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, 9 June 2011
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, 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. The information that has become available since our meeting on 5 May 2011 confirms continued upward pressure on overall inflation, mainly owing to energy and commodity prices. The underlying pace of monetary expansion is gradually recovering. Monetary liquidity remains ample, with the potential to accommodate price pressures in the euro area. Furthermore, the most recent data confirm the positive underlying momentum of economic activity in the euro area, while uncertainty remains elevated. Overall, our monetary policy stance remains accommodative, lending support to economic activity. On balance, risks to the outlook for price stability are on the upside. Accordingly, strong vigilance is warranted. On the basis of our assessment, we will act in a firm and timely manner. We will do all that is needed to prevent recent price developments giving rise to broad-based inflationary pressures. We remain strongly determined to secure a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. This is a prerequisite for monetary policy to make an ongoing contribution towards supporting growth and job creation in the euro area.
The Governing Council today also decided to continue conducting its main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the ninth maintenance period of 2011 on 11 October 2011. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the third quarter of 2011. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. Furthermore, the Governing Council decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted on 27 July, 31 August and 28 September 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.
As stated on previous occasions, the provision of liquidity and the allotment modes for refinancing operations will 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. In the first quarter of 2011, the euro area recorded strong real GDP growth of 0.8% quarter-on-quarter, following the 0.3% increase of the fourth quarter of 2010. Recent statistical releases and survey-based indicators point towards a continued expansion of economic activity in the euro area in the second quarter of this year, albeit at a slower pace. This easing reflects the fact that the strong growth in the first quarter was partly due to special factors, which will cease to play a role in the second quarter. Hence, it is appropriate to look through such short-term volatility and to emphasise the positive underlying momentum of economic activity in the euro area. Looking ahead, euro area exports should be supported by the ongoing expansion in the world economy. At the same time, taking into account the favourable level of business confidence in the euro area, private sector domestic demand should contribute increasingly to economic growth, benefiting from the still 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.
This assessment is also reflected in the June 2011 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between 1.5% and 2.3 % in 2011 and between 0.6 % and 2.8% in 2012. Compared with the March 2011 ECB staff macroeconomic projections, the range for 2011 has been revised upwards, while the range for 2012 remains broadly unchanged. The June 2011 Eurosystem staff projections are broadly in line with recent forecasts by international organisations.
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, favourable business confidence could provide more support to domestic economic activity in the euro area than currently expected and higher foreign demand could also contribute more strongly to growth than 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, protectionist pressures and the possibility of a disorderly correction of global imbalances.
With regard to price developments, euro area annual HICP inflation was 2.7% in May according to Eurostat’s flash estimate, after 2.8% in April. The relatively high inflation rates seen over the past few months largely reflect higher energy and 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 remains 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.
The June 2011 Eurosystem staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.5% and 2.7% for 2011 and between 1.1% and 2.3% for 2012. In comparison with the March 2011 ECB staff macroeconomic projections, the range for HICP inflation in 2011 has been revised upwards, largely reflecting higher energy prices. The projection range for 2012 has narrowed somewhat. It is appropriate to recall that the staff projections are conditional on a number of purely technical assumptions, including oil prices, interest rates and exchange rates. In particular, it is assumed that oil prices will decline somewhat and that short-term interest rates will rise, in accordance with market expectations. Overall the projections embody the view that the recent high rates of inflation do not lead to broader-based inflationary pressure in the euro area.
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. Furthermore, there is a risk of increases in indirect taxes and administered prices that may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years. Finally, upside risks may come from stronger than expected domestic price pressures in the context of increasing capacity utilisation in the euro area.
Turning to the monetary analysis, the annual growth rate of M3 was 2.0% in April 2011, after 2.3% in March. Looking through the recent volatility in broad money growth, M3 growth has continued to edge up over recent months. The annual growth rate of loans to the private sector strengthened slightly to 2.6% in April, after 2.5% in March. Overall, the underlying pace of monetary expansion is gradually recovering. At the same time, monetary liquidity accumulated prior to the period of financial market tensions remains ample, with the potential to accommodate price pressures in the euro area.
