Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB,
Frankfurt am Main, 8 February 2007

Jump to the transcript of the questions and answers

Ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today’s meeting of the ECB’s Governing Council. The meeting was also attended by Commissioner Almunia.

On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. The information that has become available since our last meeting has further underpinned the reasoning behind our previous decisions to raise interest rates. It has also confirmed that strong vigilance remains of the essence so as to ensure that risks to price stability over the medium term do not materialise. This will permit medium to longer-term inflation expectations in the euro area to remain solidly anchored at levels consistent with price stability. As emphasised on previous occasions, such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. Our monetary policy remains accommodative, with the key ECB interest rates still at low levels, money and credit growth vigorous, and liquidity ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.

Allow me to explain our assessment in greater detail.

Turning first to the economic analysis, the latest indicators and survey data suggest that the economic expansion has continued into 2007 and remains solid and broad-based. Looking ahead, while some volatility in the quarter-on-quarter growth rates of real GDP cannot be excluded, the medium-term outlook for economic activity continues to be favourable. Conditions remain in place for the euro area economy to continue to expand at rates around potential. Global economic growth, which has become more balanced across regions, remains robust, providing support for euro area exports. Domestic demand in the euro area is expected to maintain its momentum. Investment should remain dynamic, reflecting the benefits of an extended period of very favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong earnings, and gains in business efficiency. Consumption should also continue to gradually strengthen over time, in line with developments in real disposable income, as labour market conditions – in particular employment growth – continue to improve.

Risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At longer horizons, risks lie mainly on the downside. The main risks relate to fears of a rise in protectionist pressures, the possibility of a renewed increase in oil prices, and concerns about possible disorderly developments owing to global imbalances.

With regard to price developments, it is essential to stress the importance of taking a medium-term perspective and to look through the possible volatility of inflation rates over the course of 2007. In this respect, it may be helpful to consider the potential volatility of inflation in greater detail. In the very short term, it appears that the changes in VAT in a large euro area country were not fully reflected in prices in January. Thereafter, it should be noted that on the basis of current prices for oil and oil futures and previous oil price developments, significant favourable base effects may progressively lead to lower inflation rates in the spring and summer. However, these effects will be temporary. Later in 2007 inflation rates are expected to rise again as a result of unfavourable base effects.

The medium to longer-term outlook for price stability remains subject to upside risks. They continue to include a stronger pass-through of past oil price rises into consumer prices than currently anticipated and additional increases in administered prices and indirect taxes beyond those announced thus far. Furthermore, renewed increases in oil prices cannot be excluded. More fundamentally, stronger than currently expected wage developments pose substantial upward risks to price stability, given the favourable momentum of real GDP growth observed over the past few quarters, the fact that survey measures of capacity utilisation are approaching the peak levels reached in 2000, and the ongoing improvement in labour market performance. It is therefore crucial that the social partners continue to meet their responsibilities. In this context, wage agreements should take into account productivity developments while recognising the still high level of unemployment and price competitiveness positions. Indeed, the Governing Council will monitor the upcoming wage negotiations in the euro area countries very carefully.

The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. Annual M3 growth rose further to 9.7% in December, marking the largest increase seen since the introduction of the euro. Of course, monthly figures can be volatile and we should not overemphasise short-term developments. However, continued strong money and credit growth confirm the view that the underlying rate of broad money expansion in the euro area remains vigorous, with no evidence as yet that the steady upward trend observed since mid-2004 has been halted or even reversed.

The ongoing robust expansion of money and credit reflects the still accommodative monetary policy stance and the strengthening of economic activity in the euro area. At 10.7%, the annual growth rate of loans to the private sector remained strong in December, although showing a slight moderation with respect to the previous month. Strong growth in private sector credit reflects the continuation of the upward trend in the growth of borrowing by non-financial corporations seen since mid-2004. Meanwhile, in the context of rising mortgage rates throughout the euro area and slowing housing markets in some regions, the growth of household borrowing has shown some further signs of moderation in recent months, albeit remaining at still very high rates.

Taking the appropriate medium to longer-term perspective for assessing trends in money and credit growth, the latest developments confirm the continuation of a persistent upward trend in the underlying rate of monetary expansion. Following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. Persistent strong monetary and credit growth in an environment of ample liquidity point to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring, particularly against the background of a solid expansion in economic activity and continued strong property market developments in many parts of the euro area.

