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Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB,
Athens, 6 October 2005

Jump to the transcript of the questions and answers

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to the press conference here in Athens. The Governing Council has, today, met for the 12th time outside Frankfurt, meaning that it has now met once in each of the euro area member countries. I would particularly like to thank Governor Garganas for his kind hospitality and express our special gratitude to the staff of the Bank of Greece for the perfect organisation.

Let me now report on the outcome of today’s meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Almunia.

On the basis of our regular economic and monetary analyses, despite renewed upward pressure on prices stemming mainly from oil market developments, we have concluded that the monetary policy stance still remains appropriate. Accordingly, we have decided to leave the key ECB interest rates unchanged. At the same time, strong vigilance with regard to upside risks to price stability is warranted. It is essential that the increase in the current inflation rate does not translate into higher underlying inflationary pressures in the euro area. Strong vigilance is also called for in the light of ample liquidity in the euro area. Across the maturity spectrum, interest rates in the euro area remain very low in both nominal and real terms, and thus lend ongoing support to economic activity. For this support to continue, it is of the essence that inflation expectations remain firmly anchored at levels consistent with price stability.

Allow me to explain our assessment in greater detail, starting with the economic analysis.

Real GDP has been growing at a quarter-on-quarter rate of 0.4% and 0.3% over the first two quarters of 2005, dampened in particular by higher oil prices. In line with our staff projections, recent survey indicators, on balance, support the view that economic growth could gradually pick up from the second half of this year onwards. On the external side, ongoing growth in global demand should support euro area exports. On the domestic side, investment should benefit both from continuously favourable financing conditions and from the robust growth of corporate earnings. Consumption should gradually recover, broadly in line with expected developments in real disposable income.

This outlook for economic activity remains subject to downward risks, relating mainly to oil prices, concerns about global imbalances and weak consumer confidence. Temporarily, further uncertainty arose as to the economic effects of the recent hurricanes in the United States, which assessments, in the meantime, have generally suggested to be limited and short-term.

Turning to price developments, recent increases mainly in oil prices have pushed headline inflation rates to levels significantly in excess of 2%. According to Eurostat’s flash estimate, annual HICP inflation was 2.5% in September, compared with 2.2% in the previous two months, and it is likely that HICP inflation will remain elevated in the short term. In interpreting this jump in the annual inflation rate, it is key to make a clear distinction between temporary, short-term factors on the one hand, and those of a more lasting nature on the other.

While no detailed information on developments in the components of HICP in September is available as yet, it appears that oil price increases have again played an important role, this time exacerbated by a much stronger increase in petrol prices owing to exceptional capacity constraints at refineries following the two hurricanes in the United States. If a gradual normalisation in this market segment is confirmed, an unwinding of the sharp increases in spreads between oil prices and refined products could materialise. Hence, these increases may be only temporary.

However, there is currently no indication that oil prices will moderate significantly in the foreseeable future. Rather, markets expect oil prices to remain at high levels, driven mainly by buoyant global demand and, to some extent, by fragilities on the supply side. Accordingly, this scenario underlies our forward-looking assessment of price developments.

Crucially, what matters is how these developments affect the outlook for price stability over the medium term. For the time being, there continues to be no clear evidence of domestic inflationary pressures building up in the euro area. In particular, wage increases have remained contained over recent quarters and, with labour markets weak, this should continue for the time being. Our main scenario, therefore, remains one of elevated inflation rates over the short term, with a gradual decline thereafter.

Upside risks to this scenario have, however, increased. These relate to ongoing uncertainties surrounding oil market developments, to a potentially stronger pass-through than has so far been observed, on account of higher oil prices being passed on to consumers via the domestic production chain, and to potential second-round effects in wage and price-setting behaviour, all of which play an important role in our assessment for price stability over the medium term. In addition, possible further increases in administered prices and indirect taxes have to be taken into account. Accordingly, strong vigilance is required in order to ensure that longer-term inflation expectations for the euro area remain well-anchored.

