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, 4 August 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. We will report on the outcome of today’s meeting of the Governing Council, 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 July 2011. The information that has become available since then confirms our assessment that an adjustment of the accommodative monetary policy stance was warranted in the light of upside risks to price stability. 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. As expected, recent economic data indicate a deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter. Continued moderate expansion is expected in the period ahead. However, uncertainty is particularly high. For monetary policy, 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. At the same time, short-term interest rates remain low and financing conditions are favourable. Thus, our monetary policy stance remains accommodative. We will continue to monitor very closely all developments with respect to upside risks to price stability.

Given the renewed tensions in some financial markets in the euro area, the Governing Council today also decided to conduct a liquidity-providing supplementary longer-term refinancing operation (LTRO) with a maturity of approximately six months. The operation will be conducted as a fixed rate tender procedure with full allotment. The rate in this operation will be fixed at the average rate of the main refinancing operations (MROs) over the life of the supplementary LTRO. The operation will be announced on 9 August 2011, with allotment on 10 August 2011 and settlement on 11 August 2011, and will mature on 1 March 2012.

The Governing Council also decided to continue conducting its MROs as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last maintenance period of 2011 on 17 January 2012. 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 last 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 has decided to conduct the three-month LTROs to be allotted on 26 October, 30 November and 21 December 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.

Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of 2011 euro area real GDP posted a strong quarter-on-quarter increase of 0.8%. Data and survey releases for the second quarter point towards ongoing real GDP growth, albeit, as expected, at a slower pace. This moderation also reflects the fact that the strong growth in the first quarter was in part due to special factors. The underlying positive momentum of economic growth in the euro area remains in place and continued moderate expansion is expected in the period ahead. Euro area exports should continue to be supported by the ongoing expansion in the world economy. In addition, the present level of consumer and business confidence in the euro area supports private sector domestic demand. However, growth dynamics are currently weakened by a number of factors contributing to uncertainty, and activity is expected to be dampened somewhat by the ongoing process of balance sheet adjustment in various regions and sectors.

In the Governing Council’s assessment, the risks to this economic outlook for the euro area remain broadly balanced in an environment of particularly high uncertainty. On the one hand, consumer and business confidence, together with improvements in labour market conditions, could continue to provide support to domestic economic activity. On the other hand, downside risks may have intensified. They relate to the ongoing tensions in some segments of the euro area financial markets as well as to global developments, and the potential for these pressures to spill over into 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 2.5% in July 2011, following 2.7% in June. The relatively high inflation rates seen over the past few months largely reflect higher energy and other 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 other commodity prices, is also still 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.

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 stem from stronger than expected domestic price pressures in the euro area.

Turning to the monetary analysis, the annual growth rate of M3 decreased to 2.1% in June 2011, from 2.5% in May. Looking through the recent monthly volatility, M3 growth has broadly stabilised over recent months, after edging up until the first quarter of 2011. The annual growth rate of loans to the private sector declined to 2.5% in June, from 2.7% in May. Overall, the underlying pace of monetary expansion remains moderate. At the same time, monetary liquidity accumulated prior to the period of financial market tensions continues to be ample, and may facilitate the accommodation of price pressures in the euro area.

Looking at M3 components, the annual growth rate of M1 remained unchanged at 1.2%, whereas growth in other short-term deposits declined to 3.7%. The growth differentials continue to reflect in part the gradual increase in the remuneration of short-term time and savings deposits over recent months. At the same time, the still relatively 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, this impact is likely to be waning. On the counterpart side, the annual growth of loans to non-financial corporations continued to edge up, from 0.9% in May to 1.5% in June, whereas the annual growth of loans to households hovered over recent months around rates of slightly above 3%.

The overall size of MFI balance sheets has remained broadly unchanged over recent months. Where it is necessary to provide adequate scope to expand the provision of credit to the private sector, 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. In this respect, we welcome the EU-wide stress-testing exercise, which was prepared by the European Banking Authority and national supervisors, in close cooperation with the ECB. We also welcome the commitment made by national authorities with regard to the provision of support facilities for banks where private sector means are insufficient.

