Introductory statement

Jean-Claude Trichet, President of the European Central Bank, Lucas Papademos, Vice-President of the European Central Bank, Frankfurt am Main, 6 November 2003.

With a transcript of the questions and answers

Ladies and gentlemen,

Today marks the first time that I had the honour and the pleasure of chairing the meeting of the Governing Council of the ECB. I am delighted to now proceed with our well-established practice of real-time communication and to report on the outcome of our meeting, together with the Vice-President.

Following our regular economic and monetary analysis, we have decided to leave the key ECB interest rates unchanged at their low levels. Overall, we anticipate some further stickiness of inflation rates in the shorter term, while the medium-term outlook for price stability remains favourable. Against this background, we continue to judge the current stance of monetary policy as appropriate. At the same time, we see additional signs of a gradual economic recovery in the euro area. We will carefully monitor all developments that might affect our assessment of risks to price stability.

Let me now explain our decision in more detail.

Starting with the economic analysis, new data and other information show that the recovery of the world economy is clearly making progress. Also for the euro area, the indicators are increasingly pointing towards some improvement in economic activity in the second half of this year. For the time being, this is primarily reflected in business surveys and leading indicators, but we expect that forthcoming data on euro area production and demand will confirm that a gradual recovery has started.

Taken together, we see further confirmation of our main scenario of a gradual improvement in economic activity this year, and a broadening and strengthening in the course of 2004. This assessment has received support from recently published forecasts of official and private sources, as well as from developments in financial markets. Externally, the expansion of global economic trade and real GDP growth should counteract the changes in the effective exchange rate of the euro, which is back to its level of early 1999. Domestically, the conditions for investment should improve further, given the continued adjustment efforts of firms to enhance productivity and profitability, the low level of interest rates and generally favourable financing conditions. Moreover, private consumption should benefit from real disposable income growth, fostered by positive terms-of-trade effects stemming from the past appreciation of the euro.

The short-term risks to our main scenario appear to be balanced. Over a longer horizon, we remain concerned about the sustainability of global economic growth being undermined by persisting imbalances. This relates, in particular, to the sustainability of public finances and to external imbalances in some regions of the world.

Recent inflation rates, measured by the HICP, developed broadly as anticipated. The annual rate of inflation was 2.1% in October, according to Eurostat's flash estimate. It thus remained unchanged from August and September. When looking ahead over the shorter term, it appears that inflation rates may continue to hover around this level for several months to come and, hence, may not fall as quickly and strongly as had been expected up to the summer. Three factors can be identified as contributing to this stickiness of inflation rates. First, in the remainder of 2003 and early 2004, unprocessed food prices could imply some limited upward pressure as a consequence of this summer's heat wave. Second, oil prices remain higher than expected, owing to political uncertainties in the Middle East. Last but not least, in the course of 2004, planned increases in indirect taxes and administered prices in some euro area countries will have an upward impact on inflation.

However, when taking into account more lasting factors, we continue to expect inflation rates to moderate over the medium term and to develop in line with price stability. This expectation is based on the assumption that wage developments will not be affected by the current inertia of inflation rates, and will remain moderate in the context of a gradual economic recovery. Moreover, the past appreciation of the euro should continue to dampen price pressures. These views are also reflected in recently released forecasts. At the same time, inflation expectations warrant close monitoring.

Turning to the monetary analysis, after an extended period of strong M3 growth, liquidity in the euro area remains ample, despite a certain slowdown in monetary expansion over recent months. This situation of persistently more liquidity than is needed to finance non-inflationary economic growth reflects past portfolio shifts, precautionary savings and the low level of interest rates. The low level of interest rates also supported the annual growth of loans to the private sector, which fluctuated between 4½% and 5% in recent months. At the current juncture, the accumulation of excess liquidity is not of concern for price stability, given the economic outlook. However, if it were to continue in conjunction with a significant strengthening of economic activity, it could lead to inflationary pressures in the medium term.

Cross-checking the information from the two pillars, our economic analysis indicates that the medium-term outlook for price stability remains favourable, in the context of a gradual economic recovery and moderate import price and wage developments. In view of the economic situation, the strong monetary expansion should not, for the time being, be seen as adversely affecting this outlook.