Looking at M3 components, the annual growth rate of M1 decreased in April, 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. However, available information suggests that this impact may be waning.
On the counterpart side, there has been a further slight strengthening in the growth of loans to non-financial corporations, which rose to 1.0% in April, after 0.8% in March. The growth of loans to households was 3.4% in April, unchanged from the previous month. 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. The information that has become available since our meeting on 5 May 2011 confirms continued upward pressure on overall inflation, mainly owing to energy and commodity prices. A cross-check of the outcome of the economic analysis with that of the monetary analysis indicates that the underlying pace of monetary expansion is gradually recovering. Monetary liquidity remains ample, with the potential to accommodate price pressures in the euro area. Furthermore, the most recent data confirm the positive underlying momentum of economic activity in the euro area, while uncertainty remains elevated. Overall, our monetary policy stance remains accommodative, lending support to economic activity. On balance, risks to the outlook for price stability are on the upside. Accordingly, strong vigilance is warranted. On the basis of our assessment, we will act in a firm and timely manner. We will do all that is needed to prevent recent price developments giving rise to broad-based inflationary pressures. We remain strongly determined to secure a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. This is a prerequisite for monetary policy to make an ongoing contribution towards supporting growth and job creation in the euro area.
Turning to fiscal policies, all parties involved in the preparation of the 2012 national budgets must ensure that they are fully in line with the requirement to support confidence in fiscal policies. A comparison between the latest economic forecasts by the European Commission and the fiscal plans embodied in the stability programmes points to the need for many countries to underpin their budget targets with concrete consolidation measures in order to correct their excessive deficits by the commonly agreed deadlines. The implementation of credible fiscal adjustment strategies is crucial in view of ongoing financial market pressures.
At the same time, the implementation of ambitious and far-reaching structural reforms is urgently required in the euro area to strengthen substantially its competitiveness, flexibility and longer-term growth potential. In particular, countries which have high fiscal and external deficits or which are suffering from a loss of competitiveness should rapidly carry out comprehensive economic reforms. In the case of product markets, policies that enhance competition and innovation should be vigorously pursued to facilitate productivity growth. Regarding the labour market, the priority must be to enhance wage flexibility and incentives to work, and to remove labour market rigidities.
We are now at your disposal for questions.* * *
Question: Monsieur Trichet, two questions. One, I keep hearing the argument that if the ECB raises rates as happened a couple of months ago, it puts further pressure on the periphery and the debt crisis. I never buy the argument, but nobody listens to me. Maybe you can explain to the markets why it does not put any further pressure on the periphery.
And secondly, there seems to have been a bit of a verbal stand-off between the ECB and the German finance ministry over collateral, or possibly accepting collateral, or not accepting collateral. I do not necessarily want to go down that road. But how concerned are you at the ECB about the collateral you have and that, maybe, it is not quite worth as much as it was?
Trichet: On your first question, let me only restate that when we solidly anchor inflation expectations in the euro area as a whole, we are at the same time anchoring stability and confidence. We are permitting the market interest rates in the euro area as a whole to incorporate a lower level of inflation expectations than if we had inflation expectations going up. It is thus good for the overall financial environment of the euro area as a whole, and this is good, by definition, for all countries. So, we see several channels through which we, by taking all appropriate measures to deliver price stability and solidly anchor inflation expectations, contribute to the prosperity of all countries concerned, without any exception. Improving confidence on the one hand and preserving a favourable medium and long term environment are favourable to sustainable long-term growth and job creation. I will add that it is our primary mandate to deliver price stability and that this is a very strong request from all our fellow citizens in all countries without exception. And let me conclude by mentioning the fact that we have delivered price stability in line with our definition over the first 12 years of the euro, and that the reason why inflation expectations are solidly anchored is to be found in the fact that we have a solid track record and that we have demonstrated that we are inflexible with respect to the delivery of price stability.