The monetary analysis provides further insight into inflation prospects over medium to longer horizons. Money and credit have continued to grow robustly in the euro area over the past few months, with the annual rate of M3 growth now exceeding 8%. The strength of monetary growth has been increasingly driven primarily by the prevailing low level of interest rates. In recent months, the short-term dynamics of M3 have gained further momentum and the growth of borrowing, in particular mortgage loans, remains very strong. In this context, price dynamics in a number of housing markets need to be monitored closely. Strong monetary and credit growth, in the context of an already ample liquidity situation in the euro area, points to risks to price stability over medium to longer horizons.

To sum up, the economic analysis indicates that oil and petrol price increases, in particular, imply upward revisions to the outlook for short-term price developments. Some of these increases can be expected to be of a temporary nature, while others are likely to be more lasting. Domestic inflationary pressures over the medium term still remain contained in the euro area, but significant upside risks have to be taken into account. Moreover, the monetary analysis identifies upside risks to price stability over the medium to longer term.

Overall, cross-checking the information from the two pillars confirms the need for strong vigilance in order to maintain inflation expectations in line with price stability. By keeping medium-term inflation expectations firmly anchored at levels consistent with price stability, monetary policy is making a significant ongoing contribution towards a recovery in economic growth.

As regards fiscal policies in the euro area, most recent information continues to provide a very mixed picture. Some countries report significant imbalances, while others continue to maintain sound fiscal positions. Preparations for 2006 budgets are in their final stages in most euro area countries. It is essential that forthcoming budgets reflect the need for fiscal consolidation that both progresses at the appropriate pace and is embedded in a well-designed and comprehensive reform strategy. This would help to support confidence within the euro area by strengthening expectations of sustainable and growth-friendly public finances and by enhancing the credibility of the reformed Stability and Growth Pact. As for the impact of high oil prices on public finances, consolidation of budgets must be continued. Let me also recall the latest G7 statement, which affirms that subsidies and artificial price caps that constrain the price of oil and oil products have an adverse effect on the global market and should be avoided.

In the context of its regular discussions about structural reform issues, the Governing Council focused on unit labour cost (ULC) developments within the euro area, which play an important role in determining inflation and competitiveness patterns across the euro area countries. Since the inception of EMU, several euro area countries have experienced significantly larger cumulative increases in their ULCs than the euro area average. On the other hand, some countries have exhibited cumulative ULC developments significantly below the euro area average.

It must be understood that some differences in ULC growth rates are a natural feature of a well-functioning monetary union, as these may reflect catching-up processes or necessary adjustments to past shocks. In this respect, the flexibility within the euro area may well have been underestimated in its early phase of existence.

At the same time, there is no room for complacency. In some euro area countries, wage developments have substantially and persistently exceeded labour productivity growth, leading to relatively strong ULC developments over a prolonged period of time, higher inflationary pressures and losses in competitiveness. This may be, at least partially, due to wage rigidities, such as an explicit or de facto indexation of nominal wages to prices or high reservation wages determined by the level of unemployment benefits, and to a lack of competition in some sectors.

In the context of external shocks, such as sharp increases in oil prices, there is an even greater need for speeding-up structural reforms. Together with the completion of the EU internal market, such reforms would support ULC developments that are conducive to price stability and would further smooth the functioning of adjustment mechanisms in the euro area, thereby strengthening the foundations for sustained growth in output and employment.

We are now at your disposal for questions.

* * *

Transcript of the questions asked and the answers given by Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice-President of the ECB and
Nicholas C. Garganas, Governor of the Bank of Greece

Question: My first question involves your choice of the words “strong vigilance”. We have not heard that phrase for several months and today I counted that we heard it four times. I was just wondering if you could tell us why you chose the phrase “strong vigilance” today. Second, you talked about inflationary expectations. The expectations that can be derived from French inflation-linked bonds show an increase in expectations to about an average of 2.14% over ten years earlier this week, 2.12% today. I was wondering if you think this is still in line with your definition of price stability. And, finally, is a rate cut now off the agenda for the ECB?

Trichet: First of all, as regards what I have said today on behalf of the Governing Council, I said “strong vigilance” and I said that the present level of interest rates was “still appropriate”. And this is a little bit different from the previous language, you might remember, in the previous Governing Council meeting. You have to take that into account.

