Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB,
Frankfurt am Main, 3 November 2005

Jump to the transcript of the questions and answers

Ladies and gentlemen, welcome to our press conference. Let me report on the outcome of today’s meeting, which was also attended by Commissioner Almunia.

On the basis of our regular economic and monetary analyses, taking into account ongoing upward pressure on prices stemming mainly from energy price 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 the upside risks to price stability is warranted. Strong vigilance is also called for in the light of ample liquidity and buoyant monetary and credit growth in the euro area. It is of the essence that the increase in current inflation rates does not translate into inflationary pressures over the medium term and to ensure that inflation expectations remain firmly anchored at levels consistent with price stability. Across the maturity spectrum, interest rates in the euro area remain very low in both nominal and real terms, and the current very accommodative stance of monetary policy lends considerable support to economic activity.

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

Although economic growth has been dampened by the marked increase in oil prices over recent quarters, it appears that the euro area economy has shown considerable resilience to this shock, supported also by responsible wage-negotiating behaviour. Moreover, the latest indicators suggest that economic activity is currently strengthening. This would be in line with the September ECB staff projections, which indicate a gradual recovery from the second half of 2005 onwards. On the external side, it is projected that ongoing growth in global demand will support euro area exports, and on the domestic side, that investment will benefit from continued favourable financing conditions, as well as from the robust growth of corporate earnings. Consumption should gradually recover, broadly in line with expected developments in real disposable income. At the same time, the outlook for economic activity remains subject to downward risks, relating mainly to oil prices, concerns about global imbalances and weak consumer confidence.

Turning to price developments, recent increases in mainly energy 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 October 2005, compared with 2.6% in September and 2.2% in the two preceding months. It is likely that HICP inflation will remain elevated in the short term. As we stressed in October, it is key in interpreting current inflation rates 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 some developments might prove to be transitory, 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. This suggests a more lasting impact of energy prices on overall price developments.

This assumption underlies our forward-looking assessment of price developments. At the same time, wage increases have remained contained over recent quarters and, with labour markets weak, this should continue for the time being. Moreover, pressure from manufacturing prices remains low given strong global competition. All in all, while inflation rates are expected to stay above 2% over the shorter term, there continues to be no clear evidence yet of domestic inflationary pressures building up in the euro area.

We remain, however, concerned about the medium-term upside risks to this scenario. As we stressed a month ago, 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. In addition, possible further increases in administered prices and indirect taxes have to be taken into account. Hence, strong vigilance is required to ensure that medium and long-term inflation expectations for the euro area remain well-anchored.

The monetary analysis also points to increased upside risks to price stability over the medium to longer term. Liquidity in the euro area is very ample by all plausible measures. Moreover, the strengthening of monetary growth observed since mid-2004 has gained further momentum over the past few months. Growth in the monetary aggregate M3 has been driven by its most liquid components, confirming the increasingly dominant impact of the low level of interest rates. Furthermore, the growth of borrowing, especially mortgage loans, remains very robust. In this context, price dynamics in a number of housing markets need to be monitored closely.

To sum up, the economic analysis indicates that energy price increases, in particular, imply upward revisions to the outlook for short-term price developments. Some of the contributing factors can be expected to be temporary but 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 increased risks to price stability over the medium to longer term. Overall, cross-checking the information from the two pillars confirms that strong vigilance is warranted to keep inflation expectations in line with price stability. Only by keeping medium and long-term inflation expectations firmly anchored at levels consistent with price stability can monetary policy make a significant ongoing contribution towards a recovery in economic growth.