Fiscal developments and the Stability and Growth Pact are now at a critical point at which the credibility of the institutional underpinnings of EMU must be maintained. The Treaty and the Stability and Growth Pact provide an appropriate framework for ensuring fiscal discipline, within adequate bounds of flexibility. The deficit reference value of 3% of GDP, which is laid down in the Maastricht Treaty itself, is the nominal anchor for the rules and procedures governing fiscal policies in the EU. This anchor must not be placed in doubt.

Fully abiding by the rules and implementing them in every respect has very solid economic justifications, and is not a mere procedural matter. Upholding trust in the soundness of public finances enhances confidence of all economic agents and thereby contributes to sustainable growth in consumption and investment. Stability and growth are thus not conflicting objectives, but rather reinforce each other – a fact which is very well captured in the title of the fiscal framework called the "Stability and Growth Pact". Concerning recent developments in the context of the excessive deficit procedure, it is the view of the Governing Council that the proposals of the Commission push the room for interpretation of the rules and procedures to the limit. As regards future decisions, which are expected in the course of November, the Governing Council strongly urges each institution and government concerned to live up to their responsibilities. It is the overall credibility of the fiscal framework and, hence, the prospects for economic growth in the euro area that are at stake.

Fiscal consolidation plans are best placed within a comprehensive and credible medium-term strategy. This requires strong emphasis on structural expenditure reforms and the adaptation of public pension and health systems to the challenges arising from the ageing of the population. Moreover, structural reforms in the labour and product markets are needed to allow a better allocation and utilisation of capital and human resources, and to enhance the euro area's growth potential. The Governing Council strongly supports current efforts by a number of governments in this direction and also encourages social partners to fully commit themselves to the objective of making the euro area a more dynamic and innovative economy.

We are now at your disposal for questions.

Question: I noticed that the Belgian Finance Minister, Mr. Reynders, welcomed your arrival as President of the ECB, Mr. Trichet. He said he welcomed it because he had felt in the past that it was very difficult for Mr. Duisenberg to enter into a dialogue with European finance ministers about the need for interest rate cuts. Mr. Reynders said he felt that you were much more amenable to such a dialogue and he looked forward, therefore, to having a discussion with you about that. Do you feel you are more open to dialogue on this subject than your predecessor?

Trichet: I will have exactly the same tradition, a very strong tradition, as my predecessor Wim Duisenberg. And I want to tell you how happy I am to have the legacy of the previous chair. We are a team, a team of 18 members of the Governing Council, and we all agree on the concept that we are applying. I am very happy with remarks that are made here and there; I have to say that I very often read very different views on my own posture. But I would say that I have the full legacy of Wim and that the Governing Council is of course in a spirit of continuity. Thank you.

Question: (translation from French) One question in French, if I may: many companies in Europe reject a euro that is too strong and think that, in relation to the dollar, their exports are penalised. You say that rates are historically low, but they are still twice as high as in the United States. Do you not think that you have contributed to the strong euro?

Trichet: (Translation from French) Just very briefly I would like to say that we follow a strategy of a stable euro, a strong euro and a euro that inspires confidence. That is the strategy we follow, a strong, stable euro that inspires confidence. And by inspiring confidence we have market rates which are low both in the medium and in the long term, we inspire confidence among savers and that also creates a financial environment which is favourable to growth and to job creation. By having a euro that inspires confidence we also maintain the purchasing power of consumers and we therefore have consumers who find that they have more capacity to consume. And we have more investment and more consumption – all else being equal.

(In English) I can say it in English, I think it would be better because all journalists do not have access to translation. If we have a policy of a strong and stable euro, which is the policy we are pursuing, we are paving the way in the medium and long run for medium and long-term rates that are at a lower level and we are creating an environment which is favourable to growth and job creation. Through confidence in the currency, we have confidence in the savers' constituency. Through confidence in the currency, we have confidence in the investors' constituency. Through confidence in the currency, we are paving the way for medium and long-term sustainable growth, job-creating growth, which is of course something that you get out of price stability.

Question: (translation from French) I would also like to put my question in French, which is one of the official languages of the Union, I would like to remind my colleagues, since they seem to have forgotten that.

Trichet: I will respond, if you permit me, both in English, first, because there are a lot of people that understand English here, and then in French.