To sum up, in assessing price trends it is particularly important to look through any short-term volatility. On the basis of today’s assessment, after a possible fall over the spring and summer, inflation rates are likely to increase again later in the year. Risks to the medium-term outlook for price stability remain on the upside, relating in particular to stronger than currently expected wage developments. Given the very strong monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. Hence, we will be strongly vigilant in order to ensure that risks to price stability over the medium term do not materialise. This will support the solid anchoring of medium to longer-term inflation expectations in the euro area at levels consistent with price stability. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.

As regards fiscal policy, first indications confirm that fiscal developments in the euro area were relatively favourable in 2006 on the back of strong output growth and revenue windfalls. It is now essential that the momentum of improving public finances is maintained and that the pace of fiscal consolidation accelerates in 2007 and 2008 so that all euro area countries attain their medium-term objective of a sound fiscal position as soon as possible. Better than expected budgetary outcomes in 2006 and possible further revenue windfalls this year should be used for faster fiscal consolidation. Experience has shown that the temptation to relax expenditure restraint, delay necessary reforms or pursue pro-cyclical policies in an upswing needs to be firmly resisted. Fiscal consolidation measures have the best chance of success when they are based on a credible and comprehensive reform strategy, with a focus on reducing expenditure rather than increasing revenue ratios.

The Governing Council stressed that progress in the area of structural reforms and moderate increases in labour costs in some countries have been key factors in increasing employment and reducing unemployment over the last few years. Indeed, while still high at a rate of 7.5% in December 2006, the standardised unemployment rate was the lowest since the series began in 1993 and has fallen by 1.4 percentage points since its latest peak in June 2004. To fully exploit the beneficial effects of Economic and Monetary Union and the Single Market, further structural reforms must enhance the adjustment capacity of the euro area. This includes sufficient wage differentiation, especially to improve employment opportunities for less skilled workers and in regions with high unemployment. It also encompasses more flexible product and labour markets that would give rise to new investment possibilities and innovation. And it requires the removal of impediments to labour mobility – between jobs, between regions and across borders. Let me therefore recall that with Slovenia having entered the euro area, its labour force needs to be granted full access to the labour markets of all euro area countries. Generally, structural reforms, in combination with fiscal consolidation, must support sustainable developments by limiting the burden that is shifted to younger and future generations. Considerable challenges therefore remain, which differ across countries but which all urgently require determined action.

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: I have two questions, Mr Trichet. With the use of the term “strongly vigilant”, the markets are expecting that you will raise interest rates in March. Can you comment on these expectations? Also, moving beyond that, you warned against paying too much heed to short-term volatility in the drop-off of the inflation rate over the next few months, but warned against upside risks to price stability later in the year. You said that you would act in a firm and timely manner. Would you be of the mind to act in a firm and timely manner ahead of these inflation risks materialising later this year?

Trichet: First, as regards the expression that you cited: it speaks for itself and I have nothing else to say on that. As regards the profile that I mentioned on behalf of the Governing Council in the introductory remarks, I draw your attention to the fact that our horizon is medium-term. It is in the medium term that we deliver price stability and that we are credible in delivering price stability. I wanted to make clear that we know in advance, on the basis of present information as regards the price of oil, in particular, that we would probably have a particular profile in the course of 2007, with diminishing yearly inflation rates month after month due to base effects and then a picking-up at the end of the year. This is taking into account present information, and I think it is important that we communicate that. But again, we take all today’s decisions with a view to the medium-term perspective and with a view to delivering price stability in the medium term.

Question: First of all, you used the word “vigilance”. I wonder if you could share with us whether the decision to use that phrase was unanimous among the Governing Council.

My second question regards the risks for inflation in the medium term: you seem to paint toward the upside here, but you note that base effects kick in and lower rates temporarily in the spring and summer, base effects then kick in, in the fall and raise them. You didn’t mention that they are temporary as well, but I assume that will be the case. So as I look toward the risks to inflation that you sketch out here over, let’s say, the next ten months, it’s hard not to come away with the impression that it is wage developments that are the key factors that are going to determine upon which side the risks ultimately fall. So I wonder if you could address that, because you really seem to be singling that out as the key factor here.

And my third question: I was wondering if you could tell us – you will be heading to Essen on Friday and Saturday – what message will you take to the G7 on behalf of the Governing Council regarding improving transparency for hedge funds?