On the second question, we have a framework. We apply our framework and we are determined to apply our framework and our rules no matter, what happens here or there. We have a clear position in this respect.
Question: You just indicated a rate increase next month. And after the rate hike in April, could we understand this as an indication that the next increase may also come three months later, or would you like to repeat your remark that this is not the start of a series of interest rate increases?
My second question is: was your decision unanimous and, if not, what were the arguments exchanged in the Governing Council?
And the third one is: do you see the risk that the ongoing fiscal tensions in the euro region will impact your interest rate policy and/or the exit from your non-standard measures?
Trichet: As regards today’s decision on the interest rates, we were unanimous.
By mentioning the Governing Council’s posture of strong vigilance, I would say that, as you already know, it means that we are in a mode where there might be an increase in rates at the next meeting, but we are never pre-committed. If we had decided to increase rates at the next meeting, I would have said so. You know well how we look at such matters. We are in a mode where we feel that it is important to express our need for strong vigilance. We will decide when we next meet, and we are not pre-committed. This, of course, holds true for the next meeting. And the absence of pre-commitment holds true over the medium term. We decide on interest rates, on our standard measures, when we judge that a decision is necessary to deliver price stability and to continue to solidly anchor inflation expectations. It is a decision that is taken by the Governing Council on the basis of all information at its disposal. We are not signalling any particular pace for the next decisions on our interest rates.
As regards the standard and non-standard measures, as you can see, we are attached to their separation, to the principle of a separation between standard measures designed to deliver price stability over the medium term and non-standard measures that must, in our judgement, be commensurate with the abnormal functioning of some markets or market segments. You have heard me mention the fact that for the third quarter, we will continue with the full allotment at fixed rates in our main refinancing operations, in the one-month refinancing and the three-months refinancing operations. This is an illustration of this principle of separation. Again our policy decisions are governed by a separation between the two measures, the standard and the non-standard. And no matter what happens, we will deliver price stability, which – once again – is absolutely essential for prosperity and appropriate job creation in the medium term.
Question: The euro area finance ministers last night agreed to set up a working group to study how a bond exchange roll over could be structured to avoid Greece being declared at default. First, do you think it is possible that we can get a commitment from the private sector to buy new Greek bonds without triggering a credit event?
Second, if the ECB, the private sector and the European finance ministers were to agree to such a voluntarily roll over, and then the rating agencies declared this to be a credit event, would that make any difference as to whether the ECB would accept these new bonds as collateral?
Trichet: Let me re-state our position, which I trust is very well known. First, we are not in favour of restructuring and haircuts. We exclude all concepts that are not purely voluntary or that have any element of compulsion. We call for the avoidance of any credit events and selective defaults or default. This is our position, which we have made clear for a long period of time: it is the position of the Governing Council and all governments know that position. We are not in dialogue with one particular government. Do not forget that we are the central bank for 17 countries: we issue the currency in 17 countries and have a dialogue within the Eurogroup, which is the grouping of the 17 countries. We are fiercely independent. Let me make two additional remarks: Whatever happens and it is not our decision, as this is the responsibility of the governments, we will apply our rules and our framework as regards both the soundness of our counterparties, I mean the banks, and the quality of the collateral that we take in our refinancing operations. This is crystal clear and has been communicated to governments.
Second, as regards private sector involvement, I am from time to time surprised by the narrow view of private sector involvement that is generally taken in the present debate. We should not forget that private capital is also mobilised when embarking on privatisation. Privatisation is a good way of mobilising private capital and is something that we have encouraged considerably, particularly in the case of Greece. It is a very effective way of mobilising private capital and has a positive effect not only on the financing of the country, but also in terms of positive structural effects. It opens up the economy and permits it to function better. Also, foreign direct investment is a private investor involvement, which is very important in exactly the same way, because it contributes to the overall financing of the economy, is important in terms of the openness of the economy and the structural improvement of its functioning. Finally the private sector involvement that everybody would prefer would be to go back as soon as possible to spontaneous private sector market financing. All the adjustment programmes that have been set up, as well as EU and IMF conditionality, are designed precisely to accelerate a return to normal, spontaneous financing. It is valid for European cases and is the global doctrine when embarking on this kind of the adjustment programme.
