Ladies and gentlemen, dear President Trichet, dear Vice-President Constancio, welcome to the regional office of Bundesbank in Berlin where the ECB Governing Council held its 319th meeting earlier today.
It has become a tradition that twice a year the Governing Council meets outside Frankfurt with one of the Eurosystem national central banks acting as host.
This time it was the Deutsche Bundesbank’s turn, and I must say it has been an honour to welcome the Governing Council here in the German capital.
Before I give the floor to President Trichet I would like to use this opportunity to offer my sincere thanks to him. As you will be aware, today he chaired his penultimate Governing Council meeting and will be giving his final post-meeting press conference in a little while.
This monthly press briefing has been like a piano that you have played as masterfully as any professional pianist would. Over the past 8 years you have commanded this stage – usually in Frankfurt – to gently steer market expectations using a careful and deliberate choice of words to give clear messages to the markets.
I am certain that the corps of journalists will miss the typically French elegance with which you have chaired past press conferences.
Although I became a member of the Governing Council only recently I feel lucky and grateful to have had first-hand experience of your diplomatic but consistently focussed style of chairmanship.
As I already mentioned, you have been President of the ECB for 8 years, the last 4 years of which have proved very demanding.
It is no overstatement when I say, that, Jean-Claude has fought passionately and with tireless and unconditional conviction to overcome the European debt crisis.
What is often forgotten these days, are the achievements of the Eurosystem in the past decade. You would be right to point out that “we have delivered price stability for 330 million people”.
This is in large part thanks to your own personal efforts and I would like to use this opportunity to thank you on behalf of the Bundesbank and the other national central banks for the excellent job you have done over the past 8 years.
During your time living and working in Germany you have often stressed how fond you are of this country and its language.
I therefore hope that we will have the continued pleasure of seeing you in Germany again many times in the future.
But now, Mr. President, the floor is yours.
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Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference here in Berlin. Let me take the opportunity to warmly thank President Weidmann for his invitation and kind hospitality. I would also like to express our special gratitude to the staff of the Deutsche Bundesbank for the excellent organisation of our meeting. Let me now report on the outcome of today’s meeting of the Governing Council, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Rehn.
Based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. Inflation has remained elevated and incoming information has confirmed our view that inflation is likely to stay above 2% over the months ahead but to decline thereafter. At the same time, the underlying pace of monetary expansion continues to be moderate. Ongoing tensions in financial markets and unfavourable effects on financing conditions are likely to dampen the pace of economic growth in the euro area in the second half of this year. The economic outlook remains subject to particularly high uncertainty and intensified downside risks. At the same time, short-term interest rates remain low. It remains essential for monetary policy to maintain price stability over the medium term, thereby ensuring 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. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. A very thorough analysis of all incoming data and developments over the period ahead is warranted.
The Governing Council has decided to conduct two longer-term refinancing operations (LTROs), one with a maturity of approximately 12 months in October and the other with a maturity of approximately 13 months in December. The operations will be conducted as fixed rate tender procedures with full allotment. The rate in both operations will be fixed at the average rate of the main refinancing operations (MROs) over the life of the respective LTRO, and interest will be paid when each operation matures. These operations will be conducted in addition to the regular and special-term refinancing operations, which remain unaffected.
The Governing Council has 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 sixth maintenance period of 2012 on 10 July 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 sixth maintenance period (i.e. around the end of the second quarter) of 2012. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time.
In addition, the Governing Council has decided to conduct the three-month LTROs to be allotted on 25 January, 29 February, 28 March, 25 April, 30 May and 27 June 2012 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.
Furthermore, the Governing Council has decided to launch a new covered bond purchase programme (CBPP2). The programme will have the following modalities:
The purchases will be for an intended amount of EUR 40 billion.
The purchases will have the capacity to be conducted in the primary and secondary markets and will be carried out by means of direct purchases.
The purchases will start in November 2011 and are expected to be fully implemented by the end of October 2012.
Further details on the modalities of CBPP2 will be announced after the Governing Council meeting of 3 November 2011.
The provision of liquidity and the allotment modes for refinancing operations will continue to ensure that euro area banks are not constrained on the liquidity side. 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. Real GDP growth in the euro area, after slowing in the second quarter of 2011 to 0.2% quarter on quarter, is now expected to be very moderate in the second half of this year. In particular, a number of factors seem to be dampening the underlying growth momentum in the euro area, including a moderation in the pace of global demand, falling consumer and business confidence, and unfavourable effects on financing conditions resulting from ongoing tensions in a number of euro area sovereign debt markets. At the same time, we continue to expect euro area economic activity to benefit from continued positive growth in the emerging market economies as well as from the low short-term interest rates and the various measures taken to support the functioning of the financial sector.