Trichet: As regards the profile, we are in the domain of probability, because it depends on a number of parameters that we, of course, don’t have control of, namely the price of oil and of other commodities. On the basis of what we know today, we should normally see a decrease in yearly inflation rates in the months to come and then a picking-up at the and of the year. I will say no more than that. I only warn you in advance, but – as I said – we are no longer focusing on inflation this year. Inflation this year is already done, the decisions we are taking now are to ensure price stability in the medium run. Second, the risks that I listed on behalf of the Governing Council will not surprise you; there is the stronger pass-through of past oil price increases than previously anticipated, and that remains a risk. Past increases in the price of oil are still in the “pipeline”, as are increases in the price of various commodities. We have also the administered prices and indirect taxes which could go over and above what has been anticipated and priced in present projections: our projections, as well as the projections of the market, of the observers and economists. Finally, I think you are right to underline the issue of wages and salaries as a risk: it is clear that we have a message there today.

As regards the G7, you know that I have signed all of the G7 communiqués on behalf of the ECB. These are important meetings at the global level with our partners. It is not my own tradition to say a lot of things in advance. What counts is what we discuss and what we agree upon. So I will not say anything in advance. However, you know our position as regards financial stability in general, financial institutions and hedge funds. And I will certainly convey our assessment, which is very clearly expressed in our Financial Stability Review, to the G7. On a personal basis, I am very attached to standards and codes, voluntary standards and codes reflecting the best judgement of the industry itself on what is an appropriate behaviour, and I will certainly also convey this view. This is not new, I already said that.

Question: On the first question about the word vigilance: you said we are in the domain of probability. You are not trying to change our previous understanding of the use of this phrase “vigilance”?

Trichet: Certainly not, but what was exactly your first question. As far as “strongly vigilant” goes, I repeat what I said earlier, namely that it speaks for itself!

Question: I was not asking you to interpret the word “vigilance”. I was asking you whether its use in the statement by the Governing Council was a unanimous decision.

Trichet: Yes, indeed.

Question: Mr Trichet, three questions: first, last month you indicated that you did not want to deter market expectations. I wonder whether or not you would repeat that statement today in the context of market expectations of rates reaching something like 4% by the end of the year.

Secondly, to follow up on my colleague’s question about wages: a number of economists have noted that as the unemployment rate has fallen to 7.5% there might be some inflationary wage pressures in there, but, as much of the job growth has taken place in part-time and contract work, the expected inflationary impact might actually be muted. Would you comment on that?

And thirdly, there has been some discussion about whether or not there will be more meetings between the ECB or yourself and those in the Eurogroup. Could you comment on whether this is the case and if so, whether those meetings would be on a formal or informal basis?

Trichet: You had a first question on market expectations. I will not comment on market expectations. I think that our analysis is clear enough to permit markets to make up their mind, and I will not comment more on that.

On the second question, it is clear that we, as I mentioned on behalf of the Governing Council, have employment growth which is quite substantial. I had the occasion recently to make public some comparisons that were more flattering for the euro area than has been sometimes said. This is particularly the case when you compare the job creation numbers for the eight years after the introduction of the euro with numbers for the eight years before. Orders of magnitude are more than 12 million after, less than 3 million before. And something which is a little bit counter-intuitive, at least in the eyes of a number of observers, is that we have created more jobs in the euro area than in the United States since the introduction of the euro. However, it is not to say that we are living in the best of all possible worlds. We still have unemployment at a high level, a level which is much too high. We have a lot of structural reforms to implement in order to generate more growth and job creation. I would certainly not say that there are elements that would permit us to be more tranquil as regards the influence of wage augmentations on inflation. Our message on the necessity of a high level of responsibility for all social partners, as I have already said, is a strong message.

As regards the question of our own relationship, independence and so forth, I think it is important for me to read Article 108 of the Maastricht Treaty. It is really important.

“… neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB …”

So, that is the Treaty. I am inflexibly attached to the strict implementation of the Treaty. Firstly, because it is the Treaty. Secondly, because it is essential for our credibility. I let you be the judge of what our credibility would be like if we were not independent, and what kind of anchoring of future inflationary expectations we would deliver. Thirdly, because it is the will of the people of Europe. I have already made public at the European Parliament that 73% of our fellow citizens in the euro area approved the sentence “Do you think it is important that the ECB is independent from governments in order to ensure price stability?” – 73%! I have already made that figure public but this is an occasion to repeat it. And fourthly because being credible, being able to deliver price stability as our Treaty requires of us, is a necessary condition for delivering sustainable growth and job creation. We have done that since the very introduction of the euro and we will continue to do that. This is crystal clear.