Question: I did not understand very well when you spoke of the voluntarily involvement of the private sector, private investors, for instance, in Greek bonds. The Finance Minister of Germany, Mr Schäuble, would like to prolong the bonds of Greece on a voluntarily basis, do you agree with this or not?
Trichet: Again, I repeat what I said: no credit events, no selective default. We exclude all concepts that are not purely voluntarily or that have an element of compulsion. And, in saying so, I am not embarking on a dialogue with that particular minister. Do not forget that.
Question: France and Holland would like Mr Bini Smaghi, who is currently a Member of the Executive Board of the ECB, to step down in order to allow their candidates a place on the Board when Mr Draghi takes over as President of the ECB in November. Do you agree with this?
Trichet: First, all the members of the Executive Board have been appointed for eight years and, very clearly, this contract has been signed. What is more, it is laid down in the Treaty. So I will not comment on decisions that have to be taken by colleagues in full liberty and full independence, because that is the nature of the contract.
Question: Mr Trichet, I would like to come back to your speech in Aachen, when you said Europe would need a European Finance Minister. For most German legal experts, this would mean a big change to the German constitution, maybe a new constitution. And it could also restart the debate about a European constitution. In a few months you will be an elder statesman, so maybe you can speak a little more freely. Do you think that this is the core of the debate and that we have to discuss the final state of Europe, discussing a constitution, perhaps a federal state? And if not, the euro area is at the moment a currency union comprising sovereign independent states. Earlier constructions like this failed. Why is the euro area different? And why should it not fail?
Trichet: As regards the speech I delivered in Aachen, let me say, on a personal basis, how moved, how touched I was to be awarded this extraordinary honour. I know what it represents historically, what it represents in Germany, and what it represents for Europe as a whole.
Second, I will not repeat what I said. You will remember that I said “this is what we should do today”, and we obviously have very hard work to do today – particularly with the new legislation on governance, which is currently in the “trialogue” stage. You know that we have very strong views, and we expect that the European Parliament will permit Europe as a whole – because it’s an issue for all 27 Member States, not just the 17 euro area countries – to proceed with the quantum leap on governance that the Governing Council judges necessary. I said that we could perhaps then reflect on tomorrow, and that tomorrow would call for changes to the Treaty, that tomorrow would allow the centre to replace, in terms of decision-making in a number of domains, national governments that were in a difficult situation. And I also said that there is then the day after tomorrow. But I quoted Jean Monnet, saying “Nobody can say today what will be the institutional framework of Europe tomorrow because the future changes, which will be fostered by today’s changes, are unpredictable.” And I said myself that it would necessarily be a concept which would not apply role models, so it probably won’t be a federation as we know it; it won’t be something that we know. It would necessarily be something which will be profoundly original, because it would probably be a new type of confederation of sovereign states. Let me stop there. Again, we have a job to do today, and I believe that if we all live up to our responsibilities and have a solid sense of direction, we will succeed – as we have succeeded remarkably in our monetary union since the setting-up of the euro. And we will see what the people of Europe call for the “day after tomorrow”. It depends on the people. When the Maastricht Treaty was negotiated, you might remember that several countries were calling for simultaneous advances in terms of political union. This was the case for Germany in particular at that time. Now, again, we are dependent on our people – the people of Europe. They will decide what has to be done from a historical perspective. Today we have a lot of challenges and hard work to do, and we are encouraging ourselves to do that hard work.
Question: Just to get back to the “job of today”, you said the ECB would support a voluntary rollover.