Question: (translation from French) Well in that case I will speak in this little language of a far-away country, as Jean-Marie Messier said. Two questions, if I may: you have just given a very strong message to the ministers of finance, telling them that they have to respect the Stability Pact. Clearly, what happened on Monday is not going in that direction, that is to say we are moving towards a creative interpretation of the Stability Pact and its constraints. What is going to happen now and what will the reaction of the European Central Bank be, if the Ministers persist in their creative interpretation? A second question, on inflation. How can you explain this persistent resistance of inflation since the economic slowdown, especially in the area of services?

Trichet: First of all, on the first question, which deals with the Stability and Growth Pact, I will say that we had a very clear position in the Governing Council, among the 18 members of the Governing Council, and you have it in writing, but I will repeat it because it seems to me that it is important. We expect and we urge each institution and government to live up to their responsibilities. There are responsibilities according to the Treaty, there are responsibilities according to the Stability and Growth Pact, and we are urging every partner institution and entity concerned to live up to their responsibility. We think that living up to responsibility would improve and not deteriorate growth prospects in Europe. Because, again, it would improve confidence, and confidence – as I have already said – is the key to growth.

(Translation from French) If you permit, I will say it in French as well. We said very clearly that we were expecting and that we were asking each of our partners to live up fully to their responsibilities. And if I say partners, that includes all partners, all institutions and entities concerned. Because we feel that their living up to their responsibilities, in accordance with the Pact and with the Treaty, is an important factor in confidence – in Europe and in the euro area – and that this confidence is one of the key factors for creating growth and jobs, for all the reasons I have already mentioned.

As regards the stickiness of inflation, which was the second question, where does that stickiness of inflation come from? I would say only that we are observing at least three factors that might explain this stickiness. One is unprocessed food prices, and everybody knows why we have this problem and where it comes from. Another element is associated with the oil price, and we also see how we can explain that the oil price development has worsened or is not as favourable as we had hoped. The third element might be indirect taxation in a number of European economies. It is also true that the service sector in particular, being less, I would say, under the pressure of competition and particularly global competition, is a sector where we are observing stickiness of inflation.

Question: You said during your introductory statement that you thought the Commission had pushed to the limit the flexible interpretation of the Stability Pact. Are you hinting that they may already have strained the credibility of Europe's fiscal rules? And, secondly, how much more of an economic strengthening do you need to see before you would reassess whether or not the current monetary policy stance is appropriate?

Trichet: Well, to the first point I would say that if we had wished to say that we thought the Commission had not behaved properly, we would have said that. So we only said that they had pushed to the limit the Stability and Growth Pact. And if you permit me, I will say nothing more than what I said a moment ago. As regards your second question, you know that we meet in a format that examines monetary policy every month, and we said very clearly that we will monitor developments at each of these meetings. So I would not say anything else but that at the present time we judge interest rates to be appropriate for the reasons I have stated. We are reasonably confident that despite the stickiness of inflation right now, the prospects are for price stability, and that is why we think we have interest rates that are appropriate at a time when we are observing some other decisions in the rest the world.

Question (translation): Mr. President, the US current account deficit is still there. Do you see a risk to a sustainable recovery of the global economy? There is a strong fiscal and monetary stimulus going on, which must disappear at some time.

Trichet: Well, we all, of course, have assets and liabilities, if I may, chances and risks on the various continents, in the various big, or small, economies. And as far as the US economy is concerned, it is true that there is a certain lack of savings, an element which is reflected in the current account. We have mentioned imbalances. As regards Europe, as you know, we do not have this kind of imbalance. But we have structural impediments that are precisely what are creating some of our challenges. And that is the reason why we insist very much on structural reforms in Europe. And we insist on them – again, of course, on this occasion – as these structural reforms are one of the main challenges we must tackle, as was agreed at the Lisbon meeting of the European Council, in order to increase the growth potential of Europe and have a better economy with higher growth and, of course, higher job creation.

Question: You mentioned that one of the objectives is higher job creation. And in the United States, which is, I think, believed to be a more flexible economy than the European one, we have seen improvements, but not in the labour market. Do you think that Europe runs a similar danger? If yes, how could that be tackled?