As regards fiscal policies, a number of countries have presented their 2006 budget plans. Despite some welcome progress with fiscal consolidation, the outlook for countries in excessive deficit is a matter of great concern, as there is a risk of consolidation not proceeding and commitments for this year and next not being met. Further delays in the correction of excessive deficits and a continued inclination to look for the most lenient way to implement the procedural steps of the revised Stability and Growth Pact risk undermining the Pact’s credibility. This must be avoided. All parties involved in the forthcoming decisions carry an important responsibility to ensure the proper functioning of the overall fiscal framework in the future. This would be the most effective way to enhance the growth prospects of the euro area and to build confidence in public finances ahead of the time when the challenges of population ageing set in. We therefore urge countries with fiscal imbalances to give priority to their timely correction and to implement the revised Pact rigorously. This will send the right signal to the public and support the credibility of the fiscal framework.

As regards structural reforms, we stress again the urgent need to increase the flexibility of labour and product markets in order to achieve a more dynamic and competitive European economy and to help foster the adjustment processes within the euro area. The opportunities arising from globalisation and rapid technological change can best be captured by allowing and by speeding up structural change with a view to enhancing potential growth and employment creation. This would also help to facilitate the necessary adjustment to the higher level of oil prices by further increasing energy efficiency and energy savings, while avoiding distortionary measures that hamper the adjustment process.

We are now at your disposal for questions.

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Transcript of the questions asked and the answers given by Jean-Claude Trichet, President of the ECB, and
Lucas Papademos, Vice-President of the ECB

Question: Mr Trichet, can you tell us please: are you preparing for an interest rate rise?

Trichet: I already said several times that we were not promising anybody that we would not move. And that we stand ready to move at any time when it is required by our mandate and by the situation. Today, and as I said in Athens – and we referred explicitly to the Athens judgement and assessment - we think that present interest rates are still appropriate, that strong vigilance is of the essence in the present situation and that inflationary risks are on the upside. I will only mention that. We are very clear that we can move at any time.

Question: Did any Council members at today’s meeting propose increasing interest rates today? And, secondly, the ECB has repeated over and over again over the past month the need for strong vigilance. And you said today that it is of the essence that the outlook for price stability is maintained. Are you nevertheless concerned that inflation expectations, both measured by inflation-linked bonds and also measured by surveys of households and consumers, are nevertheless still rising?

Trichet: First we did not repeat again and again. In Athens we said “strong vigilance”, and I repeat “strong vigilance”. But before Athens we did not use this adjective. Second, we considered the pros and cons of increasing rates or leaving rates unchanged. And we concluded that the present level was still appropriate. Third, we are monitoring expectations very closely. And, as I said on behalf of the Governing Council, the solid anchoring of inflation expectations is of the essence not only to fulfil our primary mandate to which we are inflexibly faithful, because it is the Treaty requirement, but also to continue benefiting from favourable market interest rates, particularly medium, long-term and very long-term, which incorporate this solid anchoring of inflation expectations. From that standpoint we are looking at all possible information, particularly the break-even inflation. And we could observe during the last months a certain tendency to go up. We are looking at this element very carefully.

Question: Mr President, did you come to any conclusion about the Fazio story?

Trichet: On behalf of the Governing Council I will tell you where we stand.

First, the Governing Council recalls the ECB’s Opinion of 6 October 2005 on a draft article concerning Banca d’Italia to be inserted in the draft law on the protection of savings. In particular in relation to paragraph 6 of this draft article, which requires the Governor to consult the Directorate on measures related to non-ESCB tasks falling within the Governor’s competence, the Governing Council is of the opinion that, in light of the widespread practice in the European Union for decision-making in supervisory matters, a modification of the current draft to allow for collegiality would be desirable. This is a reminder.

Second, the Governing Council is fully committed to respecting the general principles of Community law, such as that of ensuring a level playing field among all market participants without any distinction based on nationality. In this context, it is recalled that Article 105 (1) of the Treaty and Article 2 of the Statute of the ESCB and the ECB require the ESCB to act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources.

Third, in line with the Treaty provisions, according to which the ESCB is asked to contribute to the achievement of the Community objectives, the Governing Council is fully committed to the goal of promoting financial integration in the European Union. This is also clearly reflected in the Eurosystem’s mission statement, which was made public in January 2005.