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 July 2011. The information that has become available since then confirms our assessment that an adjustment of the accommodative monetary policy stance was warranted in the light of upside risks to price stability. A cross-check with the signals coming from the 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. As expected, recent economic data indicate a deceleration in the pace of economic growth in the past few months, following the strong growth rate in the first quarter. Continued moderate expansion is expected in the period ahead. However, uncertainty is particularly high. For monetary policy, 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. At the same time, short-term interest rates remain low and financing conditions favourable. Thus, our monetary policy stance remains accommodative. We will continue to monitor very closely all developments with respect to upside risks to price stability.

Turning to fiscal policies, the Governing Council stresses the need for strict and timely implementation of the IMF/EU adjustment programmes in Greece, Ireland and Portugal. In addition, it underlines the importance of the renewed commitment of all Heads of State or Government of the euro area to adhere strictly to the agreed fiscal targets. For several countries, this requires announcing and implementing additional and more frontloaded fiscal adjustment measures. Those that enjoy better than expected economic and fiscal developments should make full use of this room for manoeuvre for faster deficit and debt reduction. The common aim should be to put public debt ratios and public finances on a sustainable path as soon as possible. As emphasised by the Heads of State or Government of the euro area, the inflexible determination of all euro area countries to fully honour their own individual sovereign signature is a decisive element in ensuring financial stability in the euro area as a whole.

The Governing Council also welcomes the renewed commitment of all Member States to improve competitiveness and address macroeconomic imbalances. Indeed, substantial and comprehensive structural reforms need to be implemented in the countries of the euro area in order to increase the flexibility of their economies and their longer-term growth potential. The removal of labour market rigidities and the implementation of measures which enhance wage flexibility, notably the elimination of automatic wage indexation clauses, are of key importance.

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: A couple of questions. How concerned are you by recent developments in the market? Taking a lead from your six months’ repo, one would assume that maybe you are concerned, especially vis-à-vis Italy and Spain, of course.

And secondly, have you got any plans to re-enter into the bond purchasing programme? So far, you have said that it is dormant, it is not dead. But we have not seen the ECB back in the market recently and, if not, why not?

Trichet: First of all, on the non-standard measures that I have mentioned, you will have a separate press release, as usual at 3:30 p.m., at the end of this press conference, which will give you the details of the measures we have announced, namely the prolongation for the fourth quarter of what we had decided for previous quarters, with the same concept, and a special longer-term, refinancing operation with a maturity of a little bit more than six months, as I have already indicated. We trust that this is appropriate in the present circumstances to make sure that we are up to ensuring a more normal functioning of markets. And we believe and have come to the assessment that, given the renewed tensions that we are observing in some financial markets, it was the right and appropriate response. There is nothing new there. All this, as you know, has been done in the past. So, the new decision of today is that we are prolonging measures for one quarter, for one additional quarter, and we have one six-month operation.

On the SMP, I myself have never said that it was dormant. I have always said that we are totally transparent on what we have been doing and – as you yourself have said – when appropriate, on the next Monday we would say what we had done in the previous days. So, I will leave it at that. It is an ongoing programme and you know and see that we are transparent. I have what I said at the press conference I gave in Brussels on 21 July, namely that there have been a number of non-standard measures, including the SMP. And all the non-standard measures – without any exception, as you know – are totally independent of our standard measures. The separation principle is absolutely key in the eyes of the Governing Council: standard measures designed to deliver price stability in the medium term, in line with our definition, and non-standard measures – when necessary and always commensurate with the degree of abnormal functioning of markets, or segments of markets – in order to help restore a more appropriate monetary policy transmission.

Question: Again on the SMP: did you discuss re-activating the SMP, the Securities Markets Programme? This is my first question.

The second is: given the current rise in yields on Spanish and Italian bonds since the EU Summit on 21 July, do you think that the right instruments are in place to stop contagion in the eurozone?

And my third question relates to your remarks on the economic outlook: you emphasised particularly high uncertainty, so does slowing in global growth and also in euro area inflation lessen the need for further interest rate hikes?

Trichet: On interest rate policy, you know that we are never pre-committed, and that we always decide on the basis of, what we judge to be appropriate for delivering price stability in the medium term, in line with our definition.