Trichet: I did not say we would support it, I said we are excluding anything that would not be absolutely voluntary or that had any element of compulsion. I also said no credit event, no selective default.
Question: Y ou have not excluded a voluntary rollover. If a voluntary rollover was agreed between the private sector and governments, would the ECB roll over its own holdings of Greek bonds?
And secondly, if a voluntary rollover was agreed by governments and the private sector, but the rating agencies said it was a credit event and therefore downgraded the quality of the collateral, would you really be prepared to give the rating agencies the last word on judging the quality of your collateral?
Trichet: As I have said, the Governing Council excludes a credit event for manifold reasons, and not only taking into account the country in question. There are all kinds of reasons why we would exclude that.
Question: What about the question of whether the ECB would roll-over its own holdings?
Trichet: On that point I would say it is certainly not our intention.
Question: Okay, that’s clear. Can I just ask about the non-standard measures, because you basically left everything as it is for the next three months? If I am correct, within the Greek programme, the Portuguese programme and the Irish programme, funding plans are being worked out for the respective banking systems. I am not quite sure of the exact deadlines, but we are talking about a few weeks here. Does that mean that by September, when you have to decide beyond October, you expect to be in a position where you can take the next step in your exit strategy on the non-standard measures?
Trichet: We have a new rendez-vous by definition, because we are deciding today for the third quarter, and then we will have to decide for the fourth quarter. So I can only say that we will examine the situation, taking absolutely all elements, including any new elements that would inform our decisions, into account.
Question: Can I ask you a question about the economic analysis here? You say that exports are supportive for growth, so do you share Mr Juncker’s recently expressed concern that the euro is overvalued and would that have an impact on your analysis? Or are you perhaps, in particular, more concerned about the recent volatility in the euro, and do you think that F/X markets have become too aggressive in their expectations for further ECB policy tightening?
Trichet: I never comment on markets on a day-to-day basis, first of all. Second, I trust in the fact that the market knows that we take the decisions that are appropriate to deliver price stability in the medium run. We are not pre-committed and I mentioned our strong vigilance. There is no medium-term path. And it seems to me that there is a good understanding at the moment, given the anchoring of inflation expectations.
Question: And what about Mr Juncker’s concern about the euro?
Trichet: As you know, I do not comment on such statements. I would only mention that in the constellation of major floating currencies, it is very important that the US authorities – including, of course, Tim Geithner, the Secretary of the Treasury, and my colleague Ben Bernanke, the Chairman of the Federal Reserve System – say, and they do say it with some force, that a strong dollar is in the interests of the United States – meaning strong vis-à-vis the other major floating currencies – and also in the interests of the global economy. And I trust that.
Question: In the scenario of a strictly voluntary rollover, is it imaginable that the ECB could create an incentive for private creditors to participate in it by, for example, lowering the haircuts that you apply on Greek bonds? Would that be a possible scenario?
And, secondly, you have said that you are not in an argument with a particular finance minister. However, the market perception and the perception of the public is that the ECB is at loggerheads with the German Finance Minister. Do you think that is detrimental to the perception of the euro area as a whole?
Trichet: On the first question, I will not add anything to what I have already said and it is certainly not our intention to participate in any kind of concept. We will examine the situation on the basis of the decisions that are taken by governments and, when decisions rest with us, the Governing Council will take the appropriate position in fierce and total independence and taking into account what would have been decided at that point in time. We will apply our own rules and nothing else, both as regards the counterparties and as regards the collateral. We are the central bank of seventeen countries and 331 million people and we cannot engage in a separate dialogue with seventeen governments and with fractions of the euro area. The Governing Council is in a position in which our discussions and our dialogue take place with the collège of the governments, and that is something which is extremely important. We have no quarrel with anyone. We have a formal dialogue with the collège of the seventeen countries within the Eurogroup and also with the collège of the twenty-seven EU Member States within the ECOFIN Council at the level of the ministers of finance.
