ECB Press conference: Introductory statement

Willem F. Duisenberg, President of the European Central Bank

Ladies and gentlemen, as in previous months, the Vice-President and I are here today to report on the outcome of today's meeting of the Governing Council of the European Central Bank. The number of items considered by the Governing Council required a full-day meeting. Most of the items on the agenda were of a rather technical nature or were related to the legal implementation of decisions already taken at previous Governing Council meetings. Part of the meeting was attended by Mr. Edlinger, President of the EU Council, and by Commissioners de Silguy and Monti.

Let me first turn to the Governing Council's in-depth discussion on recent economic, monetary and financial developments.

Starting with the global macroeconomic environment, it was felt that the spiral of bad news has not continued over the most recent weeks. Also, when looking at market developments, we have observed a strengthening of the US dollar vis-a-vis euro area currencies since its trough in mid-October. We have seen a recovery in global stock markets and we have also witnessed some upward correction of long-term bond yields after they had fallen sharply as a result of a "flight to quality". However, markets displayed considerable volatility during the month of October, reflecting the uncertainty prevailing in the world economy.

Whether or not we can now expect a process towards more normal conditions remains to be seen. Given the underlying causes of the adverse conditions in Asia , Russia and other parts of the world, a quick resolution is in any case not very likely. Moreover, it is by now quite clear that the world economy will suffer from these developments in 1999 and that the euro area will also be affected to some extent.

However, the crucial and widely debated issue is the degree to which such effects on the euro area will materialise and how long they may last.

As matters stand, there appears to be consensus that euro area economic growth will slow down to some extent in 1999, driven largely by a weakening in net exports. In its latest forecast, published on 21 October 1998 , the Commission has revised downwards aggregate euro area real GDP growth to 2.6% in 1999, compared with the increase of 3.2% projected earlier this year. According to the same source, the slowdown is expected to be only temporary and real GDP growth is anticipated to strengthen again in 2000, with the contribution of net trade improving. At the same time, the outlook for inflation in the near term remains generally favourable, assuming continued wage moderation and subdued developments in import prices.

In today's discussion, the Governing Council agreed to examine further the broad outlook for the euro area at its two meetings in December. In this context, we shall thoroughly discuss the downside risks for output growth resulting from the evolution of world trade and from international financial tensions and the possibility of still more subdued price developments. However, one should also mention the fact that a relaxation of fiscal policies and higher wage increases could lead to a reversal of current developments in consumer prices and undermine confidence. Any uncertainties arising in these two fields would of course considerably complicate our assessment, given the high degree of uncertainty already associated with the developments in the global economy.

With respect to today's review of the monetary, financial and macroeconomic situation in the euro area, the following aspects were discussed.

First, with reference to monetary growth, let me recall that when looking at various definitions of broad money, our preliminary data show broadly similar and stable annual growth rates of between 3 and 5% in 1997 and the first half of 1998. According to our initial analysis these monetary trends do not appear to signal inflationary pressures at this juncture. However, a further assessment will be made in December on the basis of more up-to-date information.

Second, with respect to price developments, euro area HICP inflation fell from 1.2% in August to 1.0% in September 1998. The generally low level of HICP increases mainly reflects a decline in energy prices, which were almost 4% lower in September than a year earlier, and in other commodity prices; in addition, price pressure as indicated by industrial output prices and unit labour costs has remained modest. With respect to the decline in HICP inflation in September, this is closely related to a relatively strong fall in food prices (from 1.8% in August to 1.4% in September 1998), which account for almost one-quarter of the total HICP. Such monthly changes are certainly very difficult to interpret. However, I may point out that food prices display a larger degree of volatility owing to their seasonal pattern.