In the Governing Council’s assessment, the risks to the economic outlook for the euro area remain on the downside in an environment of particularly high uncertainty. Downside risks notably relate to the ongoing tensions in some segments of the financial markets in the euro area and at the global level, as well as to the potential for these pressures to further spill over into the euro area real economy. They also relate to the still high 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 3.0% in September 2011, according to Eurostat’s flash estimate, after 2.5% in August. Inflation rates have been at elevated levels since the end of last year, mainly driven by higher energy and other commodity prices. Looking ahead, inflation rates are likely to stay clearly above 2% over the coming months but to decline thereafter. This pattern reflects the expectation of relatively stable wage growth developments in the context of moderate economic growth.
The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced. On the upside, the main risks relate to the possibility of increases in indirect taxes and administered prices, owing to the need for fiscal consolidation in the coming years. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally.
Turning to the monetary analysis, the annual growth rate of M3 was 2.8% in August 2011, up from 2.1% in July. The annual growth rate of loans to the private sector, adjusted for loan sales and securitisation, was 2.8% in August, after 2.6% in July. A number of factors, possibly related to the intensification of tensions in some financial markets, could have had an upward effect on the components of M3. In particular, sizeable inflows into overnight deposits and money market fund shares/units, as well as a substantial inflow into repurchase agreements, appear to have driven monetary developments in August. The inflow into repurchase agreements mainly reflected secured lending in the interbank market, which was increasingly settled via central counterparties that are allocated to the money-holding sector. Overall, M3 growth was driven in particular by the increase in the annual growth rate of M1 from 1.0% in July to 1.7% in August and the increase in the annual growth rate of marketable instruments.
On the counterpart side, the annual growth rate of loans to non-financial corporations and to households in August, both adjusted for loan sales and securitisation, remained unchanged from July, at 2.2% and 2.7% respectively. Taking the appropriate medium-term perspective, trends in broad money and loan growth have broadly stabilised over recent months. Overall, the underlying pace of monetary expansion thus remains moderate.
The situation of the banking sector calls for particular attention, taking into account the interplay between sovereign risk issues and banks’ funding needs. As we have done on previous occasions, the Governing Council urges banks to do all that is necessary to reinforce their balance sheets, to retain earnings, to ensure moderation in remuneration, and to turn to the market to strengthen further their capital bases. Where necessary, they should take full advantage of government support measures, which should be made totally operational, including the possibility in future for the European Financial Stability Facility (EFSF) to lend to governments in order to recapitalise banks.
To sum up, based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. Inflation has remained elevated and incoming information has confirmed our view that inflation is likely to stay above 2% over the months ahead but to decline thereafter. A cross-check with the information from our monetary analysis confirms that the underlying pace of monetary expansion continues to be moderate. Ongoing tensions in financial markets and unfavourable effects on financing conditions are likely to dampen the pace of economic growth in the euro area in the second half of this year. The economic outlook remains subject to particularly high uncertainty and intensified downside risks. At the same time, short-term interest rates remain low. It remains essential for monetary policy to maintain price stability over the medium term, thereby ensuring 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. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area. A very thorough analysis of all incoming data and developments over the period ahead is warranted.
Turning to fiscal policies, with financial market uncertainty remaining high, all governments need to take decisive and frontloaded action to bolster public confidence in the sustainability of government finances. All euro area governments need to show their inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole. Countries under joint EU-IMF adjustment programmes as well as those particularly vulnerable to financial market conditions need to unambiguously implement all announced measures for fiscal consolidation and the strengthening of domestic fiscal frameworks, and they need to stand ready to take any additional measures that may become necessary owing to the evolution of their situation.
Fiscal consolidation and structural reforms must go hand in hand to strengthen confidence, growth prospects and job creation. The Governing Council therefore urges all euro area governments to decisively and swiftly implement substantial and comprehensive structural reforms. This will help these countries to strengthen competitiveness, increase the flexibility of their economies and enhance their longer-term growth potential. In this respect, labour market reforms are key, with a focus on the removal of rigidities and the implementation of measures which enhance wage flexibility. In particular, we should see the elimination of automatic wage indexation clauses and a strengthening of firm-level agreements. More generally, in these demanding times, moderation is of the essence in terms of both profit margins and wages. These measures should be accompanied by structural reforms that increase competition in product markets, particularly in services – including the liberalisation of closed professions – and, where appropriate, the privatisation of services currently provided by the public sector, thereby facilitating productivity growth and supporting competitiveness. At the same time, the Governing Council urges all euro area governments to fully implement all aspects of the decisions they took on 21 July 2011.