Trichet: Well, we are dealing with Europe, if you permit me, and Europe is our responsibility here. It is clear that in periods of very intense technological change in a flexible economy you have the display of rapid productivity progress, productivity increases. These rapid productivity increases themselves are paving the way for buoyant growth, or active growth, or more active and dynamic growth. And, therefore, they are welcome. As regards the European economy today – and this is the assessment not only of the ECB, but also of other authorities, and here I am referring to the Lisbon consensus – clearly we believe that more efforts being made in research and development, in technology, in creativity, innovation and so forth, would permit more rapid progress in productivity and would, therefore, increase the growth potential, which – as I have said – is probably one of the main challenges that we have here in Europe today.

Question (translation): Mr. President, you are at the beginning of a long term in office and surely you have thought about what you would like to achieve during this period and have set goals for yourself. What goals have you set for yourself, for these eight years, quite a long period, and which of these goals would you like to attain under all circumstances?

Trichet: If you permit me, I will respond in English in order to avoid any misunderstanding. First of all, as I have said, we are a team. I am – and this is very, very important, es ist eine grosse Ehre (it is a great honour) – I am the captain of the team, so to speak. But the captain is a member of the team. And we are acting together, we are delivering together the kind of credible currency that the Treaty asks us to deliver. So, I see myself as maintaining the continuity of the previous chairmanship, captaincy of the ECB.

Second, it is obvious that we face very, very big challenges, and we have to cope with these very big challenges. One challenge is, of course, our fundamental duty, namely delivering price stability, and price stability – and I do not want to go back again why – price stability is the necessary precondition, through various channels, for growth, for job creation, for sustainable growth in the medium and long run.

Third, we certainly have to try to help with regard to what I would call one of the very important challenges, not for the ECB itself, but for Europe as a whole, the structural reforms I have mentioned. We need to explain why embarking on structural reforms would enhance the growth potential of Europe, why structural reforms, which are always difficult to implement, are of the essence. Explaining to the general public that those structural reforms, when they are decided, have to be praised and backed is something we trust is important – after our main duty that I have mentioned. More generally, explaining how a market economy works and why moving in such and such a direction is good, I would say, for everybody.

We also face another very, very important challenge, which is the European construction itself. We are an institution that is already, if I may, a federal institution in the institutional framework. It is also a very great honour and a very important responsibility for my colleagues and myself, and for Lucas and myself, to be in such a position. We have to cope not only with the proper functioning of the present institution, but also with enlargement – which, comes, I have to say, very, very soon. As you know, next year, we will have 25 members of the General Council of the ECB, with colleagues coming from ten new national central banks. They are already around the table in the General Council today. And this, of course, illustrates a kind of challenge you have when you are, my colleagues and myself, part of an important institution in a Europe that is moving, and moving in a way which has no historical precedent. This, again, is per se a very important challenge.

Question: First of all, you have mentioned many benefits from the stability of the currency, but are you happy to be called "the ayatollah of the strong euro"? Secondly, it seems that one of the causes of global imbalances is the weak renminbi and it has something to do with the appreciation of the euro. But what do you think of the correlation between the weak renminbi and the strong euro?

Trichet: First of all, I would say that, as you know, all responsible central banks are pursuing policies that are oriented towards long-term strong currency. You cannot find any central bank in the world which would say that they would prefer to have a weak currency. It would immediately trigger a refusal of investors and savers to invest in that currency. It would elevate immediately the long-term and medium-term market interest rates. All market interest rates would increase. So it is very important for a central bank to preserve and reinforce confidence, confidence of – I would say – all economic agents, but particularly investors and savers. And I note – en passant – that we say that here, the same, exactly the same reference exists in the other continents. If you ask the United States what is their long-term policy, they would say: we have a solid, strong currency policy. For the very same reasons that are obvious. As regards recent messages, I would not quote any particular currency, if you permit me, but as you know, it was made very, very clear by both Wim Duisenberg here, and by colleagues in the United States that the communiqué which was sent from Dubai was clear, without mentioning any particular currency, that we thought that some Asian currencies could progressively, smoothly and orderly appreciate over time. Vis-à-vis both, I would say, the euro and the dollar, both the dollar and the euro. Thank you very much.

Question: President Trichet, you mentioned the stickiness of inflation. What does that stickiness now mean for average inflation rates in 2004 and 2005? Is it going to be higher than you initially thought a couple of months ago? And if so, by how much? And the second question I have is: how did you prepare for today's press conference?