My fourth point is: against this background, as already mentioned on past occasions (here at these press conferences), the Governing Council initiated an informal dialogue with Banca d’Italia as regards some recent cross-border takeover bids concerning Italian banks.

Fifth: In conducting its informal dialogue, the Governing Council did not intend to interfere with investigations conducted at the level of the European Commission. The Governing Council recalled in particular that the European Commission has sole jurisdiction to decide whether bank mergers are compatible with the Single Market Act.

Sixth: Moreover, in conducting its informal dialogue, the Governing Council did not intend in any respect to interfere either with investigations conducted at the national level, or with the supervisory responsibilities of Banca d’Italia defined by national law.

And my last point is the following: Without prejudice to the outcome of the current proceedings in Italy, as a result of its informal dialogue, the Governing Council has come to the conclusion that the procedures followed in the context of the recent cross-border takeover bids concerning Italian banks were based on a national legal framework that allows for a degree of discretion that could be used in a manner which is not necessarily in line with the above-mentioned principles and objectives of the Community.

And that is the position of the Governing Council expressed by my voice.

Question: You have now left your benchmark rate at 2% since June 2003. In light of the ample liquidity in the system – continuing to enter the system – do you believe that this rate has served its purpose in exactly what it is the benchmark rate is supposed to do? My second question to you is: Many of the indicators describing the economic situation that you outline in the Introductory Statement are forward-looking indicators that have come out over the last month. Can we infer from that that you do place some importance on leaning forward somewhat and anticipating these sorts of inflationary pressures before they arrive? My last question is just a clarification: You say here on the first page of the Introductory Statement that the euro area economy has shown considerable resilience to this shock – that is the oil shock – supported also by responsible wage negotiating behaviour. What shall we infer from that? That wage behaviour is now not a pressure on inflation?

Trichet: First question: Yes, we believe that the 2% level that has been maintained for a substantial period of time has been the right response by the ECB to the various situations in which we found ourselves. I would insist on one point which I consider very important. It’s perfectly clear today that we can move at any time and I warn the market very clearly in this respect. Even in the second semester of 2003 and during all of 2004, we never promised that we would not move. We were called on to say and to promise the market that we would not move for a “considerable period of time” – you might remember that – by a variety of economists, by a variety of good advisers. We said no. We said, as a central bank, we want to be able to react at any time without being tied by pre-commitments. We are responsible for price stability; we are responsible for delivering price stability. It’s as simple as that. The fact is that, during all this period, we have maintained a solid anchoring of inflation expectations even in very difficult circumstances, and even when – including in 2004 – we had tensions and shocks. To your first question, it’s absolutely clear that we believe that we handled these difficult circumstances very well.

Your second point on forward-looking indicators: it’s clear that we have a concept of monetary policy which is designed for the medium-term and we absolutely need forward-looking indicators. It is also, from that standpoint, absolutely clear that we have to look permanently at the risks, and particularly the upside risks, of inflation. We will never – and I trust that no central bank would – wait for the materialisation of these risks to act. The problem, on the contrary, if you want to solidly anchor inflation expectations – particularly in the medium and long term – is that you have to be able to anticipate. That’s clear and that’s the way the Governing Council considers this issue.

As regards wage behaviour, it is clear that, so far, we have not observed the kind of crystallisation of increase in wage and salary settlements, those second-round effects that are our main enemy. In a period where we have an oil shock it’s clear that we permanently call on social partners to be aware of the fact that it is extremely important to avoid such second-round effects and we will continue to monitor this particular point with extreme care.

Question: So you had a statement about the case Fazio. I am asking myself after such a long time: that was it? I mean, are you going to follow this with some other action or was this your final statement? Your final statement is very different from the statement given by some other Governors who were very angry because of the behaviour of Mr. Fazio against the European rules. And then you were speaking about the behaviour not necessarily being in line with the principles of the European Union. What exactly is not in line? Can you give some examples? Then, to move on to another subject, you are saying that we never promised that we would move, you didn’t but we had the impression that some other…

Trichet: I respond first to your last question: I said the contrary : “We never promised that we will not move.” The advice we got was: “declare in advance that you will not move.” We refused to say that.