Question: Mr President, you pointed out that monetary growth was fairly strong, or very strong, in November and December, even at a record level. At the same time, we learn from the data that the net external assets of the banking sector also increased very much in November and December and, as I understand it, this might have to do with carry trades. Do you have any evidence on that and, more generally speaking, are you concerned by the amount of carry trades?

Trichet: You are absolutely right to say that, when looking at the counterparts of the monetary aggregate and, in particular, when looking at the external counterpart, we can see that there is room for further work to gain a better understanding of what might have happened in this respect. This does not, of course, change the order of magnitude of the most important counterparts that I had mentioned – credit to the economy and in particular credit to the private sector, which is extraordinarily dynamic. It is true that we have to improve our understanding of the dynamics of this “external side of the coin”. I would not jump to a definitive working assumption – as you are suggesting – that it is carry-trade. I'm not sure of that. We have to understand it better. And, again, it doesn’t change the order of magnitude of M3, but it explains part of the jump we have observed in the most recent months. As regards carry trade at the global level, it is clear that we do have that phenomenon – perhaps more visibly for other currencies than for ours – and it is true that it is a phenomenon that is probably also triggered, or fostered, by the low level of volatility that we are currently observing in the global financial markets. We know that this will not last for ever and I have myself said a number of times that I trust that part of the phenomena we are observing today – the low level of spreads, the low level of volatility, the low level of risk premia – are probably characteristic of a transitory period in the financial market, corresponding to an under-appreciation of risks in general. But we would certainly have, over time, an increase in the pricing of risks that will perhaps be more in line with a good and appropriate assessment of risks at the global level. Again, it is not a phenomenon that is particular to Europe. It is a global phenomenon.

Question: Just building on your comments on the carry trades, I was wondering whether you would still confirm, and still stick with, the statement that you made about the Japanese yen in September when you said, and I quote, “We noted that the exit of the zero interest rate policy and Japan's recovery is now broadly based and we agree that the yen will reflect these developments.”

And then second, on today’s topic: I was wondering whether, if – as lots of people in the market seem to think – ECB rates do rise, next month to 3.75%, whether it would still be appropriate to call the level of ECB rates accommodative, given the general situation in the European economy.

Trichet: On the first question, I have absolutely no reason not to repeat today what I have already said, what I said after Singapore.

As regards the second point, I will tell you when the time comes. You are asking for something in advance. As you know, we never pre-commit. Our strategy is known. We have a definition of price stability, which is known, and we always look at the facts and the data. We are always conditional. Therefore I will tell you what would be my response to your question when time comes.

Question: I have two questions: last week some news coming from senior officials of the ECB was different from the messages you have been sending in the last weeks, and moved the markets exceptionally. Are you happy about that and do markets have to listen to these voices who do not disclose their names?

And then I have a second question on what you said about inflation. You said the important thing is not inflation this year but that we have to ensure price stability later on, so not only in 2007 but also 2008. So, with this strong underlining of risks of inflation rises, are you sending signals that you are going to revise up your inflation projection for 2008, which was under 2%? Or are you going to revise your growth projection, because growth around potential is not inflationary?

Trichet: As regards your first question, I have already responded to a similar question in the past and I will say the same. First of all we never comment on rumours or anonymous declarations. We never comment on that. Our communication is transparent, crystal clear and public. We have absolutely no concept of anonymous communication in the Governing Council. I repeat: absolutely no concept of anonymous communication. It seems to me that, last time, this anonymous communication proved to be totally wrong. I do not think we need any kind of anonymous communication, it would be stupid. I am here with the Vice-President. We make speeches, we have introductory remarks, and you can follow what we are saying in a very clear way. As President I communicate on behalf of the Governing Council, immediately after the meeting of the Governing Council, the sentiment of the Governing Council. We are public. We are transparent.

As regards your second question, I will certainly not tell you in advance because I am absolutely incapable of telling you in advance what our staff will produce as regards projections. We will make those projections immediately public on the occasion of our next monetary policy meeting. You will see, and I will see with you, what the assessment of our staff is. As far as the Governing Council is concerned, it does not underwrite the staff projections but considers that they are an important input among a number of inputs in the economic analysis. Then the Governing Council makes a judgement. We will see what those projections are, both in terms of growth and in terms of inflation, when they are ready. Today, I can tell you that we see inflation risks in the medium term on the upside, as I said earlier.