Question: As my colleague mentioned a few minutes ago, there does seem to be an impasse between you and some other governments despite what you just said about not having a dialogue with all seventeen governments. At the same time, it is hard to imagine any solution to the Greek debt crisis that does not have the agreement of the ECB and France and Germany, the largest economies. Is there room for compromise and for agreement that perhaps we are not seeing? Otherwise, how will this be resolved? Do you just stick to your position and they stick to their position? It seems like a recipe for stagnation.
Trichet: The position of the Governing Council is clear and I have reiterated it to you. You already knew what that position was, and I have no other comment. I am confident that, with due reflection and meditation, our remarks will be understood.
Question: First, returning to this issue of voluntary participation, you mentioned before that you would exclude anything that was not absolutely voluntary. Today Moody’s was saying that it could not envisage a scenario for Greece whereby anything would be truly voluntary. Can you outline any kind of scenario in this current environment in which any kind of private sector participation could be voluntary?
Second, there do seem to be some signs that the global economy is slowing, for example, in the United States, and in Japan, which is very weak, interest rates remain very low. Is the ECB in a tightening mode at a time when the global economy is starting to slow, and are you maybe adding to the inevitable headwinds that might be coming from a slowing global economy by signalling more interest rate hikes?
Trichet: With regard to the first question, we are not designing anything ourselves: that is the responsibility of the governments. They are responsible for their fiscal policies – and, unfortunately, they do not have a brilliant record in this regard – and they have the responsibility of presenting their own decisions to parliaments, because it is the parliaments that take the decisions in democracies; it is their responsibility, not ours. As far as we are concerned, we have declared our position, namely that of the Governing Council.
As regards the global economy, as I said earlier, we are in a period marked by a high level of uncertainty, and I think that we have to be fully aware of that. I would also say that there are risks on the upside, as well as risks on the downside, so after due meditation, in the assessment of the Governing Council, we see risks balanced in this respect, as regards the real economy. The staff of the Eurosystem is forecasting that overall growth this year will or may be (because we have to be very cautious) 0.3% higher than in the last assessment in the projections of the ECB staff. This increase of 0.3% more than previously foreseen, first, is not negligible at all and, second, is in line with the reviewing upward of practically all projections quarter after quarter. I have no experience of such a relatively long period during which projections were reviewed up quarter by quarter, because it started with the start of the recovery, in the third quarter of 2009. So again, we trust that when we contribute to solidly anchoring inflation expectations, we contribute to confidence and we contribute to a financial environment which is favourable overall for medium-term sustainable growth and job creation, and that is something which in any case is for us essential. By the way, when you compare our nominal interest rates today – I am not speaking of tomorrow, we will see what we decide tomorrow, as we are not pre-committed – to inflation today, I see a negative figure.
Question: For the purpose of clarification, you explained that you exclude everything that would trigger a credit event. From your own point of view, would the prolongation of Greek bonds on an absolutely voluntary basis necessarily be a credit event?
Trichet: Again, I will not enter into details. We are not designing anything; this is the responsibility of governments. Nevertheless, we do say that it would be an enormous mistake to embark on a decision that triggered a credit event.
Question: I have two questions in relation to the Irish rescue.
First, certain Irish ministers have in recent times been speculating on the possibility of a second bail-out for Ireland and also on the possibility of longer loan maturities on Ireland’s rescue loans. Given the elevated uncertainty that you referred to are they wise to be speculating in those terms publicly?
Second, in your Introductory Statement you referenced labour market reforms. The Irish Enterprise Minister is advancing a plan for radical reform of Irish labour contracts, however he faces resistance within the Irish coalition. Should he proceed with his plan or should he cave in to the pressure?
Trichet: We have 17 countries in the euro area and we do not get involved in the policies of these 17 countries. Everything going in the direction of more flexibility and structural reforms enabling a more vibrant economy is good. In that respect Ireland has the benefit of an economy which seems to me more flexible than others. Of course, in the present circumstances in particular, everything that can go in this direction would certainly seem to be appropriate, without entering into details of the measures.