Let me close with some personal remarks. This is my last press conference following a meeting of the Governing Council. I remember my first press conference, eight years ago, as if it were yesterday. I want to tell you that it has been a great pleasure to have this regular dialogue with the press, with all of you. We have, together, each of us with our different responsibilities, analysed the European and global situation throughout these years. We were never in calm waters. But for more than four years now, we have been experiencing turbulent waters, storms, unexpected hurricanes. In demanding times, regular, real-time and transparent communication is more important than ever. The channels of national, European and global communication which you are responsible for are crucial for the appropriate functioning of markets, for the correct understanding of economists and economic agents, and for the information of the people of Europe, our fellow citizens, to whom, as an independent institution, we are accountable. Eight years ago the concept of a press conference immediately after the meeting of the Governing Council was still considered a bold innovation. Today it is part of the global state of the art. And the Vice-President and I also have to thank you for that.
We are now at your disposal for questions.* * *
Question: In your introductory statement, you no longer describe the monetary policy stance as accommodative. Is it not? And in fact, have some of your colleagues already called for a rate cut this month?
And a second question is: Is the Governing Council unanimous and determined in rejecting the idea of leveraging the EFSF or the European bailout fund, ESM, by making it an ECB counterparty? Thank you very much .
Trichet: As I said, the Governing Council found short term interest rates to be low. The large number of decisions taken today are monetary policy decisions in the domain of non-standard measures to help restore a better transmission of monetary policy in circumstances in which we have markets that are not functioning correctly or segments of market that have been disrupted. As regards the decisions taken, we had a consensus.
For your second question: the Governing Council does not consider it to be appropriate for the ECB to leverage the EFSF. We believe that the governments have all necessary capacity to leverage the EFSF themselves.
Question: Mr Trichet, there were great expectations for a rate cut. I do not know where they came from – they seemed absurd. But, from today’s point of view, would you think that the chances for rate cuts have increased, decreased, remain indifferent?
And the second thing is: how urgent do you think we need a recapitalisation of the banks, in tandem with getting the ESM on track?
Trichet: On your first question: as you could see, we have two categories of monetary policy instruments at our disposal. We have what we call the ‘standard measures’ and we have ‘non-standard measures’. Standard measures are always designed to deliver price stability via interest rates and to make sure that we are credible in delivering price stability. At the moment, we considered that it was appropriate to leave interest rates where they are, taking into account also that interest rates are low and that we feel that, in so doing, we are fully credible in the delivery of price stability. Let me only mention that we are credible when you look at the past. We have delivered price stability, as Jens has just said, for 332 million of our fellow citizens, a price stability that is in line with our definition and is better than it was over the last fifty years before the euro. And for the future, we are equally credible with respect to delivering price stability over the next ten years. The break-even inflation rate five years forward/forward is a good measure of our credibility and stands, at a level around 1.8%, so that it is fully in line with our definition. And that is extremely important. It permits related expectations in Europe to be solidly anchored, which is good for sustainable growth and job creation. As regards the non-standard measures; we were particularly keen to take the appropriate ones. We decided on two longer term (12- and 13-month) refinancing operations with fixed rates and at full allotment. We decided to prolong the concept of full allotment at fixed rates for the one-week, one-month and three-month refinancing operations, and not only for the current quarter and the first quarter of next year, but also for the second quarter of next year. Furthermore, we decided to embark on covered bond purchases. This gives you an idea of the magnitude of the decisions we have taken for monetary policy purposes in order to help restore a better transmission mechanism for our monetary policy.
As concerns recapitalization, we have been very clear on the necessity of reinforcing the balance sheets of the banks by various means. This includes putting aside earnings, being moderate in the field of remuneration, turning to the private sector for a reinforcement of the balance sheets and recapitalisation, as well as, where necessary, going to the backstop of the governments, including the EFSF possibility which has been offered after the meeting of the Heads of State or Government on 21 July.
Question: First, you said that you see risks intensifying for the economic outlook, so did you at least discuss cutting interest rates as an option for the coming months, maybe next month?