On the real economy, I had said for quite some time that the first quarter was really exceptionally buoyant and that we were expecting a progressive slowing-down. In my understanding, we will observe this slowing down in the second quarter, once we have the figures for the second quarter. And we will see what happens in the third quarter. It is true that we are going through a period of a high level of uncertainty, not only in the euro area, but at the global level. And, again, what I would say at the present moment is that, before making a further judgement, we should wait for the next meeting at which we will have the next projections and will see exactly where we stand, taking into account the new information that has come in. For the second quarter, all the information I have confirms ongoing growth, less buoyant than the first quarter. That being said, it will be a quarter with, I would say, significant growth. But, as I have said, there is uncertainty at the European and euro area level, and there is also uncertainty at the level of the world economy.

As regards the SMP, again, the SMP is fully transparent, so that you will see what we do, and we publish what we have done. I have never said that the SMP had been cancelled. I have never said that and, again, you will see what we do. We discuss the SMP at every monetary policy meeting. We always discuss the SMP in these meetings. Again, you will see what we have done; it is as simple as that. As regards the right instruments, what is absolutely key for the ECB’s Governing Council is that we are responsible, as I always say, for delivering price stability to now 332 million fellow citizens. We have done that in the past, and it is our own fundamental primary mandate. The democracies of Europe have given us that mandate – we are sticking to that mandate. The governments have their own responsibilities which are very numerous. They are responsible for their individual policies in all areas of policy that do not belong to the monetary policy domain. These policies include structural reforms, fiscal policies, the control of costs in general in the economy, decisions on their own public sector and so forth. And they also, collectively, have the immense responsibility of overseeing, and exerting appropriate controls over, the policies of each and every country – you know our message in this respect. I have to say that we have looked very carefully at what was decided at the last meeting of the Heads of State or Government. We have considered a number of decisions that were taken there, and we trust that what has been signed off by 17 Heads of State or Government will be honoured fully, rapidly and effectively. This is the working assumption of the ECB’s Governing Council in terms of guaranteeing stability, the financial stability, which is a responsibility of governments of the euro area. A number of decisions have been taken that are very important. I had mentioned those decisions in real time in Brussels immediately after the meeting. Of particular importance are the commitments undertaken, and I have mentioned that in the introductory statement: delivering on their fiscal policy, the improvement of governance and of the surveillance of various countries, the re-affirmation that they will all honour their signatures and the flexibility that they have decided upon regarding the EFSF and the ESM, given the various areas where they have decided to create additional capacity, including interventions on the secondary market through the EFSF which should, in our view, become operational as soon as possible.

Question: Just following up the last point about the statement of 21 July. Of course, that also included the deal on private sector involvement in the Greek rescue plan which has led to these contagion effects in other countries. I wonder if you think it’s too late for the euro zone governments to withdraw this private sector involvement and whether that would be a welcome development from your point of view.

Secondly, can you explain how you see the ECB working in future with the European Financial Stability Facility? Actions on the secondary market will be based on an analysis by the ECB. Can you explain to us how that’s going to work in practice? Are you going to be giving directions to the EFSF and is it going to be taking over some of the roles you’ve been playing recently?

And my third question, I just wonder if you could tell us how you understand what’s been happening in the financial markets in the last day or two. We saw a massive increase in the use of your deposit facility and today we have this response with the LTRO sixth-month and so on. Have you been seeing real serious funding problems from euro zone banks in the last 24, 48 hours?

Trichet: As regards the decision taken by the Heads of State and Government, as I said, we expect all these decisions to be executed, implemented fully, in all their dimensions and in a very effective and rapid fashion. That’s the working assumption of the Governing Council, which trusts the signature of the 17 heads. Voluntary private sector involvement in Greece is part of this decision, so when I say everything has to be implemented this part of the decision is included.

As regards the EFSF, it is a decision which I have accepted on behalf of the Governing Council that when the EFSF intervenes in a secondary market, it would be on the basis of an ECB analysis recognising the existence of exceptional financial market circumstances and risks to financial stability. So that’s clear. We have accepted that. It is something which we consider acceptable for us. Of course, what we expect is that the EFSF, which will have the capacity to intervene in the secondary markets, will be effective and efficient in its interventions. That would permit us not to have to intervene to help restore more appropriate monetary policy transmission.