Question: Ok, but we had the impression that not everybody in the Council had the same opinion about raising or not raising interest rates. Can you tell me if the Council was divided on this matter, please?

Trichet: The Council is not divided and has not been divided and all those who have spoken during the last month had no other message than the Athens message of the Governing Council. Of course, there are phenomena of communication and you all are experts on communication. One sentence is picked up, another one is picked up. It is probably unavoidable that some sentences have been tougher than others and so forth. But the fact is that we were all in agreement with the message of Athens and we are all in agreement with the present message, which is the very clear message of the Governing Council.

As regards the position of the Governing Council on the Italian case, I am not speaking of the position of any particular Member of the Governing Council, including a few that might have expressed themselves. I expressed the position of the Governing Council and I can repeat it, if you wish, but I will stick to that. This is our sentiment after conducting this informal dialogue. There are a number of other proceedings and our conclusion after recalling what we had already said on the improvement of the legislation in Italy because we were asked by the Italian Government. This is the first paragraph of the position of the Governing Council. We mentioned the modification of the current draft to allow for collegiality, which would be desirable, and without prejudice to the outcome of the current proceedings in Italy, as a result of its informal dialogue the Governing Council has come to the conclusion that the procedures followed in the context of the recent cross-border take-over bids concerning Italian banks were based on a national legal framework that allows for a degree of discretion that could be used in a manner that is not necessarily in line with the above-mentioned principles and objectives of the Community to which the Governing Council is attached. I will stick to that.

Question: Excuse me you will not add anything else? The case is closed?

Trichet: This is the end of our informal dialogue. This is our assessment.

Question: Will you start a procedure now? Will you start a formal procedure?

Trichet: This is the end of this informal dialogue.

Question (translation): May I put a question in French? I am from Canada. In the communiqué you said that you were looking at the situation and there’s a lot of uncertainty at the moment. In this case, I would like to know whether you are worried about the real estate bubble in the United States and whether you think that the situation could get even worse and if it were to get worse, would you change your position?

Trichet (translation): On this precise point I would only say that I signed the last statement of the G7. We had a consensus, worldwide consensus, and this worldwide consensus states quite clearly that each continent and each major industrialised economy has its own homework to do. As far as Europe is concerned for us the homework is structural reforms. Structural reforms which we all think are absolutely essential. Looking at the United States, it is quite clear, that their main problem is the fact that savings in the American economy are far too low. There is an international consensus on that point as well and that has been signed by the main industrialised countries. So we agree as far as the diagnoses are concerned and we agree that these defects have to be corrected. We also agree that we have to correct them in the most resolute way possible. That is all what I would like to say on that point, but it is quite clear that there are defects that have to be rectified in all the major international economies.

Question: I have a couple of short questions that maybe only require a “yes” or “no” answer. Last month in Athens you said ‘I am not pre-announcing a rate increase’. Would you like to repeat that statement today? Secondly, did you vote today? Can I also ask whether the ECB believes, as a matter of policy, does it believe in pre-emptive strikes? And thirdly, just on the question of Mr Fazio, do you still have confidence in Mr Fazio to exercise his responsibilities? You personally?

Trichet: On the first point, which was whether or not I will repeat if I would pre-announce something, I say exactly what I said in Athens, which does not mean that we cannot move at any time. And I said that in Athens too.

Second, we had a very nice discussion, again, weighing the pros and the cons which were associated with the two possibilities I already mentioned, and we came to a consensus. As regards the pre-emptive strike: it is clear, and as I said already, that the ECB, as well as all central banks deserving that name would not accept to wait for inflation to materialise before acting. We are always projecting ourselves into the future. You know that our present action, according to the mainstream academic research, would probably start having real influence over a period of perhaps 18 months, perhaps two years, and will continue to have influence over a longer period of time.

