: President, I share what you have said in this press conference of the Governing Council. But, as there is a wish to hear my opinion, as a former EU ambassador and Commissioner, on this situation, I will communicate myself over the next weekend on that issue also. But this is the press conference of the Governing Council, so I totally share what the President has said on this matter.
Constâncio: Appearances to the contrary, here I am an institution, so I have no personal messages, and in that respect the President has expressed perfectly what the message of the institution is.
Question: Just a couple of questions. The Irish package has been agreed now for several months. The yields of Irish government debt are still around 10%. People do not seem to think it is working. Does the ECB think that the Irish package is working and that it can work, and do you think that Ireland can actually repay all the debt we have, or will there need to be some form of debt restructuring/debt rescheduling, which seems to be the way that the market is betting at the moment?
Secondly, there were recently some comments by our former finance minister, Brian Lenihan, about the ECB’s role in the Irish bailout. He claimed that the ECB bounced Ireland into a bailout and that the ECB had actually betrayed Ireland. Do you have any concerns about those comments? Is that your understanding of how things went in the run up to the bailout?
Trichet: First of all, in the case of Ireland we have a plan which has been approved by the international community – the entire world – and by the Europeans and which is being implemented by the Government. We also had a plan for reshaping the banking sector which, as far as I know, was regarded by observers and by market participants as credible. And we share the view that it is credible.
As regards your second question I have no particular comment on what has been said by any speaker. I would only say that the level of commitment of the Eurosystem to Ireland has absolutely no historical precedent. So the facts speak for themselves. We are siding with Ireland in the difficult circumstances.
Question: I understand you are not very fond of this debate about restructuring the debt, but I assume you must have some kind of estimate of how big a loss the ECB would make if there were some kind of restructuring?
Trichet: It is not the problem.
Question: Two questions, if I may. The first is on market expectations regarding the path of policy timing that is anticipated through the course of this year; are those market expectations correct to be pricing in what they are?
And the second is that, on many occasions now you have spoken with reference to addicted banks and the need for them to pay urgent attention to improving capital and their efficiency. To which banks are you referring, how much longer will you give this warning and what would be the consequences of a failure to heed the warning?
Trichet: As you could perhaps see in March this year, market expectations were that we would not increase rates at any point during the year. The Governing Council then said “we are in a posture of strong vigilance”, and market expectations changed immediately. So what counts is what we do and we will always do what is necessary to deliver price stability in the medium term. I have no other comment on market expectations which would go against current expectations.
With regard to addicted banks, we did not discuss the question of providing liquidity or the liquidity framework today, so I have nothing more to say than what I have already said, namely that it was an issue that we were meditating upon. If and when we have something to say, I will announce it to you all on behalf of the Governing Council.
Question: To follow on from the question of debt restructuring, when you say that a restructuring of Greek debt is not on the cards, does that also mean that you are ruling out extending maturities of bonds?
Trichet: I already responded to all of these types of question. Nothing else to be said. We have a plan, we will apply the plan. This is not part of the plan.
Question: You mentioned Japan in your remarks. The yen has been strengthening again. Would you be prepared to assist the Bank of Japan in a similar action to the one you took recently and if so, have you had any discussions in that regard with either your colleagues there or at the Federal Reserve?
Trichet: As you know, we are constantly in very close contact with the Bank of Japan. We have had the immense chance in the difficulties that we have had to cope with for the last three years to foster very intimate cooperation between the central banks in the world. And I do not only include cooperation with central banks in advanced economies, but also those in emerging economies. It is a very closely intertwined network. You also know that we gave a very clear signal to Japan after the earthquake as regards the exchange rate, and I think our message was well taken by market participants. If there is anything we could do to continue to reinforce our cooperation, we will certainly do it and we are in permanent contact with Masaaki Shirakawa. There is nothing particular that I have to mention on this now though.
Question: Nobody has mentioned your government bond purchases. You have not bought government bonds for a number of weeks now. Why is that?
Trichet: There was indeed a question on this. I said we are transparent, you see what we do.
Question: Yes, but what does that mean? Does that mean that the transmission mechanism is working again?
Trichet: I have nothing else to say. You see what we do.
Question: My follow-on question to that relates to the fact that for the past two weeks you have had difficulties sterilising your bond purchases. There was a shortfall of about €14 billion last week. Does that concern you? How do you interpret that?
Trichet: Well, it was not the first time. Over the recent period, there have been very few weeks where the offers that we had were a little bit shorter than what we wanted to recuperate. My understanding is that we are in a particular episode and we are back to the question of whether the market is functioning in a better fashion. We are obviously looking at the behaviour of our banks, which are asking for somewhat less liquidity in our own refinancing operations. This is my present interpretation of why this occurred, but we are looking carefully at it.
Question: Will you be withdrawing the minimum credit requirements for Portuguese government-backed collateral as a result of the agreement on the package, as you have done for Greece and Ireland?
Trichet: I have nothing else to say at this stage.
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