As regards the inflationary expectations, we have to remain very prudent and cautious, but until now the surveys have been confirming their correct anchoring.

As regards the information which we can extract from indexed bonds, it is true that the break even rate has gone up a little bit even if it remains significantly lower than the highest level we have attained in the past, in particular the peak we observed in 2004. This observation is one of the reasons for the strong vigilance message that we are sending out. At this stage, I would say that I am not pre-announcing an interest rate increase. But, again, we consider that strong vigilance is appropriate because we are now clearly facing upward risks to price stability. This is something which is very clear.

Question: Given your strong vigilance, is it fair to conclude that you are preparing for an eventual interest rate increase? Especially if you say that inflation-indexed bonds, something which you watch very closely and have told us is very important to you, are beginning to show some upward tilt? And, secondly, you have a member of your Governing Council who is now under criminal investigation. You yourself have faced proceedings of that nature. What is your advice to Mr Fazio? And, given this development, are you going to investigate him under your own Code of Conduct? And if not, why not?

Trichet: On the first question on strong vigilance, again I am very clear. We consider that the risks to price stability are on the upside. We consider that strong vigilance is the appropriate posture. And, as I have just mentioned, we consider that the present interest rates are still appropriate. As regards our future actions, I will make two comments. First, I am not pre-announcing an interest rate increase. I have already said that. Second, we are not unconditionally promising anything to the markets. And I have said that very often in such press conferences. If at any time there is a need to move – we will move. And the markets must know that. Everybody must know that. We will not permit second-round effects to materialise. Because, again, we believe that this is our mandate, and because this would then immediately disanchor inflationary expectations. And it would be something which would be damaging to the overall financial environment of the euro area. We would then have medium and long-term market interest rates going up, because they incorporate these inflationary expectations. And then we would have an environment which would be less favourable for growth and job creation. As regards the information we are extracting from indexed bonds, I have already mentioned that the level of 2.15% that we have in some observations is higher than the level that we had before. And it is certainly a cause for strong vigilance. I have noted also that it remains significantly below the levels that we have observed in the past.

As regards Mr Fazio, I will only mention that we have taken a decision regarding the draft legislation and I could comment on that if I have a question on the draft legislation. As regards the rest, and the investigation taking place in Italy, I have absolutely no comment to make. I have never commented on such matters at any time in the past.

Question: Regarding the draft legislation, can you comment on the opinion that the ECB discussed and approved today?

Trichet: First of all, you will remember that we were asked to give our advice on 13 September 2005, when we received a request from the Italian Minister of Finance, who sent us the article concerning the Statute of the Banca d’Italia. I have a number of comments on the position that was taken by the Governing Council today:

  • First, the Governing Council welcomes the draft article, which provides that the Governor will have a fixed term of office of seven years, without the possibility of renewal. In our opinion this complies fully with the Treaty and is very much standard practice in the European Union.

  • Second, it is the Governing Council’s opinion that a fixed term of office should also apply to the other members of the Banca d’Italia’s Directorate (the “Direttorio”), comprising the Director General and two Deputy Directors General, since they may be involved in the performance of ESCB-related tasks.

  • Third, once the draft article have been fully implemented the state will be the majority – and perhaps almost the sole – shareholder. In the light of the changes to the shareholders’ composition, the election procedure for the members of the Board of Directors (the “Consiglio Superiore”) should be clarified and possibly simplified.

  • Fourth, the Governing Council welcomes the draft article’s intention to increase transparency in the exercise of the functions assigned to the Banca d’Italia. The Governing Council notes that paragraph 6 of the draft article requires the Governor to consult the Directorate on measures related to non-ESCB tasks falling within the Governor’s competence. However, the modification of the current draft to allow for collegiality rather than mere consultation would be desirable. Indeed, collegiality is the rule in all EU central banks for decision-making, especially in supervisory matters.