Regarding Mr Fazio, I will stick to the statement of the Governing Council.

Question: Mr Trichet, I have problems understanding you. You say that the Governing Council was in line with one message in Athens. You are in line with this message today and we are all talking about the same message. So, I hear you. How do you explain against this background what happened in the bond markets and in the money market in between? If you compare the figures one day before or after Athens and you compare the figures now you will see that the yield curve is different. You will see that the futures are different in their prices. Are you trying to say that all the money market people and the people buying bonds all misunderstood the voices coming from the Governing Council within the last four weeks?

Trichet: It’s my turn not to understand your question. In Athens we changed our message. It is absolutely normal that the various market participants and the interest market as well as the futures markets will have reacted. So what I have observed is in line with what we had decided to say …

Question: But look at the last ten days for example. Actually, that is true what you say; the markets should have reacted shortly after Athens. But that is not what they did. They reacted during the last ten days; you had the highest reactions then. How come that the markets are so stupid that it takes such a long time to realise what the Governing Council is saying …

Trichet: No, the markets are not stupid at all. The markets are deciding on the basis of their own judgement and assessments. They are very much deciding after reading your excellent articles, because they depend very much on the information they have and the overall environment including, of course, your own communication. So, I have nothing to say on the market itself. The market is perfectly the master of all its judgements and assessments. As far as we are concerned, we have no particular judgement of what the markets think or don’t think. I only tell you the following: we are, after Athens, in a different mode of assessing the situation. We have changed our communication. It was very clear in all media after Athens. I read all papers that were produced after Athens. It was very clear that it was very different from what we had before. I can only confirm to you, again, rates are still appropriate. Strong vigilance is of the essence in our eyes and we clearly see increased risks to price stability. That is exactly what we are saying and observing. And I add to that that we can move at any time. So, if you need some other information perhaps you could communicate to me what your assessment is of what the market is doing. But as far as we are concerned, we are very clear on what we think.

Question: President Trichet, as you, in the Governing Council, weigh the pros and cons of raising interest rates and compare the pros and cons with last month and the pros and cons with this month, could you give us a sense of how those lists of pros and cons are going? Is the list of pros gaining weight?

Trichet: I think I was clear on that. We can move at any time. And I would say that we have had, since Athens, several confirmation of our appreciation a month ago. As regards the monetary aggregates; as regards the components of the monetary aggregates, including M1, which is very dynamic; as regards the counterparts of monetary aggregates, including loans to the private sector, which are very dynamic; as regards our working assumption of a second semester, which would demonstrate a certain pick-up in economic activity. I still remain cautious and prudent. Again, we look at hard figures and we look at facts. But all that we have seen since Athens confirms and reinforces our judgement. That is what we are telling you right now.

Question: And just a quick second question. How confident are you that the euro area economy is strong enough to weather a rate hike?

Trichet: A rate hike would be justified by the necessity to deliver price stability over time. Delivering price stability over time and being credible in this delivery permits our yield curve and particularly the medium and long-term market interest rates to continue to be very favourable to growth and job creation. So, in our own judgement there is no contradiction between being faithful to our mandate and supplying Europe what it might need in terms of growth and job creation. And it is very important that you understand this sentiment of the Governing Council. We will see what happens in Europe. It is clear that the working assumption I have mentioned, which is the working assumption of the staff of the ECB, is also the working assumption of all international institutions. A disappointing first semester and a second semester, which would be more in line with this assumption of a pick-up in economic activity. I have always told you that we were totally pragmatic. We will see exactly what happens. We have a number of indications that confirm this working assumption, including various surveys, industry PMI, service PMI. We might have some indications that were obviously less flattering on the consumption side. But so far there is nothing to contradict the working assumption.

Question: Sorry, Mr President, but I would like to ask you again about the Fazio case. Specifically, what do you mean when you say that Italian law gives a Governor too much “discretion”? We are talking about the case of Antonveneta. When you say that Mr Fazio has had too much “discretion” in this decision, what do you mean?