Second, given this worsening economic outlook, then I would like you to clarify whether or not the decisions on the covered bonds, liquidity provision and interest rates were all unanimous?
Third, I have a question for Mr Weidmann: There has been some discussion about unburdening the EFSF with the bond buys; would that alleviate your concerns about the Securities Markets Programme?
Trichet: With regard to the first question; as always we had a long discussion on the pros and cons of all the decisions that we could take. We discussed the pros and cons of decreasing rates, as well as the pros and cons of maintaining rates. After this thorough, complete, comprehensive and long discussion, we decided by consensus to maintain rates. In addition, with regard to the non-standard measures, we also had a long discussion on the pros and cons of each particularity of these various non-standard measures. You can see that these are very important measures to help restore a better transmission of our monetary policy, because for us the main concern was to ensure that our own decision on the standard measure would be correctly transmitted to the full body of the euro area, to its 332 million citizens. After having weighed up the pros and cons we decided by consensus to take the measures that were taken.
As for the third question, perhaps I could give the floor to you, Jens.
Weidmann: I can be pretty brief on this, as the Bundesbank position in general is known – the sooner the EFSF manages to address the root causes of the problem, the better it is!
Trichet: And, as you have seen, the Governing Council decided to again urge governments to apply all of the decisions taken on 21 July.
Question: Mr Trichet, you will be missed. In the light of what you were saying about transparency and the messages to the market that were also mentioned by Mr Weidmann, do you feel that it would be wise for the ECB to release the minutes of the Governing Council meeting and further specifics of your operations in specific countries? Would this enhance the messages to the market and constitute the transparent operation that you favour?
Trichet: Right at the very beginning of the set up of the ECB we decided that, given the very nature of this institution, which issues currency for 17 countries, it was extremely important to concentrate on the one pertinent entity, namely the Governing Council of the ECB, which decides for the 17 countries. After due consideration we decided that it was much better and necessary for us in our particular situation – which is not that of the United States, the United Kingdom, or Japan, which all issue a currency for one country – to be extremely transparent. This involved providing, in real time, the Introductory Statement, which communicates the sentiment of the Governing Council to the media and to our fellow citizens. Immediately after the Governing Council meeting, we also stand ready to respond to questions from the press. These were new concepts, but they have now spread world over – thanks also to the journalists at the press conference: and we are proud that this concept appears to be state of the art. In response to your particular question, we believe that the Introductory Statement gives you the pertinent information, namely the basis of the decision of the Governing Council. We do not think that providing additional information on the individual positions would be in line with the fact that we are the central bank for 17 sovereign countries and for 332 million people, and therefore each of us conveys the position of the Governing Council as a single entity.
Question: I’d like to ask how you respond to those critics of the ECB who say that the ECB should make a commitment to purchasing government bonds, especially given the fact that the EFSF has still not been ratified, so there is a risk that it might not be ratified and also that the EFSF might not be of an adequate size to put a firewall around Greece and the other countries that are under programmes at the moment?
Trichet: First of all, we have already said that our working assumption is that what was signed by those 17 Heads of State or Government is implemented. If it were not the case, we could not work. Second, the SMP is ongoing, and we do expect that the EFSF will be up and running as soon as possible, with the capacity to intervene on the secondary market, which is one of the very important decisions of 21 July. I would add that it is extremely important that governments implement what they decided and demonstrate that they are indeed doing what is necessary to preserve financial stability. We cannot replace governments. We have lived up to our responsibilities in full in difficult times. We stand ready to live up to our responsibilities in full today. Don’t think that the decisions that we took today are not extremely important – including the longer term refinancing operations, one of which has a maturity of more than 13 months, so that it covers the end of 2012. All of these are very important decisions.
Question - French : Pour fêter votre départ, une petite question en français M. Trichet. Vous n’avez pas le sentiment de laisser la zone euro au bord du gouffre puisque la question qui se pose, et que les citoyens se posent, et que les marchés se posent manifestement, est de savoir si l’euro existera encore dans 10 ans?
Puis je profite aussi de la présence de M. Weidmann, parce que ce n’est pas tous les jours qu’un Français peut poser une question au président de la Bundesbank. Vous avez dit récemment que vous étiez opposé, tout comme votre prédécesseur, au programme de rachat d’obligations sur le marché secondaire parce que la crise n’était pas assez grave. Je voudrais juste savoir ce que vous entendez par une crise grave, si la crise actuelle pour vous n’est pas assez grave. À quel moment vous perdez le sommeil à la Bundesbank?