In response to the rest of your question, it is good to be cautious and prudent regarding sensitive matters and I would not comment in particular on Ireland. But more generally it seems to me that verbal discipline is probably appropriate in the present circumstances and I am speaking of the euro area as a whole.
Question: Two days ago at a press conference with the German Chancellor Angela Merkel, President Barak Obama said that a solution to the Greek debt crisis is not only important for Europe but also essential for the US economic recovery. Would you agree with that statement?
Second, it is clear that the Greek plans are critical for the financial stability of the eurozone. Nonetheless, the Greek Parliament must pass those revisions to the Memorandum as a pre-condition for a new programme to be in fact even negotiated. Given the developments of the past week, that is in doubt. It cannot be taken for granted that it will not pass. If it fails, is there a Plan B being discussed?
In the United States there is a Plan B being discussed vis-à-vis quantitative easing. In Congress, House Bill 1489 has called for a re-introduction of Glass-Steagall by the United States government.
Trichet: I do not comment on declarations by heads of states and governments, in particular the President of the United States, only to echo him when he says that a strong dollar is in the interest of the United States. It is clear that the issues at stake in Europe and in the euro area in particular are very important and have both an European dimension and a dimension of a global nature. What we see here is only part of the tensions that are being observed in the constituency of the advanced economy sovereign signature. We are experiencing tensions in the field of sovereign signature; it happens that we have, particularly in the euro area, some issues of that kind but they are certainly not only of a European nature but also of a global nature. We have to consider the very serious issues at stake within the perspective of the big picture. The big picture in Europe is slightly paradoxical because the euro area as a whole is balanced as regards its current account, which is not the case of all advanced or big advanced economies. Second, the euro area will probably post – at the end of the year – a public finance deficit in the order of magnitude of 4.5% of GDP or less, when Japan and the United States will probably be in-between 9.5% and 10%. So we are at a level which is half that of the public finance deficit of some other advanced economies. And we are proud to have maintained price stability over 12 years for the euro area as a whole in a fashion which is more convincing than over the last 50 years for the countries that are members of the euro area. So, all this is part of the big picture.
I have no particular comment on Glass-Steagall.
Question: First, you told my colleague who asked you about your speech in Aachen that you made some proposals for the future, for tomorrow, and after tomorrow. You concluded your answer by saying that the people of Europe shall decide. You also remarked that the European institutions should not be technocratic and remote from the people. Now does this mean you propose that such decisions and changes in the future should undergo a referendum?
Second, in the case of a debt restructuring of Greece which the ECB does not want, it has been calculated that the potential loss for the Eurosystem would be up to 66 billion USD. I do not know whether this figure is correct. I would like you to clarify if the potential losses could be absorbed like Mr Bini Smaghi said, or like Mr Wellink said, because they have said things that are totally contradictory. Mr Bini Smaghi said that the Greek central bank would take the hit and Mr Wellink said: “No it would be spread out in the Eurosystem”. So can you tell us, which of the two is the right one?
Third, if the French Socialist party asks you to be a candidate for the Presidency, what will your answer be? Thank you.
Trichet: The response to your last question is very easy.
As regards this assumption that there could be a catastrophe, if I understand it well, and that losses could be registered and so forth, the position of the Governing Council is based on very serious reasons and general principles. We are not defending our own interests. That is not the problem. That is not what is at stake. What is at stake is to do the best for the various countries concerned, for Europe as a whole and also from a global perspective, at a global level. It is true that it is a global problem. I will not embark on any kind of assumption on “what happens if”, because I am working on the assumption that the right decisions will be taken, not the wrong. That is my assumption.
Question: First, you signalled that you may increase interest rates next month. Will you clarify that if you do, as we all expect, it will only be a minimum increase?
Second, did you talk about possibly re-widening the rate corridor as part of this deal?