Trichet: I said in advance that I will stick to the position of the Governing Council. We, the Governing Council, have a position: we say clearly that - as you mention yourself - under the national legal framework there is a degree of discretion that could be used in a manner that is not necessarily in line with the above-mentioned principles and objectives. This is the position of the Governing Council.

Question: If the draft law is not changed in the way that you would like it to be, what will you do?

Trichet: It is not a matter for the Governing Council. Each institution has to be up to its responsibilities. There are a number of institutions – you have the Italian government, you have the Italian Parliament, you have a number of authorities in Italy, you have the Banca d’Italia, you have the advisory board of the Banca d’Italia, you have the European Commission, and ourselves. As far as we are concerned, this is what we think after this informal dialogue. And all the other authorities have their own duties according to their own charters, their own legislation, their own authority on the basis of law or rules and regulations in the democracies that make up Europe.

Question: Just to make another point clear – that also means that the European Central Bank does not think that Mr Fazio broke Italian law? Or that there are some laws and a framework that may leave a degree of discretion?

Trichet: I do not want to repeat for the fourth time what I already said.

Question: You said just now that there are many institutions that have to take the necessary steps to decide something…

Trichet: Again, as regards the national law in question, we consider that it allows for a degree of discretion that could be used in a manner which is not in line with the principles to which we are attached. That is the clear position of the Governing Council.

Question: You expressed your great concern about the progress of fiscal consolidation for countries in excessive deficit. Could you specify which countries you are referring to?

Trichet: Unfortunately, there are a large number of countries in excessive deficit, so I do not want to mention any particular country. If there were only one or two I could specify those two countries. .It is, of course, one of our main worries that we have a lot of countries and economies that are in this situation.

Question: Mr Trichet, you know that some economists are starting to count how often you use particular words in your press conferences. Last time, in October, you used the words “vigilance” or “being vigilant” 14 times. This time I think you used it much less but it seems to me that you used the sentence “we can move at any time” much more often. Is this the main message you want to give at this press conference?

Trichet: I rely very much upon your own assessment and judgement. The Governing Council is very clear in its own assessment and it produces a judgement which you hear from me and which you have in written form. You should not over-interpret it. I am exactly in the “mood” of Athens with the additional message that everything we have observed since then has confirmed the working assumption we made in Athens, both in terms of risks that are increasing and in terms of a pick-up in activity. The Governing Council is totally pragmatic. Everything we have seen since Athens has confirmed the working assumption we made there.

Question: Three very brief questions: first, you say you are in the “mood” that you were in Athens. Could you tell me of the need for vigilance on price stability – is it stronger now than it was a month ago? The second question is on banking surveillance: will the ECB spearhead a movement or a move to harmonise national discretionary practices on banking surveillance and mergers? And my third question has to do with M3 and money supply. We know that money supply growth is now due more to credit demand than to portfolio shifts as was earlier the case. Just how far does money supply growth have to go for it to become unbearably uncomfortable for the Governing Council? Can this keep on going as it has been?

Trichet: On vigilance I have already responded. We are in the “mood“ of Athens. Everything that we have seen since then has confirmed that our working assumption was well-founded.

On the second question, I would repeat what we have already said on the banking surveillance exercise. We are very keen on having the closest possible harmonisation and cooperation between the various authorities concerned. But it is a complex situation where you have some authorities that are the central bank itself, other authorities that are close to the central bank but not the central bank, others that are totally outside the central bank, some that are specialised in banks, and others that have a responsibility in the banking sector and other sectors, including insurance or the markets in general. As regards M3, it is absolutely clear that we have two pillars. We consider the monetary pillar as being very important for us, particularly as we had to organise the transition to the euro in a fashion which was extraordinarily ambitious, because we had to ensure that the euro had the highest possible level of credibility. I am very proud to say now, in 2005, that we have maintained the euro as credible as the best and most credible currencies that existed in Europe before the euro, including the Deutsche Mark. And that is something that is very important. This credibility is measured not only on a short or medium-term basis but also on a long and even very long-term basis, including over 30 years and 50 years – and we can check the credibility over 30 years and 50 years because such long-term bonds are issued. It is clear that we are helped by our monetary pillar. In the long or very long term, inflation is a monetary phenomenon, and so we look at it very carefully. M3 dynamism is indeed very closely associated with loan dynamism as a counterpart and that is one of the main reasons why we consider the risks to price stability to be clearly on the upside.