As regard the financial markets, I would say that we have observed not only in the last half days, but over the last days this kind of liquidity issue, which combines a high level of liquidity with the absence of smooth market functioning. This is the mark of periods of tensions. It is the reason why we have taken the decisions that I just mentioned.

Question: You’ve mentioned these tensions in the financial markets. One of the justifications for the SMP programme was to restore the appropriate transmission of monetary policy. Why aren’t you using that tool, given these disruptions in the market? And can you maybe give us a flavour of how you define the transmission of monetary policy and if you’re comfortable with it in countries like Spain and Italy right now?

My second question is, the ECB is still warning about upside risks to inflation in its increased interest rates in the last few months. Other central banks, the Bank of Japan and the Swiss National Bank have taken easing steps in the last few days. The Federal Reserve and the Bank of England are expected to keep rates very low for a very long time. Is the ECB out of sync with other major central banks when it comes to its assessment of risks to the economy and inflation?

Trichet: On the first question, again, we are fully transparent. You will see what happens. I would not be surprised if, before the end of this press conference, you would see something in the market. Don’t exclude that. But no other comment.

As regards monetary policy, we are taking our standard measures exactly as I always say: we do what we judge necessary to be sure that we deliver price stability. We consider it extremely important to continue anchoring inflation expectations correctly. We consider it is very important for confidence, for stability in the euro area, confidence in the largest sense of the term, confidence of households, confidence of entrepreneurs and the economic agents and of course for the long-term financial environment and medium and long-term market interest rates. It’s very important in all respects in our opinion and, again, we do what we judge appropriate. Other central banks are placed in different environments, in different circumstances. I can see clearly that our Swiss colleagues, for instance, are not in our situation. And I never comment on policies that are pursued by other central banks. But one can see that not all central banks are in the same situation from this inflationary perspective and risk standpoint. Again, as far as we are concerned, you know, we have only one needle in our compass, it’s very clear and it is disconnected from the non-standard measures.

Question: Mr Trichet, traders are telling us at the moment that the ECB is on the market for southern European bonds. Can you confirm or comment on that action?

Trichet: I commented in advance it seems to me.

Question: As was just said, we might see something within the markets. If these purchases are confirmed next Monday…

Trichet: They will not be confirmed necessarily next Monday because there is the settlement date.

Question: Will these purchases remain on the ECB’s balance sheet or will they possibly be transferred to the EFSF at a later date?

You have mentioned the relationship between the EFSF and the ECB, with the ECB giving recommendations on bond buying. Could you give us some more details on that, whether these purchases will have the same objective as the SMP’s purchases, and will they have the same guidelines?

And a final question if I may, the recent issue in the US, with its debt problems – has it possibly tarnished the image of the dollar as a global reserve currency, do you think?

Trichet: First of all, on the SMP, it is a Eurosystem programme, so the purchases are on the balance sheets of the various members of the Eurosystem. We play a modest part at the ECB in this overall operation, but it takes place across the members of the Eurosystem team. There is nothing new there; this is the way it functions.

As regards the EFSF, it has been decided by the Heads of State and Government that it could intervene in the secondary markets on the basis of our ECB analysis, recognising the existence of exceptional financial market circumstances and risks to financial stability. That would be our contribution and I think it is extremely important. It is something that we had explicitly asked the various governments of Europe to do as part of the reinforcement of their own weaponry for the sake of the financial stability in the euro area as a whole.

As regards the US dollar, I have no other comment than the usual comment, according to which - to take the words of the US authorities - a dollar which is credible and strong vis-à-vis the other major floating currencies is good for the US and for the rest of the world. I do not depart from that remark.

Question: Firstly, were today’s decisions unanimous?

Secondly, were the decisions of the Heads of State and Government last month the “quantum leap” you often ask for in the economic governance of the euro zone?

Thirdly, we are now seeing all central banks giving more liquidity in the market; do you think that a new flood of liquidity in the world will solve all the problems or what more has to be done?

Trichet: As regards your first question I would say that the decision we took on monetary policy was unanimous.