Third, taking into account distorting factors such as calendar effects, underlying developments in euro area-wide real GDP have remained fairly stable. Economic expansion was broadly unchanged in the first half of 1998 from the solid growth seen in the second half of 1997. Also, at this juncture, data partly available for the summer months point to the possibility that recent rates of output growth may be broadly sustained beyond the first half of this year. While the trends appear in some cases weaker, particularly when also looking at some national data, the latest euro area-wide survey data on confidence, order books and capacity utilisation generally remain well above their long-run averages. However, further developments in these data will have to be monitored closely. Concerning the assessment of the monetary policy stance in the euro area, the Governing Council - after having carefully reviewed all factors and developments - confirmed the view taken at its previous meeting. It considered further interest rate convergence towards the lower end of the current range prevailing in the euro area as being appropriate. Measured by key central bank rates, the lowest rates in the euro area currently stand at 3.3%. Market interest rates have also reached very low levels. In terms of three-month interest rates, the euro area average rate has fallen to 3.75%, following the reduction of interest rates by a number of euro area central banks. With the announcement today of further interest rate reductions by the Banco de Espana and the Banco de Portugal, both effective tomorrow, the euro area average will continue its downward trend. Nominal and real long-term interest rates for the euro area are at historically low levels. It confirms the high degree of confidence that the euro has gained in the judgement of the general public and of global investors. This confidence is a major asset in the consolidation of a financial environment conducive to growth.

As has been proven in many instances in the past, monetary policy cannot solve structural problems. Indeed, monetary policies in the euro area countries have increasingly converged over the past few years and resulted in low levels of interest rates. Several countries have followed virtually a "common monetary policy stance" over a longer period, but performances - for example in labour markets - within the euro area differ considerably from country to country. The degree of success in this area seems to be closely related to structural reforms implemented in earlier years.

I am confident that we can cope both with current problems and with future challenges. This requires a forward-looking, medium-term-oriented monetary policy, which keeps inflationary expectations low. This is the decisive contribution of monetary policy to the fostering of growth and employment. Dealing with structural problems is the task of policies other than monetary policy.

Let me now give the floor to the Vice-President to report on various aspects of the preparatory work for Stage Three.

(a) Preparations for the "changeover weekend"

With less than 60 days to go before the start of Stage Three, we are obviously attaching particular importance to the provision of a framework allowing for a smooth changeover to the euro. We began our preparations a long time ago and I am confident that the ESCB will be in a position to deliver its entire complex infrastructure to the markets by the morning of 4 January 1999 . I expect the banking and financial community in the euro area to be fully aware both of the logistical challenge that the changeover weekend represents and of the need for careful preparation. Given the concentration of migration operations to the euro to be conducted by a multitude of financial agents (i.e. payment systems, securities settlement systems, custodians, individual banks, exchanges and financial information providers) in the period from 31 December 1998 to 4 January 1999, the ESCB is preparing to work together with other public authorities to orchestrate the necessary policy responses to any unexpected events. To this end, the Governing Council has set up an ad hoc "Changeover Weekend Committee" which will organise the monitoring of developments vis-a-vis the final migration to the euro within the ECB and the national central banks and in the banking and financial industry, both prior to and during the changeover weekend.

Additional details on the preparation of the changeover weekend are provided in a separate press release which is to be issued to you this evening.

(b) Payment systems issues

With regard to euro payment and settlement systems, I should like to draw your attention to recent developments which suggest that many market participants consider the euro as a special currency to which the traditional rules applied elsewhere in the developed world would not necessarily be applicable. Initiatives were taken, or allowed to develop, that have no precedent in the arrangements concerning other currencies. This relates in particular to the granting of payment finality and intraday credit in a currency other than a country's own. Therefore, the Governing Council considered it appropriate to issue a policy statement clearly spelling out the fact that the rules which apply to all of the other currencies in the world will also apply to the euro, and that the ECB bears the same responsibilities as all the other central banks in the world.

This policy statement on euro payment and settlement systems located outside the euro area is to be issued to you this evening.

The Governing Council also agreed on the main features of the legal framework within which the TARGET system will operate. These main features are set out in greater detail in the "Third progress report on the TARGET project", which the Governing Council endorsed today. In common with previous progress reports, the current one will be published in the near future and will provide further technical details of interest to market participants.