Question: If possible, could you please provide an assessment of the global economy, including the US, for next year perhaps?

Trichet: We, the Governing Council do not produce projections ourselves. We refer to the projections of our staff, to the projections of the private sector or of various institutions and we make a judgement on the basis of this set of projections. So, all I could say, is that at a global level there is very large consensus and we are part of this consensus which considers that the risks that are at stake are the oil price, which is a very important risk. We all have to be fully aware of that. And we have particular difficult - as you know - because the futures market for instance is not a good predictor. We all have this problem. Second, we have another element which also has to be taken into account, which are the global imbalances. I already said that we are in agreement on the diagnosis. We also are in agreement on the work to be done by the various major economies in the world. It is good that we have a consensus on the diagnosis. It is good that we know what we have to do. It would be even much better if you could do it in a very effective and active way. This has still to be demonstrated but we encourage of course all actors and responsible entities to do that. We have undoubtedly another risk which I have to mention which is protectionism. Because global prosperity depends very much on the absence of protectionism and the least that I can say is that we are looking here and there and we see some emergence of this risk, which is extremely unfortunate. There is a last element which I have to mention which has been mentioned by the financial stability forum as a major risk, which is the under-pricing of risks in the global economy at the present moment, at least till now where we see very low real interest rates. We see very low spreads, we see very low risk premia and this is of course an element which has to be looked at carefully because it is not necessarily sustainable over the long run. We have to be fully aware of that.

Question: Can I ask you about the recent US interest rate hike? Are you satisfied with the interest hike by the Federal Reserve and is it helpful for the next step of the European Central Bank?

Trichet: Each central bank has its own responsibility. I never comment on the decisions which are taken by the Bank of Japan or the Federal Reserve or other fellow central bank governors. And I do not expect that they would comment on what we do ourselves

Question: Otmar Issing called communication some years ago at the London School of Economics “the hidden pillar of the ECB strategy”. I have the impression that communication is not hidden now if you are repeating “strong vigilance”. Isn’t there a risk of credibility? And then I wanted to quote indirectly Johann-Wolfgang von Goethe – “Faust” – and I’ll do that in German. In the prologue he said: “Worte sind genug gewechselt – lasst uns endlich Taten sehen”. [Enough words, let’s see action] Isn’t that a risk also in the communication strategy?

Trichet: I would not like to turn myself to Heine and “Ich weiß nicht, was soll es bedeuten...” I think that communication and transparency are very important. The dialogue that we have is very important. It is very complex because you journalists represent Europe and you represent the world. Through you we communicate with Europe and with the world through your own judgement. I have to say that, the next day with Lucas we look at the titles and the articles and there is a wide range of interpretation. So what counts is finding the mainstream, the bulk of the message, but we have to accept the complexity of European and global communication. We are very proud that since the very beginning we introduced an element of transparency that did not exist before. You remember in January 1999 a central bank would have decided on the rates and would have not given an explanation for five or six weeks, which was the rule of the game and the state of the art of central banking at this point in time! We, since day one, introduced major elements of transparency, such as the introductory remarks and the press conference. We changed the state of the art of central banking and today there is no central bank that can move rates or not move rates without explaining why. That is now state of the art, with shorter or longer explanations, but all are giving explanations. So I believe that we were instrumental in moving a bit the state of the art in this respect. We try to do as well as possible, thanks to you also, in terms of being transparent and communicating in a world which is complex.

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