Trichet - French: Depuis le début de la période de turbulences, la Banque centrale européenne est intervenue de manière inédite. Le 9 août 2007, nous avons pris pour la première fois la décision de donner de la liquidité à taux fixe et sans limites, et cette décision a marqué d’ailleurs le début de la crise, le début de la période de turbulences. Nous n’avons jamais sous-estimé la gravité de ce que nous étions en train de vivre. Nous avons dit, et j’ai répété au nom du Conseil des gouverneurs, après la banqueroute de Lehman Brothers, que nous étions dans la crise la plus grave depuis la Seconde Guerre mondiale, qui aurait pu être la crise la plus grave depuis la Première Guerre mondiale. Donc, les événements que nous vivons sont difficiles, exigeants et ils appellent de la part de toutes les autorités des réponses qui soient à la mesure des défis. C’est ce que nous essayons de faire et c’est ce que nous pensons que les autorités doivent faire, qu’il s’agisse des exécutifs, des Parlements, des autres institutions européennes. Les temps sont difficiles. Nous devons tous être à la mesure des défis qui nous sont lancés.
Question – English translation : In honour of your departure, a quick question in French. Mr Trichet, do you not feel that you are leaving the euro area on the edge of the abyss, since the question that people are asking themselves, and that the markets are clearly asking themselves, is whether the euro area will still exist in ten years’ time?
And I’d also like to take advantage of the presence of Mr Weidmann, as it’s not every day that a Frenchman can ask the President of the Bundesbank a question. You said recently that, like your predecessor, you were opposed to the programme of bond purchases on the secondary market, as the crisis was not sufficiently severe. I would just like to know what you consider to be a “severe crisis”, if the current crisis is not, for you, sufficiently severe. At what moment do you begin to lose sleep at the Bundesbank?
Trichet – English translation : Ever since this period of turbulence began, the European Central Bank has always intervened immediately. On 9 August 2007 we took the decision, for the first time, to provide unlimited amounts of liquidity at a fixed rate, and this marked the beginning of the crisis, the beginning of the period of turbulence. We never underestimated the gravity of the situation we have faced. We said – and I have said this repeatedly on behalf of the members of the Governing Council – that we faced the worst crisis since World War II, and that it could have been the worst since World War I. The events that we are dealing with are difficult and challenging, and they require that all authorities respond in a manner which is consistent with the scale of the challenge. That is what we are trying to do, and this is what we are asking all other authorities to do, be it the executive branches, parliaments or other European institutions. These are difficult times. We all have to be up to the challenge.
Weidmann: I am very grateful that you don’t expect me to reply in French, because my French is getting a bit rusty.
Trichet: I have to say, his French is fantastic!
Weidmann: I don’t want to put it to the test today. I will just try to answer in very abstract terms, because this is not an issue that we discussed today, and I think we should focus on the decisions that were discussed by the Governing Council today. I mean, a judgement on the use of a specific instrument is based first of all on an analysis of the situation. This is what you are referring to. But second, it is also based on the efficiency of the specific instrument. And I think I will leave it at that, without elaborating further.
Question: A couple of questions. Firstly, you say that the decision, well all the decisions in fact today were taken by consensus, which, if I understand the concept of “ECB consensus”, means that there were quite a few voices against or making alternative suggestions on interest rates and non-standard measures. You have explained why you do not publish the minutes, but I think it would be useful, in the interests of transparency, for the world to know roughly how many people were in favour of an interest rate cut, for instance, today?
Secondly, bank recapitalisation. I am sure the ECB has done its own sums. We have had published figures from the IMF. We have had published figures from the EBA based on stress tests or capital needs. What is the ECB’s rough assessment of the amounts of extra capital required by eurozone banks?
And thirdly, seeing as this is your last press conference, I would just maybe ask you – you were one of the founders of the euro, you helped write the Maastricht Treaty, you have lived through the “storms”, as you said, of the last four years – on this day, as you leave, do you feel a little bit of disappointment perhaps about the degree of solidarity and the sense of unity amongst European leaders today?