(c) Exchange of national banknotes

In the absence of euro banknotes at the start of Stage Three, the Governing Council today agreed on arrangements according to which the participating national central banks will exchange legal tender banknotes of other participating Member States for national banknotes and coins at the official conversion rate as from 1 January 1999 . To ensure substitutability between the national currency units, the Governing Council decided that each participating national central bank will arrange for such an exchange at one location at least. The national central banks may, however, limit the number and/or the total volume of banknotes they are prepared to accept for any given transaction or on any one day.

Further details on that matter are provided in a separate press release which is to be issued to you this evening.

(d) Allocation of monetary income

As regards the income arising from the issuance of national banknotes from the participating Member States the Governing Council today decided that such income will not be redistributed prior to the introduction of the euro banknotes. The Governing Council also confirmed with respect to the allocation of monetary income of the national central banks of the participating Member States for the financial years 1999 to 2001, that the monetary income for the said period will be calculated by employing the so-called indirect method, by multiplying a defined liability base by a specified reference rate of interest. The sum of the monetary income of each national central bank will be allocated to the participating national central banks in proportion to their paid-up share in the ECB's capital. Owing to the temporary character of the current decision, the question of monetary income allocation will need to be revisited before the introduction of euro banknotes in 2002.

(e) Transfer of foreign reserve assets to the ECB

Today the Governing Council also adopted an ECB Guideline establishing the legal format as well as the modalities of the initial transfer of foreign reserves from the national central banks to the ECB. In this connection and as a measure for covering possible foreign exchange risks for the ECB, the Governing Council endorsed, in line with the Statute of the ESCB, an ECB Recommendation for a Council Regulation which would authorise the ECB to increase its capital from the current level of €5 billion to up to twice that amount.

(f) Monetary and foreign exchange policy

Further decisions have also been taken with regard to preparing the monetary and foreign exchange policy of the euro area. On previous occasions I have mentioned to you that legal acts are under preparation which specify general principles to be followed by the national central banks when carrying out operations in domestic assets and liabilities and in foreign exchange reserve assets remaining with the national central banks. Such instruments, which are based on provisions of the Statute of the ESCB, aim from a legal point of view at ensuring the singleness of the ECB's monetary policy and the consistency of such transactions with the Community's exchange rate and monetary policies. Against this background, the Governing Council today adopted an ECB Guideline which establishes certain reporting obligations for the national central banks' domestic asset and liability management operations and subjects such transactions to the prior approval of the ECB whenever they exceed a certain amount. A similar ECB Guideline was adopted which subjects all operations in foreign reserve assets - including gold - which exceed a certain amount to the approval of the ECB. In addition, the Governing Council adopted an ECB Guideline according to which any participating Member States' transactions with their foreign exchange working balances which exceed a certain amount have to be notified to the ECB in advance. A similar arrangement is envisaged between the ECB and the Commission of the European Communities for all foreign exchange transactions carried out in the context of implementing the Commission's budget.

In the context of the statutory function of the ESCB to contribute to the smooth conduct of policies of competent authorities in the field of banking supervision and financial stability, the Governing Council discussed the main driving forces that are likely to affect the EU banking systems in the medium and long term, including the establishment of EMU. The Council members hold the view that the establishment of EMU is expected to reinforce the structural tendencies that are already under way in the EU banking systems. These tendencies include the reduction of excess capacity, pressure on profitability, enhanced competition, increased internationalisation and geographical diversification. One important aspect is the fact that EU banks seem to have significantly increased their awareness of the strategic implications of the introduction of the euro over the past few months. They are devising specific responses accordingly, which include: (i) improvements in services and procedures; (ii) changes in the range of products supplied to customers; and (iii) mergers, strategic alliances and co-operation agreements. We intend to make the outcome of this examination public in due course.

Finally, the Governing Council adopted an ECB Decision concerning public access to the documentation and archives of the ECB. This Decision will be published in the Official Journal of the European Communities.