Question: Mr Trichet, I have three questions, first about exchange rates. Everybody can understand that the situation is somewhat different from that of September in Singapore. And the Eurogroup seemed to have one voice, given that the Eurogroup had a common message on that after the last meeting. Do you share the view of Mr Steinbrück or Mr Juncker in this matter?

And the second question: you had a meeting with Chancellor Merkel, who is very supportive of the independence of the ECB. What is the meaning for you to have such a meeting, and can you confirm whether you invited her to the meeting? And is it good for you to have such a meeting with the chairman of the European Council?

And thirdly on communication, why does the ECB have very successful communication, like today, but it seems to be that the Bank of Japan is somewhat struggling to get good communication. Could you comment on that?

Trichet: First question: I already said that it was not my tradition to say in advance what I will say to my partners when I meet them in the G7. So, I will not depart from this position, which has been my constant position. That being said, I also mentioned the fact that I did not withdraw my sentence after the Singapore meeting on the yen. I will say nothing else but what I have already said. We will have a discussion which I hope will be a very serious and deep discussion, because these are serious and deep issues.

Second question: As regards Chancellor Merkel, we were very happy that the President of the European Union had accepted our invitation. With a number of my colleagues I have met all the successive presidents of the European Union, whether here or in their capitals or on the occasion of the European Councils to which I had been invited. It is normal that one of the very important institutions of Europe has contact with the presidency of European Union.

As regards your third question, I will respond with a joke, if you permit me. With all colleagues that are themselves governors of central banks, we form a strong brotherhood of mutual admiration.

Question: There’s a problem about counterfeited banknotes. Are you planning a change of banknotes, and if yes, when?

Trichet: As regards the percentage of counterfeit banknotes, the latest information that I have is that we are in a situation which is of the same order of magnitude as we had before but perhaps even better. From that standpoint, we have a technology which works. We have security features that are state of the art and we are reasonably happy with it. Of course we have to be constantly alert because criminal activities are very ingenious and creative, but at the present time we have every reason to think that the choices we made in the past were good and appropriate ones. As regards the future banknote series, we are working on it and we will incorporate state of the art security features in it. I cannot say anything more, but new security features will be incorporated in the new banknotes when we issue the new series.

Question: I noted your reluctance to talk about the word “accommodative” and how you define accommodative. I wonder if you would not agree though that the ECB is in quite a different mode to what it was last year when we had quite a regular series of interest rate increases. We had a period when we were getting increases every two months. The fact that you have not increased interest rates today means that by definition the gap is widening. Would you agree that the mode that the ECB is in now is perhaps something different to what it was in the second half of last year maybe because of the uncertainty about the global outlook because the inflation outlook is relatively benign at the moment, and that maybe we are entering a period in which the distance between interest rate increases might be slightly less predictable looking beyond next month. I think expectations for next month are now pretty solid. Would you comment perhaps on how the ECB is thinking?

I might just follow up if I may with a second question about the yen. Perhaps you could help us journalists. We hear comments from European finance ministers suggesting that somehow the yen is too weak; it's being distorted by financial flows. I know this is something of a matter of concern. Listen to voices from the other side of the Atlantic and we’re told that it is a currency being driven by competitive, normal market forces. Could you help guide us as to who is right?

Trichet: Regarding your first question, we never pre-commit to any rate increases, whether at regular or irregular intervals. I never said that we would increase rates every three months when we increased rates in December 2005. On the contrary, I explicitly said that we had not decided ex ante what we would do in the medium run. We decided that it was appropriate to increase rates from time to time. Observers – as lucid and vigilant as you – perhaps concluded that we were increasing rates every three months in the first half of 2006. But it was because we judged that it was appropriate to increase rates at certain times. We were certainly not implementing a pre-defined scheme. Then, for reasons that were entirely due to the risks to price stability that we had identified and the balance of risks according to our final judgement following our two pillars of analysis, economic and monetary analysis, we increased rates every two months in the second part of the year. But again, we did not decide ex ante that we would increase rates every two months. We thought it was appropriate to do that and we are in exactly the same mode. We do what we believe we have to do and, of course, the circumstances are changing, the environment is changing, new data are coming in, such as the good surprise as regards growth last year. Also, rates are now at the level of 3.5% rather than 2%, so we are in a different situation. But we will do what we have to do. Your question addresses what the message of the Governing Council will be on the next occasion and as mentioned previously, I will tell you at that time what I have to say then on the basis of new information, including the staff projections and of our judgement in one month time.

As regards the yen, I will stick to what I have already said. I don’t see why I should tell you right now what I will tell our Japanese friends, our US friends, our UK friends and our Canadian friends when we meet in Essen. I stick to what I have already said regarding the yen in Singapore.