  • Fifth, we consider that the change in the shareholders’ composition does not affect per se the central bank’s independence. Currently the Banca d’Italia’s financial independence is guaranteed by the provisions of the statutes on the independence of the members of the Board of Directors and on the limits on the distribution of profits to the shareholders. However, given that, according to Italian law, the state is also the residual claimant for non-distributed profits, the ECB’s Governing Council calls for the introduction of a safety clause requiring the maintenance of an amount of capital and reserves that is adequate to ensure that the Banca d’Italia can perform its statutory tasks, thus preventing any potential incentive for the future sole shareholder to increase the amount of non-distributed profits to be given to itself. I would say that these five points are the main points which are enshrined in our advice. You will have the text immediately after this press conference.

Question: A couple of questions, if I may. First, did you discuss a rate increase at all today? And second, you talked a lot about the upside risks to inflation, but you also talked about growth picking up. If growth picks up in the months ahead, would it still be reasonable to expect interest rates to move to more normal rates even if the inflation outlook does not deteriorate, or remains unchanged? And third, just on Mr Fazio and the issue of banking supervision: The ECB has a Code of Conduct that is supposed to cover the conduct of the Governing Council’s members; if the ECB makes no apparent effort to check whether this Code is being adhered to in the spirit and the letter, what is the point of having such a code?

Trichet: On the question on whether or not we discussed it – we discussed clearly the situation and we envisaged advantages and inconveniences associated with the possible decisions we could take. And we concluded that the present rates were still appropriate, that upward risks to price stability were augmenting, and that we were in a posture of strong vigilance. Again, we can move rates at any time if it is necessary. I have already said that and I repeat it. If growth materialises, of course it will be an element that is part of our working assumption, but I remain cautious and prudent. I said that, taking all things into account, we had some signs that our own staff working assumption was materialising. You could have seen, as we have, some surveys that are encouraging, but we have to remain cautious. We will see exactly what happens. If it appears that these positive elements are materialising, then they will be part of our overall analysis and it is clear that it will be incorporated in the overall perspective for price stability in the time to come. So then we will draw all the appropriate consequences. What is for us absolutely crucial is to deliver price stability over the medium term. This is our mandate and this is also what is best for the yield curve of the euro area.

As regards the Banca d’Italia, I said what I had to say regarding our opinion on the draft legislation. I have already told you that we are following the situation and that we have had a dialogue with the Banca d’Italia which is an ongoing dialogue. So I confirm the ongoing dialogue to follow and monitor the situation on this issue of the Banca d’Italia.

Question: I have a question regarding the Bank of Italy’s draft legislation. I would like to know if you voted on this document and, if so, if the vote was unanimous? And my second question is: we have been told that there is an assessment, a document, on the Bank of Italy’s actions with regard to the banking takeover. I would like to know if this document has been given to Mr Fazio or if you will give it to him, and if you could go into detail about it?

Trichet: On the first question: we reached a decision by consensus. On the second question: I have said that the follow-up is ongoing: we continue to monitor the situation, with questions and answers. And that continues.

Question: Sorry if I insist, but did you ask Mr Fazio other questions in response to the answers he gave you officially at the last Governing Council meeting?

Trichet: No, there were no questions asked formally by the Governing Council to Governor Fazio on this occasion. Again, this is an ongoing process. On this occasion we concentrated on the draft legislation on the Banca d’Italia.

Question: Are you going to do so at the next Governing Council meeting or over the coming weeks?

Trichet: It is an ongoing process.

Question (translation from French): Economists, such as Jean-Paul Fitoussi, consider that the euro could be used as a tool to promote economic growth in the euro area. At the same time, however, these economists criticise the ECB for the excessive importance it gives to price stability as opposed to growth. What would you say to these criticisms, which incidentally are often made in France?

Trichet (translation from French): Well, my answer is as follows: the first thing is that price stability, credible price stability over the medium and long term, is a necessary condition for sustainable growth and job creation. That is what Europeans think. And that is why they adopted the Maastricht Treaty. And that is why the ECB was entrusted with the primary mandate of ensuring price stability. Now, I must say that when the Members of the Federal Reserve Board, our sister institution, make public statements, they also say that price stability is a necessary condition for sustainable growth and job creation. We live in a world where the type of logical relationship between price stability and growth is one of “necessary condition”. Over the past two weeks you may have seen that we have observed rates on ten-year government bonds in some countries of the euro area as low as 3%. This is clearly extremely favourable, from a financial point of view, for growth and job creation. When we thought about creating the euro, nobody could have imagined that 311 million people in the euro area would have had access to such low 10-year market rates. The reason we have such low rates is in particular because we are credible, as far as price stability is concerned, over the next ten years; and I could say also over the next 30 years, or even the next 50 years!