Trichet: First of all, as you very rightly mentioned, we qualify the way we take decisions by observing that there was unanimity, consensus or majority vote. As you know, according to the Treaty and as an executive institution, the European Central Bank takes its monetary policy decisions by simple majority. I have to say, however, that most often we decide with either unanimity or by consensus. But everything is possible. In the present case, I would say that all of us reflected on the pros and cons of decreasing or maintaining rates and we considered, taken everything into account, that it was better to maintain rates as they are. We did exactly the same analysis of the pros and cons of the non-standard measures. We are a central bank which issues a currency for 17 countries and we had to consider that there is a serious problem of the transmission of our monetary policy decision because financial stability is not ensured at the level of the euro area as a whole and because we have a number of countries which have their own ‘risk-free’ benchmark rates at levels that are quite different from country to country. So, taken everything into account, and having weighed up very thoroughly the pros and cons, we took our decision by consensus. But I draw your attention to the extreme importance of the non-standard measures that we took today.
As regards the capital of the banking sector, we have not devised an amount of money which would be necessary. I do not think that having such a figure is of importance. What counts is that each particular commercial bank, each particular financial institution, is up and running with the appropriate credibility vis-à-vis its own environment. That calls for decisions that are not alike everywhere and global figures do not really represent what is appropriate. I can give you an example (amongst others). When you compute the potential losses or potential profits that might be registered by the various banks, depending on the various securities they have, you arrive at figures that might be very different. Interest rates have been up for some securities and down for others. And when you compute the full addition for the euro area as a whole, you get figures that might be very different, depending on whether you do or do not take into account the cases where the credible securities have seen their value increase. What we are saying is very clear: do all that is necessary. Of course, we do not have the executive responsibility: it has to be done through the European Banking Authority (EBA) at the level of the euro area as a whole, by the various national supervisors and, when necessary, you have the backstops. I have confidence in the EBA to implement what is necessary. You know that we had an ESRB meeting recently, followed by a press communiqué which was also very clear on this point. But again, the strong call to the banks and to all the responsible entities is very clear.
On your question about the present situation, let me first say that we should not confuse the euro as a currency with the issue of the difficulty of preserving financial stability in the euro area as a whole. The euro as a currency has delivered price stability, as I said and as Jens said, better than was the case during the last 50 years before the euro. That is a fundamental feature of the euro which is backing its credibility. Second, the euro is credible according to the markets and according to the information we extract from the markets for the next ten years. It is credible for keeping its value. You can see what other countries and other central banks have been doing, mentioning en passant the Swiss Central Bank. So, one should avoid this confusion between the euro as a currency and the issue of financial stability in the euro area. We are very proud to have issued the euro as a currency almost 13 years ago. The real difficulty, namely preserving financial stability in the euro area as a whole, is due to a very simple reason: governance has been insufficient. Governance was insufficient and, at certain moments, governance has been put into question by the major countries of Europe. We had to fight to maintain the Stability and Growth Pact. We had to fight to obtain the reinforcement of the Stability and Growth Pact to introduce the surveillance of competitive indicators and imbalances inside the euro area. You know that our position is constant. I was before the European Parliament only a few days ago. I could refer again to what I said in my first hearing in Parliament eight years ago, which was to warn against any weakening of the Stability and Growth Pact and to warn against any loose policies on the fiscal side. That was eight years ago and four years before the start of the financial turbulences!
Question: In the past 18 months during the debt crisis in the eurozone there has been a disagreement in principle between the German representatives on the Governing Council and the majority of the Governing Council on the SMP programme, with two members resigning. I was wondering if now, as you leave, you were worried that Germany, as the largest economy in the eurozone, has put itself in a sort of “dissident” corner on this issue in the eurozone?
And secondly, I was wondering if, upon leaving, there is anything that you regret yourself or the ECB doing or not doing during your term. Or do you take the same line as Edith Piaf, who famously sings “Je ne regrette rien”?
Trichet: Now that you implicitly mention Jürgen, let me say that Jürgen Stark has been devoted to Europe and the European construction for 18 years. I have immense esteem and respect for him. He has taken his decision for personal reasons. He has always been incredibly dedicated to Europe, loyal to the institution and to Europe. Again, I have immense esteem and respect for Jürgen and, I also have to say, a great friendship with him.
As regards our decisions, all our decisions are difficult to take, particularly when times are very demanding. All the members of the Governing Council – we are 23 of us at the table – are fully aware of the responsibility. I am confident that, when we look back at what has been done, we will see that we were trying to do our best in a very difficult environment and in an environment where governance was not at the level of what was required. Ever since the problems on 9 August 2007, we, at the level of the Governing Council, have been lucid in our judgement. We said, “This is very grave”, when many were saying “No, it’s not grave, it’s not a big deal”, etc. We have the responsibility of delivering price stability and being credible in that delivery! And t we also have the responsibility of passing the appropriate messages to all other partners – governments, parliaments, public opinion – and we try to do that. It’s not easy. And, from time to time, we are passing messages that are difficult. But it is our duty. This is also because, in Europe, not many have an opportunity to see the big picture: to have the picture of Europe as a whole and also the picture of Europe’s position in the world. We have a responsibility and an angle of vision which permit us to have the big picture. And it’s our duty to relay what we see to those responsible in other domains.