We are now at your disposal should you have any questions.

Question (translation): President Duisenberg, you said that labour market and economic problems which are structural in character cannot be solved by monetary policy. Is this an appeal to certain leading policy makers - one of whom bears a French name, even though he is German - to stop pressuring you? Second Question: Is it really possible, in times of historically low interest rates, to promote consumption and investment through lower interest rates?

Duisenberg: I didn't understand the second question.

Question (translation): The second Question: is it really possible to promote or encourage consumption and investment through central interest rates which are lower than those currently prevailing in Germany, for instance?

Duisenberg: The answer to the first question is that it is an appeal to all politically responsible office holders, and not to a single one. Because of the fact that monetary policy cannot solve structural problems, it is an appeal to those politically responsible to bear their responsibility in the right direction, but not any single one. Whether it is possible to promote consumption and investment through lower interest rates is very doubtful. The main factor contributing to the promotion of consumption and investment is confidence, and continued confidence, as well as continuity and stability also in monetary policy, whereas one quarter more or less is not the driving force behind consumer or investment spending.

Question: The German Finance Minister has proposed closer policy co-ordination between monetary and fiscal policy. Could you tell us how far such policy can go under the euro zone, and specifically where the limits of this Cupertino would be? And I have a second question about the proposals by the Italian commissioner Mario Monti who has written a letter to the President of the European Commission urging for the Stability and Growth Pact to be re-interpreted on the lines of the "Golden Rule" of fiscal policy.

Duisenberg: The co-ordination of policies in the economic field in general, i.e. monetary policies, fiscal policies, wage policies, is foreseen in the Treaty to take place through a dialogue between the various authorities on an almost continuous basis. That means, the President of the ECOFIN has the right to attend the meetings of the Council of the European Central Bank. He even has the right to introduce motions there, but he does not have the right to vote on those motions. And, conversely, the President and/or members of the Executive Board have the right to be invited to meetings of the ECOFIN Council. There is a continuous dialogue going on on the general stance of the various policies. Only the decisions on the various aspects of policies, be it monetary, be it fiscal, be it wage policies, are being upheld by the separate authorities in their independent way. I have not seen the precise proposals that Mr. Monti has formulated, but - to the extent that they were to undermine the Stability and Growth Pact to be applied to the full, as was intended - to that extent, I can assure you that the Council is not too happy with those proposals.

Question (translation): Mr. Duisenberg, have you already discussed whether your monetary policy strategy will include only one single reference rate or whether there will be an additional corridor and when can such a decision be expected?

Duisenberg: We have not discussed that particular question anew. We have - as was indicated in our previous press conference - defined what price stability is, what we understand price stability to be, and I would like to repeat that we define price stability as a rate of increase - and I underline the word increase - in prices of below 2%.

Question: Mr. President, you said that the President of the Council, Mr. Edlinger, and two commissioners Monti and de Silguy joined you in the meeting today. What were the topics that were discussed and did you join in the present discussion about publicity of the ECB and about level of interest rates, and which conclusions can be drawn from the discussions with these politicians.

Duisenberg: Now, with Mr. Edlinger we had, in particular, an exchange of views on the current stance of economic policies in general, including monetary policy, and the assessment as we and the Finance Ministers respectively saw economic development in the world and in the euro area, in particular. Mr. de Silguy was present at the entire meeting of the Council, except when Mr. Monti was present, when we discussed areas of banking supervision which were outlined by the Vice-President a moment ago and which, in the European Commission, fall into his area of competence.

Question: Could I ask you what damage if any do you think will be done to the credibility of the new European single currency if you and politicians don't seem to be speaking with the same voice on interest rates, if this current difference appears to continue?

Duisenberg: I haven't seen yet that we don't speak with the same voice, because the central bankers have not spoken yet. And I hear different through the media; I hear various wishes being expressed, which I regard as normal. And they will not damage the credibility of the euro in any way, because they will not, in any way, have an impact on the behaviour of the decision-making body of the ECB, i.e. the Governing Council.