Question: Given your emphasis, today, on the medium-term risks to inflation going forward – and I note, in particular, your remarks on monetary expansion – it would seem to me that it would be naïve to think one more interest rate hike would do the job. I understand you are not pre-committed, but could you tell me if there were any members of the Council, today, who were concerned that markets might interpret the March rate increase as the last?

And secondly, I understand you have no message on currencies to impart to us today, but I have a question about the discussion in general. Given the robustness of the discussion, do you believe there is an implicit threat to the independence of the ECB, or for that matter the Bank of Japan, in all of the euro-yen discussion we have seen?

Trichet: I said, myself, when we increased rates in December 2005 that our judgements on monetary aggregates and our monetary analysis played an important role in triggering these increases in rates. You have to judge not only what we have done today or yesterday but also what we did in the past fourteenth months. I think that what I said on behalf of the Governing Council speaks by itself. Let me mention the December 2006 increase in outstanding loans to non-financial corporation of 13%, which is high, and approximately a little less than three times the growth of GDP in value terms. We take all this information as pertinent and important in our own monetary policy concept, as you know.

As regards the exchange rates question – I don’t understand the question linked with the ECB. What would the ECB’s independence have to do with it?

Question: If I could just back up on the first question. Was there any concern among Council Members, today, that markets could perceive a March rate increase to be the last – before we go on to the next question.

Trichet: I will respond to that question next time!

Question: And to my second question, all of the discussion about the euro-yen – do you think that this is exerting pressure on central banks, be it the ECB or any other central bank?

Trichet: Not at all, because it would be contrary to the Treaty. It is totally out of question; no pressure of any sort. We are living in a floating exchange system. What we are referring to are discussions among partners within the framework of the floating exchange system. It is a system that we know pretty well because it is the system which has existed between these major floating currencies for one-third of a century. We will not rediscover the world in which we are living and have been living for one-third of a century. And I will not comment again on the relationship between the Bank of Japan and the Executive Branch in Tokyo.

Question: Actually I have two questions, but short ones. First one: you mentioned the risks to inflation you are seeing in the medium to long term. Could you give us an idea when you think that inflation will be above 2%, or reaching 2% again?

And the second question, on the relationship of the ECB to the Eurogroup and to the finance ministers: you were quoting the Treaty, saying the ECB shall not take advice from any other Community body. If finance ministers now ask the ECB to act on exchange rates, or when they comment on exchange rates as they are doing right now, do you think they are violating the Treaty, or is that still within the range of the Treaty?

Trichet: First question – we will see what will be in our next projections, and I do not want to anticipate in any respect the next projections – they depend on a number of parameters and on the work that will be done by our staff. We are reserving judgement. I had only mentioned that the profile for inflation would go down and then up at the end of the year. I will certainly not comment on whether it would be over and above 2%, or below 2%, but it will be higher at the end of the year. And in my introductory statement I had mentioned risks.

As regards our independence, we are called upon to deliver price stability. The Treaty gives us that as our primary mandate, and we are guided only by this primary mandate. We do not have any exchange rate targets ourselves. We have to deliver what is required by our primary mandate, and we are totally independent as I have said earlier. You mentioned the fact that we cannot receive instructions, or ask for instructions, but the most important information that I gave you was not that. It was that the Treaty stated that the Community institutions and the government, the executive branch, “undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB!” That’s the important message and obligation.

Question: Do you think that when they comment on exchange rates as they are doing right now, are they seeking to influence the ECB?

Trichet: No, because it would be beyond the scope of the Treaty and Peer Steinbrück, I must say, gave a speech yesterday that was crystal clear in this respect. Angela Merkel, the Bundeskanzlerin, was crystal clear in this respect. I would say that all governments which have expressed themselves on this particular point, or the overwhelming majority, were crystal clear. This is what the Treaty says and we will be inflexible in respecting the Treaty because it is in the interest of Europe, it is in the interest of sustainable growth and job creation. It is because it is what not only the Treaty but also the people of Europe ask from us. Again, it is the best service we can provide Europe with. I don’t want to go back to the figures I gave you, but those who say that the euro is working against job creation are not justified, when you look at the figures I have mentioned. This is not to say that we are living in the best of the worlds possible. We have a lot of homework to do and even if 7.5% is a better unemployment figure than the previous ones, it is still too high – and we remain convinced of that.

Thank you very much for your attention.

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