Trichet: To the first question I would say: I would not give you any fear I would say only that we are observing that, for the reasons I have already mentioned – and particularly the three reasons I have already mentioned – we are observing inflation which is – as you know – still over and above 2%, 2.1% in the euro area, which is a little bit over and above what we thought would be the normal evolution a few months ago. So that is the reason why we call it "stickiness". As regards the short-term evolution, we clearly see some reasons – the very same reasons might explain – why we would hover at that level, approximately at that level. Again, I am only referring to the overall euro area. Over time, we are more confident, and that is the reason why we say we think that over time we will see inflation in line with our definition of price stability, namely less than 2%, close to 2%. That being said, we will see how this assessment moves, and – as I have said – we meet regularly and we look at the evolution regularly. But at the present moment, we observe stickiness and we are reasonably confident that price stability is ensured.

As regards the preparation for this – I would say very impressive – press conference, to be frank, I did not expect that you would be that numerous, I did as I always do. I mean, I am ready and spontaneous in my responses and of course, as you know, this is an exercise where I have to comment on the diagnosis which is made by a collège [the Governing Council], and that diagnosis was made this morning by that collège. So had I wanted to prepare thoroughly the press conference, in any case, I would have had to wait for the diagnosis of the 18 to be worked out, which was done at the end of this morning, if I am not mistaken. Perhaps a little bit after noon.

Question: Mr. President, did you speak today about the chance of an interest rate cut in the meeting? And my second question: what does the Bank of England's decision today mean to you?

Trichet: For the Bank of England, Mervyn is ready to respond to any question and I will leave that responsibility with Mervyn. That would be the same for Australia, if you would ask me about Australia. As regards this morning, I would only say, as you know, we stick to the text of that diagnosis that was approved by all of us and I would say to the comma, to the adjective, to the smallest expression of sentiment or nuances, and I will stick to that.

Question: Mr President, the former Bundesbank President Karl Otto Pöhl said yesterday that the ECB could run into stormy weather next year. First, inflation will come back, maybe come back because of the strong monetary expansion, and second you will have to look at some currency turbulence next year, if there is a switch from dollar to euro in the banks of the Asian countries, and so on. Are you prepared for this stormy weather? He also mentioned the "Plaza Agreement" and the "Louvre Accord". Are you looking forward to this international co-ordination of currency policy?

Trichet: Well, as regards Karl Otto Pöhl's judgement, I know Karl Otto and I have known Karl Otto for years, and have great respect for his judgement. Second, I would use the metaphor of sport and the team – the rugby team, let us say, because, the 12 national central banks and the ECB make up a team of 13, as in rugby league. And I like very much that metaphor because it captures the team spirit which is absolutely crucial for our own efficient action. But I also like the navigation metaphor and I would say that, with regard to stormy weather and so forth, we have to be prepared for any environment and I would certainly not want to say what is likely or what is not likely. I leave that to Karl Otto and other observers or actors, but I would say that we have to be prepared. All central banks have to be prepared to operate in conditions that can be very good, or a little bit stormy, or stormy. So the analysis of risks and preparing yourself to respond to the risks is really the rule of the game. That is absolutely clear.

Question: Mr. President, I wonder why you limit yourself to talking about the current conditions as appropriate ... the current interest rates as appropriate. As you know, the Federal Reserve has made it clear that they expect to keep rates low for a considerable period of time because of disinflationary forces and the output gap. Given that some of the same forces exist in Europe – you talked about your own reasonable confidence that you detain price stability – should these be considered a similar commitment?

Trichet: Well, again I will stick to the diagnosis that we made because it was our own view. We are in a situation where we think and we say that we are creating an environment which is favourable to growth, favourable to growth because we have financial conditions that are some of the most favourable we have had for 50 years in terms of market rates. And you know that when you look at the historical records. When we look at liquidity in the European economy, we see that it is ample, as we have said. If you look at the dynamics of liquidity, you will see that it is much more dynamic than GDP in value terms. So we have a feeling that, by ensuring price stability and by taking the decisions we have taken in the past, we are really paving the way for, I would say, the financing of growth in Europe to be as easy as possible. And that is something that we want to display. That being said, we say that interest rates are appropriate at the present level, and this is fully in line again with our judgement on the situation taking absolutely everything into account. If I look at the long-term perspective, I would say that it seems to me that the market is convinced that we will deliver that kind of stable long-term environment that is justifying low long and medium-term market rates conducive to growth and job creation.