Question (translation): Mr. President, a question on economic policy and on monetary policy in 1999. Fiscal and wage policy makers in many countries hold the view that they should take an expansionary stance so as to make up for gaps in demand. What is your position in this respect and how will monetary policy makers respond? What is your assessment, against this background, of the policy mix between monetary, fiscal and wage policy in view of the statements made by economic policy makers in the EMU countries?

Duisenberg: Well, we have noted already on various occasions both here and in the European Parliament -we and the European Commission have done the same - that we are somewhat concerned about the intensity with which the policies are directed to meet the criteria - not only the Maastricht criteria - but also the criteria implied in the Stability and Growth Pact. And we have warned against that repeatedly and have, in fact, done so again today. Nevertheless, I must conclude that, given the current monetary policy stance and assuming that that monetary policy stance will be continued also during the transition to the euro and given the current fiscal policy stance, there seem to be no indications that there is a policy mix in euroland which is detrimental to either fiscal or monetary policies.

Question: I have got a rather technically question on the press release about the exchanging of national banknotes. There is this point about the National Central Banks being allowed to limit the number or the total value of banknotes they are prepared to accept for any given transaction and on a given day. Now, what is the logic behind this? Because I just thought that, if this is implemented, there is the danger - is there not - of damaged credibility if people refuse to accept one another's banknotes under the new system. It sort of evokes those old pictures of a run on the bank and the guichet being closed. And also ...

Duisenberg: That would happen if you were to set that limit very low, but that is not the intention.

Question: And then another small Question: In this ad hoc Changeover Weekend Committee, who is going to be on that, the ad hoc committee for your changeover weekend?

Duisenberg: The committee has already been established. It will be a decentral committee and also a decentral early warning point for any developments in the event of matters getting out of line with the plans. So, who will be on the committee? There will be three people from each participating national central bank and from the ECB, and the committee will be chaired by the Director General Operations of the European Central Bank, Mr. Papadia.

Question: It seems that euro is now gaining the confidence and is being appreciated against other currencies like US$, and some concerns about the dampening effect of euro's appreciation on the European economy, and some people like the new German Finance Minister, Oskar Lafontaine, are proposing to establish the target zone for the exchange rate between euro and US$. So what is your idea about this?

Duisenberg: As I have indicated in my Introductory Statement, after a period of depreciation of the dollar vis-à-vis the euro, or of appreciation of the euro, that trend has been reversed in recent days to some extent and as I indicated already a month ago, the level that has been reached and that has, in the meantime, somewhat changed again does not imply a cause of concern for the monetary authorities in Europe. Your second question on target zones: I want to repeat that the competence on exchange rate policies is in the hands of governments and not of the monetary authorities, but I do not want to keep secret either that, at this stage, when we are introducing the euro and getting the euro settled and into a credible currency, we are not very enthusiastic of taking up the idea of target zones at this stage.

Question (translation): Mr. President, I should like to revert once more to the domestic policy debate in Germany. As you know, some of those involved are of the opinion that the heated controversy about the role and tasks as well as the independence of the Deutsche Bundesbank is, in essence, actually aimed at the European Central Bank as the Bundesbank will be giving up its responsibility in two months' time. Do you share this view and, if so, are you - as has been said - feeling placed under pressure or influenced by this debate?

Duisenberg: The answer can be fairly simple. The answer to the first question is "yes", And the answer to the second question is "no".

Question (translation): Mr. President, I have probably not understood this issue properly, payment issues: the point you want to make there. Is it correct if I interpret it as such that you want to clearly say that you are prepared to be lender of last resort in cases of banking troubles.

Duisenberg: On the issue of lender of last resort, I will say no more than I said at the last press conference, which was already very little. And I would like to ask Monsieur Noyer to explain precisely what we do want to say.