Question: I just have a couple of clarifying questions about something you already said. When you were asked about whether the Governing Council had discussed raising rates, you said that the Governing Council had talked about the advantages and disadvantages of decisions. Is that the same thing as saying that you talked about the “pros and cons” of raising interest rates at this meeting?

Trichet: Yes, certainly: the pros and cons of not moving; the pros and cons of raising interest rates.

Question: But a rate cut was not something you talked about?

Trichet: The pros and cons of a rate cut could have been envisaged by some, yes.

Question: At today’s meeting?

Trichet: But, as I said clearly, the risks for us are on the upside, and it is absolutely clear that we have reinforced the message of vigilance.

Question: And the other clarifying question I had was: when you talked about this “dialogue” with the Bank of Italy, you used the word “dialogue”. But is this not really just an investigation into Mr Fazio’s ethical conduct?

Trichet: It concentrates on what has been done as regards the position on banking surveillance and it concentrates on banking surveillance decisions.

Question: Two questions, please. First, the ECB’s position has been described by some analysts as barking and not biting and I was wondering whether you are still barking or whether you are preparing to bite, and whether you can convince the markets that at some point you are going to bite. And a second question on unit labour costs. You are saying that it is problematic that in some countries the rise in unit labour costs exceeded labour productivity – the rise in labour productivity. And I was wondering whether, on the other hand, if the rise in unit labour costs is below the rise in productivity, which we have experienced in some countries, whether that it is problematic in your view as well.

Trichet: On the first question, I have already responded several times, so again: everybody knows that we could move rates at any time. We have not made any unconditional promises to anybody. Second, I am not pre-announcing an interest rate increase. You can draw the conclusion that you want to draw from that, but, again, we are not pre-announcing an interest rate increase. But we do consider that all the elements that we have are indicating that risks to price stability are on the upside. And that in any case it is our determination to move, if necessary and needed, at any time.

Your second question was on unit labour costs. I would say we have two messages on unit labour costs. One is to recognise that the flexibility within the euro area in terms of cost competitiveness is perhaps superior to what some had envisaged before the euro area was set up, meaning that there can be some important moves up or down in the relative cost competitiveness of the various economies. One example is Germany, where you had unit labour costs moving more slowly than the euro area average, which of course corresponded to a catching-up process, because, as you know, Germany had lost, on the occasion of reunification, a good deal of competitiveness, and a catching-up exercise was then in operation. In such cases, it is certainly good to improve the relative cost of competitiveness of the economy. And I would say that in some cases yes, it could be good to have nominal wages and salaries moving more slowly than the labour productivity increases. It is not a common situation, but it can happen, and it can be justified, again, by the need to regain lost competitiveness. I said that we had two messages, and one is the message that the euro area is like any big continental economy where flexibility of the relative competitiveness is an important feature. There are 311 million inhabitants in the euro area, and we have observed the same phenomenon in the United States, for instance. On the other hand, we have also said that there is no room for complacency, because you cannot continue constantly, for instance, to have unit labour costs increasing by more than the average when you do not, in fact, have a good level of cost competitiveness to start with. So we have a positive economic message on flexibility and a message that there is no room for complacency.

Question: Mr Trichet, I have two questions. If I have understood you correctly, you say that the oil price effects which we see nowadays in the inflation rate are short-term effects. Can you explain what you understand by “short–term”, and how long we are going to see these effects? And the second question I have is: you have discussed the draft proposal concerning the Banca d’Italia and you are in favour of limiting the term of the Governor of the Banca d’Italia. Does this mean that, if this law were to come into effect, you would be in favour of Mr Fazio’s term of office being shortened? Would his term have to be stopped when the law comes into effect?