Question: This is a specific question about Finland. The ECB gave its opinion about a proposed amendment of the Suomen Pankki Act last month. The proposal was to transfer most of the primary capital and profits to the state, and the ECB concluded that the proposed amendment will weaken the financial position and independence of Suomen Pankki. Now it looks as if the Finnish Finance Minister is ignoring the ECB opinion, and she is putting her proposal forward with only minor changes. I would like to hear your reaction to that.

Trichet: Lucas, would you respond to that question?

Papademos: Well, first of all, as you mentioned, the ECB a few weeks ago did express its opinion on the proposed legislation on Suomen Pankki. In particular, we expressed our concerns that the envisaged reduction in the capital and restrictions on how profits are distributed and how provisions are made could have implications for the financial independence of the central bank, and also, more generally, on its institutional independence. At this stage, I think we would like to wait and see what the decision of the Government is because I understand that this is a proposal of the minister, which will be discussed in the Finnish Government council. So until then I do not think it would be appropriate for us to make any further comments and speculate about the outcome. We do hope that the Government will pay close attention to the opinion of the ECB.

Question: I would like you to give us your view on the development in stock markets in Europe this year, especially since the last meeting of the ECB. Secondly, I would like to ask you, how confident are you then that inflation will fall below 2%, say at the beginning of next year, if it is hovering around that level until then?

Trichet: First of all, I certainly do not want to comment on the day-to-day evolution of stock markets or the day-to-day evolution of any market in particular. So no particular comment on the first question. On the second question, as I said, we observe some stickiness. So I would not, for the beginning of next year, like to make any kind of judgement on what is likely or not likely. We will observe the situation. We know that there is some stickiness, but we are confident since we take a longer-term perspective. Thank you very much.

Question: You already said something about your preparation or lack of preparation for this conference. I have a slightly different type of question on this issue. Your predecessor, Mr. Duisenberg, told the Dutch press in the past that he was always quite nervous before these press conferences and that he used to take a tranquilliser. Are you nervous today and did you take a tranquilliser?

Trichet: You also have to take into account that Wim had a very good sense of humour! No, I did not take any pill!

Question: I have two questions. The first is about you saying that the structural reforms are important and must be praised. Do you think that a way to praise structural reforms is to let the country that has them breach the 3% deficit for one or two years? And the second question is, do you think that introducing a banknote of one or two euro is a good way of fighting inflation?

Trichet: On the first point, we said very, very clearly that we consider the Stability and Growth Pact to be very important for confidence and how – because it is not only the Pact, but the Treaty itself – a certain behaviour is called for. So, I will not comment further on that. On the one euro banknote we have already said that we would examine this particular question when we look at the new series of banknotes within approximately one year. And I have no further comments at this stage. There are, I would say, pros and cons as regards this possibility and we will look at these very, very carefully. Thank you.

Question: Just to return to the Stability and Growth Pact for a moment, if I may. Given that you believe that the Commission has pushed to the limit the interpretation of the Pact, how can the other actors in this drama fulfil their responsibilities later this month without doing precisely what the Commission has asked them to do?

Trichet: Again, we said very carefully that we urge all of them to live up to their responsibilities and I will not elaborate further on that. This is public, we will see what happens and we will make our judgement after we see exactly what happens. But we would urge them to live up to their responsibilities. Thank you.

Question: I have two questions. One regarding economics. I am sorry but maybe I did not understand if you made some remarks about the fact that in one month you will deliver the new figures for your projections for next year. Do you see the same projections as far as economics is concerned or do you think that the economy will grow at a slower pace? I think you should have the new figures.

Trichet: No, I did not say that ...

Question: No, I am asking you ... If you said it before I did not hear it, that is why I am asking again. Do you think that the economy will grow at a slower pace, as you thought before or have been thinking until last month or so?