Noyer: What the Governing Council has discussed is, how can we in the Governing Council take into account the general responsibility of the ECB to contribute to a smooth conduct of policies by national authorities, because the precise tasks are, in the end, for national authorities to check whether the transition to the euro creates its special problems or is likely to accelerate some tendencies, and how can we assess any new risks that may arise and the best way to respond. It has nothing to do with the idea of lender of last resort that was addressed precisely by the President the last time in answer to a question on this matter.

Question (translation): I should like to return once more to the debate on monetary policy. Could this renewed debate - which, if I have understood you correctly, you feel also has implications for the European Central Bank - could this debate be reason for you personally to re-consider the question of your perhaps retiring early from the office of President, as you had initially indicated?

Duisenberg: I don't think I have to comment any further after what I have said already on what I think of the discussion. So far it is a discussion in one country only. The development of a dialogue between the governmental authorities and the European Central Bank has taken the form of regular meetings of the so-called Euro 11 group, which is a very useful and fitting setting for having a dialogue about policies in general. We do not shy away from such a dialogue. As far as the discussion in one particular country about the position of the central bank, be it the central bank of that country or the European Central Bank, is concerned, I think that, so far, it has been a very one-sided discussion, as I understand it, because no central bank in any country has participated in that discussion, and I assume that this will remain so in the foreseeable future.

Question: (unintelligible)

Duisenberg: Oh, that is a very hypothetical question - if the Treaty of Maastricht were to be changed, which would be required as a result of this discussion and which, in itself, is a very unlikely event, then I would of course also reconsider my position, but I do not regard a change in the Treaty of Maastricht as very likely for the first eight years to come.

Question: I have two questions. The first one concerns convergence. The rates are coming down but some analysts here are saying they are not coming down enough. Do you think that can be dangerous for the euro changeover with the present economic situation slowing down? And the second Question: Some articles appeared in the last weeks with strong criticisms about the central bank being too decentralised, not strong enough. How do you think you want to react to that? Do you think you are strong enough as far as budget, personnel and supervision are concerned? Do you think that you are too decentralised? Are these criticisms completely without the ground?

Duisenberg: On the first question, I do not share the judgement of the analysts you quote that convergence is not enough, because I think we have seen in October, up and to including today, a remarkable rate of convergence toward the lower level of interest rates. And I would like to point out, I mentioned the key central bank interest rates at the moment at the lower end being 3.3%. Today, the Banco de España lowered its rate to 3.5%, so that it is getting close. And the Banco de Portugal has done a similar thing. And, in the case of Portugal, you have to look at the lowest official rate, rather than at the repo rate, because the banking system in Portugal happens to be in a very liquid situation; there is no liquidity deficit in Portugal, but a liquidity surplus. And, therefore, you have to look at the lower rate which is the relevant one to judge by. So convergence has continued and will continue during the remaining 60 days of this year, and we are very close already. Now is the ECB strong enough? I think the ECB is a very strong institution, staffed with highly qualified staff, and we are in the process of expanding it at a rather rapid pace. We are now in the process of finalising our budget for 1999, which also implies a sizeable further increase in the staff of the ECB. Those things take time in practice.

Question (translation): I should like to revert once more to the debate on interest rates. As you know, it has been argued time and again that the European Central Bank - or that the level of central rates in Europe cannot, on grounds related to convergence, fall below the mark of 3.3% recorded in the core countries. Do you believe it to be possible for concerted action to reduce interest rates in future EMU countries to be taken before the end of the year or can this only occur next year, when the ECB can determine its interest rates independently? And then I have another question on ...

Duisenberg: Let me first answer the first question. It is, of course, nonsense that interest rates could not be raised or lowered further than below the levels they have already reached. It could be done. Whether it will be done - don't ask me, I would like to say, because, if I were to give you an answer, you wouldn't necessarily have to trust me. I will not, in other words, make forecasts about what will happen to interest rates. But, for the moment, the Council gives the highest priority to the continuation of the convergence process, which you can also interpret as an act of solidarity amongst the 11 central banks involved.