As regards the “quantum leap”, you know that we had asked for a very important improvement in the surveillance not only of the fiscal policies but also of all the other economic policies, including the competitiveness indicators and the imbalances. We will have those two pillars for surveillance now, and what I understand from what was said by the Heads (at least those who were there) is that they will rapidly finalise their negotiations with the European Parliament in the “trialogue”. The “trialogue” is necessary to agree upon the secondary legislation, because you need several “keys” for that and in particular that of the Parliament. We have publicly said that we thought the governments were not going sufficiently far in the reinforcement of surveillance as regards the preventive part of the Stability and Growth Pact. I understand it is now their intention to go further in that direction. Of course, it has to be implemented in this “trialogue”. That is something that the Governing Council would consider positively. That being said, it is clear that we have the letter of the governance that we have today, we have the spirit of the governance that we have today, and we have governance tomorrow and perhaps the day after tomorrow. It is a process. We consider that strong, rigorous surveillance is essential particularly in a single currency area. It is absolutely of the essence. That has always been our line. We were very alarmed by the attitude of some governments at a certain moment, particularly in 2004 and 2005. Now we have the benefit of seeing what has happened since then. With the benefit of hindsight, everybody sees that it is absolutely necessary.

To answer your third questions we will not contribute to the flow of liquidity. As regards the SMP, as you know, we are always withdrawing the liquidity which is injected, so that we do not embark through that means in any quantitative easing. That is a concept that we have been applying since the very beginning and, again, I do not want to comment on the policies that are pursued by other central banks. In any case, I would certainly share the view that when you do anything, you have to look at the short-term, the medium-term and the long-term. If for a short-term benefit you are putting into question the medium- and long-term goals, you are not doing a good thing. And this is so visible in the fiscal area that I do not have to insist, but it is true in all areas. This is the reason why we are strictly separating standard measures and non-standard measures, and perhaps why we appear as taking different measures from others. But it is, for us, fundamental.

Question: On the potential bond purchases, I was wondering what the motivation was behind these purchases. Of course, you used to say that it helped to smooth the markets and enhance the transmission of monetary policy impulses, but isn’t there a danger that the ECB is sending a signal that it will not tolerate rates going over a certain point, say 6% for Italy or 6% for Spain, and that it is actually targeting bond yields? This will be priced in the market, and the perception will be out there that the ECB intervenes as soon as a certain threshold has been passed. Related to that, doesn’t this raise the possibility or the danger of moral hazard because the governments in these countries might count on the ECB instead of pursuing their reforms on the fiscal side?

Trichet: First of all, it goes without saying that the governments have to do their job. This is absolutely fundamental. So, again, we have the commitments made by the governments. We are following what they are doing. A number of them are subject to fully fledged IMF and European Union programmes, but we consider all the governance that exists to be absolutely fundamental and would like to reiterate this. It all depends on the governments being ahead of the curve, full stop. Second, the SMP: don’t expect me to say anything more than what I have said before. Since the very beginning of the SMP, I have never said anything, except that, if we intervene, we intervene. You will see what we will have done, and we will publish this information. I will not say any more on that. Let me just say that, as with all the other non-standard measures on the covered bond programme and what we have done before and are doing today as regards the refinancing on the basis of full allotment and at a fixed rate, everything is driven by the consideration of the fact that we are the central bank for 17 countries and that we have to observe monetary policy transmission in this very vast area, which is the size of the United States of America. All we are doing in this domain is helping to restore better monetary policy transmission, obviously in exceptionally difficult circumstances. Again, by far the first in a sequence of actions and the key for everything is for governments to be ahead of the curve in both their fiscal policies and their structural reforms. Structural reforms are absolutely of the essence. I know that, here and there, they are difficult. They might be politically difficult in our democracies. But they are paying off, and I have already given the example of those countries in the euro area that have been remarkably bold in terms of structural reforms, cost control and fiscal policies, and that are rewarded in such a brilliant fashion that they are, in our opinion, a role model for others.

Question: In which aspect, in detail, is the monetary transmission disturbed? Could you explain that?

Trichet: I do not want to go into too much detail because I spoke about that a year ago, as you may recall. There is nothing new. When the markets themselves do not reflect our monetary policy, then the monetary policy transmission mechanism does not function optimally.