Trichet: On the first question, we have the traditional dialectics between the immediate impact on headline inflation and the secondary effects. When I say “short-term”, I mean that we are seeing the immediate impact of headline inflation. I also mean that we are at a level which is significantly higher than our definition of price stability, at 2.5%. And it will, mechanistically, go higher if there is not a decrease in the price of oil, which can happen. I will not, because it depends on a number of parameters, give you any figures now, but it will go higher – that is absolutely clear – in the months to come. And it is something which has to be very clear. Of course, because of these levels – the nominal levels, as I have already said – we believe that there is an absolute need to be strongly vigilant as regards precisely these second-round effects, which can be much more lasting and are our worst enemies.

As regards the Banca d’Italia, I will only mention what we have already said in previous opinions, for example that any transitional regime would need to be compatible with Article 14.2 of the Statute. This has already been said and that is all I can say.

Question: A month ago, in a press conference in Frankfurt, you were asked to comment on the possibility for Bulgaria to join the euro area in 2010. Then you answered that it is far too premature to discuss this option. You also said let’s see how Bulgaria will join the European Union and then we could embark on such an assessment. As far as the financial stability and the economic reforms in Bulgaria are concerned, what is your opinion? Is the country ready to join the European Union in January 2007 as planned, or should its membership be postponed?

Trichet: Every institution has to respect its own mandate and its own responsibility. So it is up to the European Commission to make an assessment and to the EU Council to decide whether or not Bulgaria is ready to enter the European Union, and I will not give any advice to the Council. When Bulgaria has entered the European Union, then the first question which will perhaps be asked of the ECB will be whether or not it is opportune to enter the exchange rate mechanism, and I cannot respond in advance, so I can only confirm what I said. It is too premature for me to comment on entry to ERM II and, of course, on entry to the euro area itself.

Question (translation from Greek): In the last two years more and more countries in Europe, the euro zone, have been using securitisation in order to decrease their public deficit. What is the position of the ECB regarding this situation, which has been intensifying of late, and which also concerns Greece? Furthermore, now that the negotiations with Turkey have started, what does the ECB think are the major structural changes that will have to be implemented in the banking system?

Trichet: As a general rule, the ECB does not like one-off operations because we believe that then there is a problem: you have it good for one year and it’s not good for the following year. Second, there is an institution that is entitled to decide on such matters, and the relevant institution in this matter is Eurostat, which depends on the European Commission. So, on the question being asked in general here, I will respond that we have first to see what the position of the relevant institution is. As regards Turkey, I already responded on Bulgaria, so I will make exactly the same response for Turkey. It is premature at this stage for us.

Question: Do you think the 1.6% growth forecast from the European Commission is over-optimistic for this year? What do you see as realistic? And you mentioned housing markets: which countries do you think in particular need to be watched?

Trichet: On the first question, I am not sure that the figure that you mention is the appropriate figure if it refers to growth this year. I have myself on behalf of the Governing Council displayed on a previous occasion our own staff estimates, as you know. And this is not the Governing Council’s estimate, it is the estimate of the staff of the ECB, and the last such estimate is of a range between 1% and 1.6%. You can draw the conclusions you want from that. On housing markets, as I said, we have to look very carefully at what happens in housing loans, they are really very dynamic. On the other hand, we have areas in the segment in the euro area, in the vast continental euro area economy, which are extraordinarily dynamic, and others – like the first economy of the euro area in terms of size – that are depressed. We look at the average for the whole of the euro area, so I would say that, as an average, and despite the fact that in Germany the figures are very depressed, we nevertheless have figures that are on the high side, and that is one of the reasons why we have to consider upside risks and have to be strongly vigilant.

Question (translation from Greek): I would also like to ask my question in Greek: Is the ECB concerned by the fact that four to five countries are close to 3% as regards their deficit, or even higher, and do you think we will have the same picture next year? And I would like to ask Mr Garganas how satisfied the Bank of Greece is as regards the decision of the government to decrease this deficit with measures of a non-permanent nature?

Garganas: I do not think that this question is very pertinent and it is not really the responsibility and the competence of the Bank of Greece to deal with questions relating to the Greek budget. It is the Ministry of Finance that is responsible for that.