Question (translation): And then I have another question on the currently ongoing debate in Germany on the role of the central banks. To what extent do you believe it to be appropriate for that debate to take place in public as it is and how will the ECB participate in it and to what extent do you feel it to be justified for the ECB to gear its interest rate policy also to the employment objective?

Duisenberg: The ECB will not participate in that discussion and, second, I would like to point out that it is the explicit mandate of the ECB with its policies to achieve price stability and - to the extend that the policy would not jeopardise price stability - to contribute to achieving the general economic goals of the Community, as they are spelled out in Article 2 of the Treaty, namely promoting growth and employment.

Question (translation): President Duisenberg, you have emphasised that the latest statements of German policy makers in this debate are not pressuring you, but it is another question whether you see these statements as attempts to influence you, as is prohibited under Article 107 of the Maastricht Treaty.

Duisenberg: I do not see them as such. I hold it to be quite normal that, from the political side, there may from time to time be offered opinions or suggestions of what the political authorities would like interest rates to do or to be. That, in itself, is a quite normal phenomenon and it would be very abnormal if those suggestions were to be listened to. But then, as I said earlier, it is actually the right of the political authorities, in the person of the President of the Council of the Ministers of Finance and Economics, not only to attend meetings of the Governing Council of the ECB, but also to introduce motions. So he can give suggestions there. The only thing he cannot do is vote on those motions.

Question (translation): Mr. President, did Portugal and other European countries co-ordinate the latest reduction of their central or repo rates with you or not? And secondly: which countries are likely also to reduce their interest rates in the next few years, surely those with interest rates deviating most from 3.3 or 3%? Which countries, in your opinion, should make a move?

Duisenberg (translation): Co-ordination is an ongoing process; it takes place all the time, and we inform one another continuously. This also holds true of Spain and Portugal, and it is not coincidental that the decisions announced today were announced today. And with regard to your question as to which countries can be expected to follow, I would say it is obvious - those countries in which the level of interest rates is not yet the lowest in Europe.

Question: Mr. President, I have a couple of questions, and one is a short kind of yes/no Question: You mentioned that the dollar has been stronger the last week. Are you pleased with the recent movement direction of the dollar against the German mark?

Duisenberg: Well, as I have said, I was not concerned about the level that the dollar has reached, so I will not express any pleasure at the movement over the last few days. What I am most pleased about is that the situation seems to have settled somewhat.

Question: So you are comfortable with the level of the dollar right now?

Duisenberg: Yes.

Question: The other question has to do with how monetary policy is being decided in Europe right now. There seems to be some confusion. A lot of people are saying the Bundesbank needs to cut rates while at the same time others are saying that the Bundesbank would not make a move without the approval of the ECB Governing Council. It would be interesting to know how this would work out. If the Bundesbank were to cut rates could they do that unilaterally or would they first want to get a green light from you? Second part of that question is, if the ECB Governing Council would vote for a rate cut and ask the Bundesbank to cut, would you expect the Bundesbank to abide by the Governing Council?

Duisenberg: On the first question, I only can give what may seem a legalistic answer. The legal situation is that, until the 1st of January, every single central bank is autonomous in determining its policies. So the answer to your question whether the Bundesbank or De Nederlandsche Bank or the Banque de France could do something unilaterally is "yes". If the question were to be "will they", the answer would be that it is very unlikely that they will do anything without consulting all their partners. The co-ordination of monetary policy is already taking shape increasingly intensively across Europe.

Question: I was also wondering whether you could expand a bit more on the interest rate cut by Spain and Portugal today. Was that agreed or at least discussed within the ESCB framework beforehand and can we regard that as an interest rate cut by the whole of Euroland? Does that amount to an interest rate cut for the whole euro area since two countries did that today?

Duisenberg: Well, I would like to point out that decisions are not only being taken precisely on the day and hour that the Council is meeting, but we are in continuous touch with each other and there is a continuous co-ordination and discussion going on between central bankers across Europe, so that the developments of today, I can assure you, certainly did not come as a surprise to any of us.