Question: The amount of the new programme of buying government bonds you have decided today seems a bit small compared with what the Bank of England has decided today. If you compare the population and the market of Great Britain with the euro area, have there been any discussions to make it higher, to come to a higher amount, in this decision today?
Trichet: As you heard, we have decided to embark on a programme of covered bonds – these covered bonds are issued by banks and backed by collateral, not by the sovereign. As regards the SMP, it is an ongoing programme, and we publish the figures every week. The covered bond programme that we have decided on today is of the same nature as our first covered bond purchase programme (which ended in June 2010). We will announce the exact technical details later on, but this is not to be confused with the SMP.
As regards the comparison between the central banks, I used to make the comparison with the US Federal Reserve. If you take the balance sheet of the ECB and the balance sheet of the Federal Reserve – I am talking about the ECB plus all the central banks of the Eurosystem so that we have the consolidated balance sheet of the Eurosystem – you will see that, since the start of the crisis, our balance sheet has increased by 77% and the balance sheet of the Fed has increased by 226%. This figure, of course, has to be permanently updated. But it gives an idea of what we and what other central banks have been doing in this respect.
Question: As you are mentioning the balance sheet, it brings me to another question: there is always talk about the risk in the balance sheet of the ECB because of buying bonds of countries which are risky. You are a very good communicator, so why do you never communicate that you are buying these bonds at a very low price, at the market price, so the risk in your balance sheet is quite low?
Trichet: We will recruit you as Master of Communications! I have already responded in terms of volume and, frankly speaking, I think that all the observations about the risks taken do not seem appropriate. We are very careful in what we are doing and always try to have a good way of handling very difficult situations. I mentioned the size of the balance sheet and its increase. It goes without saying that we apply risk management as attentively and cautiously as possible.
Question: Mr President, first, did I hear correctly that you have advised governments to leverage the EFSF themselves? Are options being looked into for doing this maybe in a coordinated manner, but nationally?
Second, there is an international organisation advising banks, advising governments to oblige banks to recapitalise. Would you support this?
Third, what do you have to say to those suggesting that the ECB is going beyond its mandate? Would you maybe answer that we are living in a state of emergency?
Trichet: First, when the EFSF was decided on, we did indeed call on governments to leverage the EFSF as much as possible in order to ensure financial stability.
Second, I said very clearly that banks should reinforce their capital base, and we rely on the EBA and the decisions taken at the level of Europe as a whole to ensure that they do that in the best fashion possible.
With regard to your last question, I have already said that it is our duty to convey messages. We are not, cannot be and do not want to be a substitute for other institutions, be they European or national, or governments or parliaments. We only convey messages. These may or may not be listened to, but it is our strong duty to pass on what we see and what we think, given our responsibility and the angle from which we can view the situation. It is certainly not to be qualified as going beyond our mandate.
Question: You mentioned before that half of your term has been characterised by turbulence in the markets and the financial crisis. What do you think it will take for the crisis to reach a conclusion? You have already extended some of the crisis measures through to next year. What will it take to end the turbulence?
I also just wanted to return to a question that my colleague asked before: do you have any regrets about the last eight years, either from the ECB’s standpoint or from the governments’?
Trichet: As regards your first question, we are experiencing a global crisis. From the very beginning, we could see that it was going to be a major global crisis with a lot of structural changes. I myself and all my colleagues have been asked: “Is it over?”, “Are we now in calm waters?”, “Do you think that we are well on the road to returning to normality?” Of course I was very careful to avoid responding to such questions. Instead, I would say: “It is an ongoing process. We have to be up to the new challenges that are largely unpredictable, let’s continue to be permanently alert, “credible alertness” is of the essence.” It is clear that we are experiencing a major structural change at the level of the global economy and finance, which is an ongoing process that requires considerable adjustment in the advanced economies. And not surprisingly, for the first time since World War II, the crisis is very much concentrated in the advanced economies – the United States, Japan, Europe – and we all have to try to adjust in the best fashion possible. It is not a short-term phenomenon.