Question: A lot of the focus on the Italian public finances lately is focused on prospects for stagnant growth and I was wondering if there is any concern that additional austerity or accelerated austerity at this point could actually be counterproductive for certain countries in terms of putting their public finances in order?

Secondly, I was wondering, given the rising global uncertainty and market turmoil, has there been any talk or is there any scope for some sort of coordinated global action to address either of those issues?

Trichet: We always have a very close relationship with our sister institutions everywhere in the world, in the industrialised world as well as in the emerging world. And that is an ongoing process. I think that the degree of mutual confidence is extremely important in this domain. As regards the overall situation in the countries that have to put their fiscal house in order, taking into account the confidence channel it is absolutely clear that it is certainly not in pursuing further fiscal deterioration that any growth will be gained. It will only deteriorate further the confidence of economic agents. That is absolutely obvious. It was perhaps more difficult to explain at a time when you did not see the confidence channel functioning. But when you see precisely how it operates, there is a clear demonstration that it is very important to embark on putting your house in order and implementing wise policies. As the point was made in the Governing Council’s Introductory Statement, having the appropriate structural reforms is also absolutely critical. Structural reforms enable more people to find work and permit more potential growth, and this is decisive. We have a very strong twofold message: the need for fiscal policies that are ahead of the curve – namely the need for adjustment – and the need for structural reforms.

Question: Mr President, do you think that Italy is ahead of the curve as far as structural reforms and fiscal reforms are concerned, especially after the measures which have been taken by the Italian government recently?

Trichet: We believe that all countries must always be ahead of the curve. And this is of course true for Italy as well as for all other countries. Particularly in the case of Italy, structural reforms appear to be very important, in addition to the absolutely necessary frontloading of the structural measures. But when the rate of growth is viewed over a sufficient period of time it is clear that the medium to long-term rate of growth does not correspond to the growth potential of a country where the human resources are so good and where the entrepreneurial spirit is so obvious in small and medium-sized enterprises and the fact that the Italian economy is hampered by structural impediments is absolutely obvious. Again, this is true for Italy and it is also true for many other countries.

Question: Excuse me, a second question: How urgent is it?

Trichet: It is urgent for absolutely all countries and for Italy of course.

Question: It has been reported that some Italian officials have started to consider whether, if the present rate of Italian refinancing costs remains, Italy might consider opting out of the second Greek bailout package. Italy is supposed to participate with the sum of €13 billion and actually, if they borrow at 6% and they loan at 3.5%, it would make no sense. Do you think that this would destabilise the EFSF as per the decision taken on 21 July?

Second, the recent agreement on debt by the government of the United States presents an innovation in terms of governance by appointing a special committee which will decide on fiscal policy – that’s taking fiscal policy away from constituency pressure. Do you think this is a welcome step by the United States in terms of helping global governance?

Trichet: On the first point, I have no information on that and I consider it would be a very extraordinary, bad decision. But I have absolutely no information and it seems to me absurd to be frank.

As regards the United States, of course I am happy that a solution has been found, and I had no doubt that a solution would be found. But all this underlines the fact that all advanced economies have their own problems, apart from a very few that had problems at the beginning of the nineties – I am thinking particularly of Canada and Sweden. Those that had experienced problems had drawn lessons from that experience and had protected themselves from the difficulties. But Japan, the United States and other large industrialized economies have very big problems. We were all practising benign neglect in the past and the advanced economies have to correct their own trajectories. It is not the problem of the euro area in particular – the paradox being that the euro area as a whole is better off in terms of public finance and the yearly deficit than the United States, Japan and other large advanced economies. The problem is that some countries in Europe did not behave properly, even though Europe as a whole is in a better situation than others. And that is the reason why we are so insistent on governance.

Question: I am very surprised by your justification of today’s bond purchase, because as far as I can tell, the traders are telling me the Eurosystem has only purchased Portuguese and Irish bonds, and they have not bought any Italian bonds. And Italy, we all know, has come under intense pressure, so why are you not intervening in the case of Italy if you say that you buy bonds to enhance the monetary transmission. Could you maybe elaborate on it?

Trichet: I have said that I have no further comments to add.