Trichet: As regards the first question I would very clearly tell you that we had a very strong message on fiscal policies in this Governing Council. And I quote: “it is essential that forthcoming budgets reflect the need for fiscal consolidation” for those countries that are in the situation that you were mentioning “that both progresses at the appropriate pace and is embedded in a well-designed and comprehensive reform strategy”. It is clear that we consider that the reformed Stability and Growth Pact must be implemented rigorously, as we said. It has been approved unanimously by the executive branches, by the Council, by the Eurogroup as well as by ECOFIN, and it has to be implemented rigorously – it is a very clear position.

Question: I insist a little bit on the secure privatisations issue. Commissioner Almunia has expressed his worries about these one-off measures, and he says that he is personally opposed, and he goes towards structural reforms. However, he said that the final decision rests in the hands of Eurostat. I wanted to ask you first whether today there was an exchange of views between the ECB and the Commission on this specific issue, and – in the event that the ECB gives the green light – aren’t you afraid that this will be the end of the Stability Pact that you support so much?

Trichet: First of all, we did not discuss that point today. Second, I said exactly what I had to say. We are, in principle, against one-off operations because we believe that they do not help at all. Second – again it is a question which has to be checked, examined in detail and decided upon by Eurostat, which depends on the Commission itself. As far as we are concerned – again, we maintain our position, which is rigorous implementation of the Stability and Growth Pact.

Question: Before you said that the judgement about the Banca d’Italia makes reference to Article 14. Does that mean that Mr Fazio can remain as Governor for five more years?

Trichet: I mentioned 14.2. Any transitional regime would need to be conducted within Article 14.2 of the Statute.

Question: Mr Trichet, ECB officials have said repeatedly that they have been monitoring the situation surrounding Mr Fazio. My question has nothing whatsoever to do with Mr Fazio’s person, but, in the name of transparency, could you tell us how the ECB monitors the conduct of the Governing Council members? What is the process involved? And my second question is about reforms: Do you believe that some governments have squandered an opportunity to undertake reforms and relax monetary policy and are you alarmed about events such as strikes in France and a formation of a grand coalition in Germany which threaten to further slow the progress of reforms?

Trichet: On the second point I will only say that our position is crystal clear: we really think that implementing structural reforms all over the euro area will make it possible to elevate the level of the growth potential of the euro area, and this elevation of the growth potential is necessary if we want to have, again, more growth and more job creation. So that is a clear position, and we ship that position to all partners – in particular to the public. Mainly to the public opinion, because it is the public opinion which has to be convinced. If the public opinion were convinced then everything would be much easier, in particular at the level of parliaments, at the level of governments, and at the level of social partners in general. Again, as regards the Banca d’Italia, we are examining the position which has been taken as regards a particular responsibility, which is banking surveillance. Banking surveillance, as you know, is an area where you have a decentralised system and national responsibilities that are taken by various national institutions – such as central banks, independent commissions, or any kind of national arrangement.

Question: Are you going to open a procedure on the Fazio case or are you thinking of opening one? This is the first question. And the second question is: is it true that you are dissatisfied with the answers Fazio gave you on 15 September on this case?

Trichet: I will not say anything, on top of what I have already said, except that we are monitoring the situation. I know that the European Commission, as you may know yourself, is also examining the situation. And I will not comment on whether or not we are satisfied. We are in an ongoing process.

Question: Could I just ask if you will release that report? You say that you are doing an assessment, you are monitoring. Will you release your files?

Trichet: …I cannot tell you what we will do.

Question (translation from French): How does the European Central Bank apply a common monetary policy on interest rates which reconciles the needs of very different economies, such as those of Germany and Greece?

Trichet (translation from French): We are in a huge continental economy of 311 million people. In the Governing Council we consider all of these 311 million people, just as the Federal Reserve in the United States takes simultaneous account of Massachusetts, Florida, Alaska and California, all of which may have very different situations, as they historically have had.

Question: Just a quick question for clarification. If I understood you correctly, you said that you discussed the pros and cons of an increase today; you discussed the pros and cons of leaving rates unchanged; and that the pros and cons of a rate cut may have been envisioned by some. I just want to clarify that you did not, in fact, discuss a rate cut today.

Trichet: We did not discuss a rate cut today.

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