Trichet: No. To be absolutely clear – on the contrary, we said that at this stage we were observing a certain pick-up in the economy, that at first we had some early indicators and surveys, and that now these have been substantiated with production figures. Of course, we are cautious, we are pragmatic, we will see what the new data, the new facts, the new figures are. But what we are seeing right now – and it is not extraordinary because it is, I would say, the consensus of all economic people and observers – is that there is some kind of pick-up in the economy. Furthermore, we understand pretty well why there is such a pick-up. There are good reasons for this. So, again, we are reasonably confident that since the second semester of this year there has been an element of pick-up and we expect this to continue over time next year and beyond. But I will not mention any figures.

Maybe we can have the last three questions.

Question: You said you are in charge of the proper functioning of the ECB at present. Are you going to introduce democratic reforms, such as recognising formally and officially the trade unions, and negotiate with them? And are you going to reconsider the restructuring of the DG-IS Information Systems department?

Trichet: I see that you are very interested in this particular question. I would say the following. First of all, very good decisions were taken by the Executive Board of the ECB under the chairmanship of Wim Duisenberg and with Lucas and other colleagues over the restructuring of DG-IS. There were good decisions taken after due and precise examination and thought. Contacts were instigated with the agents concerned and there was a commitment not to proceed with forced lay-offs. And this has been explained very carefully. I stick to the decision which has been taken by the Executive Board and, once again, I think it was a very good decision and we have to stick to it. We explained that very clearly yesterday, if I am not mistaken. Thank you.

Question: Are you going to recognise formally...

Trichet: ... I am sorry. As regards this particular point, the Staff Rules state that the normal way to organise dialogue with the management of the bank, if I am not mistaken – although I am speaking on a matter that is under the control of Lucas, who will comment on this – is through the Staff Committee. The Staff Committee, which is elected by all of the staff, is the appropriate way of communicating. Lucas, could you elaborate on that?

Papademos: As the President has just said, according to the employment contract, staff representation at the ECB is through a Staff Committee which is elected by secret ballot by all members of staff. And with the Staff Committee we have continuous and extensive discussions and negotiations on various issues relating to employment conditions, internal regulations and other subjects relevant to the staff. In addition to the Staff Committee, there is, as you mentioned, a union which has asked to be represented. We do respect the right of staff to organise themselves in unions. And, in an informal way, we have also been in consultation with this union on a variety of issues. However, given the existing conditions, in the past the Executive Board did not feel it appropriate to engage in full discussions with this union. The union challenged this in court and the court upheld the position of the ECB.

Trichet: Thank you very much.

Question: I hate to come back to this question about inflation, but I just want to be clear. When you say that you expect prices to develop in line with the ECB's stability goal, it does sound to me that you are abandoning the ECB's recent forecasts for inflation to fall below 2% next year and to stabilise below there. Is that a fair way of saying it, that you see an increasing risk that – or can we say that you are seeing an increasing risk that the ECB may miss its inflation goal next year? This is my first question.

And then I have a slight follow-up: you cite what appear to be shocks – you talk about food prices as one shock, oil prices as another, and these administered indirect taxes and so on. Should we see those as shocks and do you see any evidence of second-round effects, of a sort of endogenous inflation pressure, even at this very early stage of an economic upswing?

Trichet: OK, so I will take the first question first, and it is very simple. I will tell you exactly how we see things. But I have to apologise to the other participants, because I will once again read what I have already said, which captures exactly the present sentiment of the Governing Council. When looking ahead over the shorter term, it appears that inflation rates may continue to hover around this level, 2,1%, for several months to come and may thus not fall as quickly and strongly as had been expected up to the summer. However, and this is another part of what I have already said, when taking into account more lasting factors, we continue to expect inflation rates to moderate over the medium term and to develop in line with price stability. This expectation is based on the assumption that wage developments will not be affected by the current inertia of the inflation rates and will remain moderate, even in the context of a gradual economic recovery, which – as I have already said – is our working assumption. And we also note that the past appreciation of the euro should continue to dampen inflationary pressure. These are the reasons why we say that we continue to expect inflation rates to moderate over the medium term. And it seems to me that you have all the nuances that are appropriate in such a, of course, very important judgement that we have collectively made.

You had a second question on shocks? Well, we will see: even taking into account the various reasons why there is this stickiness, we continue to say that we are confident it will moderate over the medium term, as I have said. So we are introducing all the elements that could play a role on the other side. But we continue to be confident and this is the reason why we do not change our monetary policy stance.

It was a great pleasure to meet with you. Thank you very much indeed. Auf Wiedersehen.