Question: I have two questions. First, you said the Governing Council has taken the monetary decisions unanimously. Does that include the decisions on the non-standard measures too?

Second, a lot of German politicians worry that the EFSF could give credits to countries without any clear conditions that the countries have to fulfil. Could you give us your view of in which circumstances the EFSF could give credits to other countries? Is it similar to the flexible credit line of the IMF?

Trichet: I can do nothing but read again the decisions of the Heads of State or Government. And there are two key criteria for the Heads of State or Government. One is our own analysis, recognising the existence of exceptional financial market circumstances and risks to financial stability. And the second is on the basis of a decision by mutual agreement of the EFSF member countries. Of course, they themselves decide on the basis of their own key criteria. We have key criteria and they have key criteria. And it goes without saying that they will make up their minds on what is appropriate and what is not.

On your first question, let me be very precise: we were unanimous in our decision on the standard monetary policy measure. We were unanimous on the overall full allotment with a fixed rate and all the decisions that will be published in just a few minutes. We were not unanimous but had an overwhelming majority in our decision on the operation regarding the bond purchase. Usually, on this particular element, the Governing Council has an overwhelming majority. So there is nothing new. The Governing Council is the decision-maker. In all governing councils in charge of monetary policy that I know of, I know that from time to time they have a decision by a majority. And we ourselves, according to our own rules, take our decisions by majority voting, as is the case in all other monetary policy councils or open market committees that I know of. And in our case, we have the Governing Council and we consider that it is the Governing Council which is pertinent.

Question: First of all, in terms of the central bank’s decision to hire an external adviser to advise on the Irish banks, was that done because you have become concerned about the ECB’s exposure to the Irish banks or about the continued use of ELA in the Irish system, and do you expect to see a change in strategy towards the Irish banks?

And then, secondly, do you have any concerns that the latest market turmoil around Italy will have any negative impact on the programmes already in place in Ireland and other countries that have programmes?

Trichet: I would say that if we have an adviser, it is in order to have the appropriate advice. There is no additional interpretation. We consider that it is the right way to proceed when there is important monitoring to be done, which is the case in Ireland. That being said, I would say that all the information we have on the implementation of the adjustment programme in Ireland suggests that it is going in the right direction. That’s what I can say on the basis of what we observe at present regarding the implementation of the adjustment programme.

Question: I would like to ask about the intervention in the forex market of Japan. Are you in support of that, and is it also the same recognition as the consolidated intervention in March? Is it critical or not? Is it some kind of critical movement or decision? How do you evaluate this decision?

Trichet: I will only say that we have a very clear position in the Governing Council of the ECB. We consider that such interventions have to be made on the basis of a multilateral consensus and a multilateral decision. That is our position. It’s a clear-cut position that we have always had. To my knowledge what has been done is not part of a multilateral decision.

Question: I have to come back to the EFSF. There is news that there is apparently a letter from Mr Barroso to the Heads of Government, in which he expresses that he is concerned that maybe the volume of the EFSF is not sufficient. Do you agree?

Trichet: I have no particular information on any letter. I have not seen the letter so I can only comment once I have seen it. At this stage, what I am asking on behalf of the Governing Council is that all the decisions that have been taken and published in Brussels are implemented fully and rapidly. This is of the essence.

Question: One question again about the EFSF. When the EFSF is in a position to start buying bonds on the secondary market – I just want to be clear – is that the end of the SMP or will you retain the possibility to reactivate that programme and perhaps even act in concert with the EFSF?

Trichet: We are never pre-committed. It is a part of our own rules as you know, and forms part of our own doctrine and concept. That being said, the working assumption is that the decision that has been taken is implemented fully and rapidly, and it goes without saying that if it is implemented fully and rapidly, it would eliminate the reason why we, from time to time, intervene on the bond market through the non-standard measures that I already explained. That is our working assumption.

Question: Was any of the economic uncertainty and market tensions of last week emanating from the United States? Did you observe any contagion from the United States because of the budget debate in Washington and the uncertainty that that created?

Trichet: It is clear that the entire world is intertwined and that there are interdependencies that form part of the overall global financial markets and the global economy. So what happens in the United States has an influence on the rest of the world. That is absolutely obvious and was seen by all observers, no doubt about that.

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