Question: First of all, given the recent events in Greece this week, where it now looks likely that Greece will get its bailout without meeting its targets and that holders of Greek debt might take an additional haircut, do you have any fears that this will then cross over to the other bailed-out countries – that they may think they can also get their cash without meeting their targets? Is there an argument for putting haircuts on the debt of the other bailed-out countries?
Second, do you feel that the ECB’s role in the Irish crisis has been well understood by the people of Ireland, and what would you say to people who think that the ECB has maybe been too harsh on Ireland, particularly in relation to the repayment of senior bank bonds?
Trichet: On the first question, it is a work in progress. We are calling for all decisions to be implemented fully, expeditiously and comprehensively, both by the government of Greece and by Europe as a whole. And it is a work in progress. The troika is on-site in Greece: we will see its report.
On Ireland, I have already said on similar occasions that the ECB and the Eurosystem had been very forthcoming vis-à-vis Ireland, as all figures are demonstrating, extraordinarily forthcoming. That being said, I also have to say that Ireland is doing a very good job, and that the credibility of Ireland is visibly improving, month after month.
Question: Did you discuss whether there is a limit for the Securities Markets Programme, i.e. is there a limit to the amount of bonds you can buy?
Second, when the ECB was set up, it was said that there was “a lot of Bundesbank” in the ECB in terms of the monetary analysis, its independence, the idea of not financing governments. If we compare the situation at your first press conference eight years ago with today how much of the Bundesbank would you say was in the ECB in 2003 and how much is left today?
Trichet: As regards your first question, we have not discussed limits.
Second, the euro area is made up of 17 countries and 332 million people. In France, I was considered the ‘clone’ of my friend Hans Tietmeyer and I was, I have to say, very proud when after five years of the Banque de France’s independence, we had an average yearly inflation which was a little bit below the Bundesbank’s at that time. But it was also in a period which was difficult for the Bundesbank, because it was after reunification, so I do not take too much pride in that! We are fully respecting what the people of Europe have asked of us, and the people of Europe have asked us to deliver price stability. It is our primary mandate. And we have to deliver price stability. Have we delivered price stability? Yes! We have delivered price stability for the 332 million fellow citizens. Have we delivered price stability in Germany? Yes! 1.55% over the first 13 years as a yearly average (the 13 years are not yet fully complete). Are we credible in delivering price stability over the next ten years? Yes! So, we have all really been as faithful to our mandate as we can be. These are not words, these are deeds! And on top of that, we have had to cope with the worst crisis since World War II. And that is also something which calls upon us to do what we have judged appropriate to do and also to convey messages that are not easy to convey and, from time to time, may seem a bit harsh to the destinatories.
Question: You have alluded several times to the fact that the EFSF may take on the job of purchasing government bonds after it is up and running. I wonder if you could tell us if the ECB may continue buying government bonds after the EFSF is up and running, considering that you have explained these purchases many times as an instrument for securing the proper functioning, or proper transmission, of monetary policy? So this need may arise even after the EFSF is up and running.
My second question is related to the letter that you sent, together with your colleague from the Bank of Italy, to the Italian authorities: do you feel that the things and the message that you sent them have been fulfilled so far?
Lastly, I wanted to ask you if you have any advice that you can share with us, besides the ample advice that you will give your successor in private when he is installed next month?
Trichet: On the first question, we have been very clear since the very beginning. We said that we expect the governments to be responsible for restoring financial stability, both individually through their own decisions – and it is of course always the first responsibility of the country itself – and then through the collegial decisions taken by the various governments. When financial stability is preserved by Governments, we do not have the problem of helping restore a better transmission of monetary policy. So our working assumption is very clear. The governments take the responsibility of restoring financial stability and we do not have to help restore a better transmission mechanism. That is very clear and was very clear when we saw the decision of 21 July.
As regards the letter; we are not negotiating with anybody. We see things that are important, we make a judgement, we send messages – on the level of the Eurosystem as a whole – and we look at what was decided. Some decisions were taken in principle, then a challenged, then finally implemented. This is work in progress because there are many other measures. You have seen that we insist very much on structural measures that increase the growth potential of the euro area as a whole and of each particular national economy. This really is of the essence.
And as regards Mario, I would say that he knows better than anybody how we work. He is one of us. He took all the decisions with all of us. I do not think he needs any particular counsel. He knows very well how the Governing Council functions and is totally dedicated to our primary mandate, as we all are.
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