Third, on the situation in the United States, how concerned are you about a possible “mini US default” as it has been termed and what impacts could it have?
Trichet: I have no particular comment on the decision we will take next time. You will see which decision we will take. I have mentioned in explaining today’s decision that we have decided to maintain the corridor as it is. But we will see.
As regards the second question again, if and when we have something to say on the corridor, I promise, I will tell you immediately.
On the United States, I am of course working on the assumption that they will have no default. That, for me, goes without saying.
Question: Why did the ECB not decide to return to competitive bidding of three-month refinancing operations? And what are the prospects for a return to competitive bidding?
Second, are you concerned that slower growth elsewhere in the world will increase the interest rate differential between the eurozone and other currency areas thus putting upward pressure on the euro?
Trichet: On the first question, we make separate decisions regarding the standard and non-standard measures. On the non-standard measures, we considered that the present situation calls for maintaining the overall fixed rate full allotment procedure, as I have just explained. Our actions are commensurate with the kind of assessment we have on the markets’ situation and its impact on the monetary policy transmission mechanism. As regards our next decision, I will give you a rendez-vous for the fourth quarter.
On the second question, I will only say again: we do everything we have to do, taking into account our own assessment of the situation and of the overall global economy and its impact on the real economy. Here, we consider that the risks are balanced, so we have approximately the same weight of the upward risks and of the downward risks. We will see what happens. And I have also said that there was a high level of uncertainty which is an important part of the picture.
Question: On 20 June there is an important meeting at the European level regarding Greece. Would you say there is a kind of urgency to find the right solutions to the Greek debt crisis at this meeting, since previous meetings have failed to find solutions? So, what is the degree of urgency to find the right solutions for Greece?
Trichet: It is a decision which has to be taken by our partners, namely the executive authorities and also the Commission and the IMF. We call on all of them to live up to their responsibilities and to have a sense of direction in the circumstances.
Question: Just a simple question about the single candidate to be your successor, Mr Draghi. Could you comment on him? How capable and able is he to handle such circumstances? Do you agree with the idea that he is more German than the German people?
Trichet: This is very important and I was expecting this question. At today’s meeting, we adopted an opinion on a recommendation from the Council of the European Union on the appointment of a new President of the ECB. In it, we said that Mario Draghi is a person of recognised standing and professional experience in monetary and banking matters as required by Article 283(2) of the Treaty on the Functioning of the European Union. So it is an opinion that we have adopted today and I have already signed the letters to the various authorities of Europe telling them that that is our position.
Question: What about the idea that he is more German than the German people?
Trichet: When you are President of the ECB, you are President of an institution which issues currency for 331 million people in 17 countries. It is a very important responsibility placed on your shoulders because you have to deliver price stability to all of them as they all make up the euro area. All colleagues – and Mario has been a member of the Governing Council for a very long time – are devoted to delivering this. We have known since the very beginning that, whether in calm or stormy waters, we have to be an anchor of stability. And by being an anchor of stability, we are an anchor of confidence. It is a very strong characteristic of this institution, of all members of the institution, but particularly of the Executive Board members and the President. I believe that profoundly and it was also the case for Wim Duisenberg and our first team in the Executive Board, it is now and will be the case with Mario Draghi and the team. This is very inspiring and very important.
Question: Given that the Greek bailout programme has run into such extreme difficulties, are you still confident that the Irish bailout programme can work, even in an environment of increasing interest rates? And do you still believe that Ireland will be able to return to the bond markets in 2012?
Trichet: First of all, I would say that it depends very much on the country itself. Let’s not forget that the countries concerned have the immense responsibility to cope with their own problems and demonstrate as clearly as possible to all partners and observers that the programme is working. I have to say that what I see from Ireland instils confidence in the capacity of the country to go in the right direction. And, it also depends on the overall environment and this is a consideration which is also of extreme importance. It is the reason why I mentioned that we must have a concept of private sector involvement much larger than the narrow concept which is presently being debated.