Introductory statement with Q&A
Jean-Claude Trichet, President of the ECB,
Lucas Papademos, Vice President of the ECB
Frankfurt am Main, 8 April 2010
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Rehn.
Based on its regular economic and monetary analyses, the Governing Council decided to leave the key ECB interest rates unchanged. The current rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 4 March 2010, price developments are expected to remain moderate over the policy-relevant horizon. The latest information has also confirmed that the economic recovery in the euro area continued in the early months of 2010. Overall, the Governing Council expects the euro area economy to expand at a moderate pace in 2010, in an environment of uncertainty, with the growth pattern possibly being uneven owing to a number of special factors. The outcome of the monetary analysis confirms the assessment of low inflationary pressures over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. We will continue to monitor very closely all developments over the period ahead.
Let me now explain our assessment in greater detail, starting with the economic analysis. Benefiting from the ongoing recovery in the world economy, the significant macroeconomic stimulus provided and the measures adopted to restore the functioning of the banking system, the euro area economy grew by 0.4% in the third quarter of 2009, after a period of sharp decline, while in the fourth quarter real GDP was flat, according to Eurostat’s second release. Available indicators, in particular further positive information from business surveys, suggest that the economic recovery in the euro area continued in the early months of 2010, although it may have been affected by a number of special factors, including adverse weather conditions. As a consequence, euro area real GDP growth is likely to have remained uneven around the turn of the year, making it advisable to look through the quarterly volatility and to compare growth developments on a half-yearly basis. Looking ahead, the Governing Council expects real GDP growth to continue to expand at a moderate pace in 2010, owing to the ongoing process of balance sheet adjustment in various sectors and the expectation that low capacity utilisation is likely to dampen investment and that consumption is being hampered by weak labour market prospects.
The Governing Council continues to view the risks to this outlook as broadly balanced, in an environment of uncertainty. On the upside, the global economy and foreign trade may recover more strongly than projected and confidence may improve more than expected. Furthermore, there may be greater than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. On the downside, concerns remain relating to renewed tensions in some financial market segments, a stronger or more protracted than expected negative feedback loop between the real economy and the financial sector, renewed increases in oil and other commodity prices, and the intensification of protectionist pressures, as well as the possibility of a disorderly correction of global imbalances.
With regard to price developments, euro area annual HICP inflation was 1.5% in March 2010, according to Eurostat’s flash estimate, after 0.9% in February. While no breakdown of overall HICP developments is available yet, this higher than expected outcome may be related in particular to the energy component as well as food prices, possibly partly as a result of weather conditions. Inflation is expected to remain moderate over the policy-relevant horizon In line with a slow recovery in domestic and foreign demand, overall price, cost and wage developments are expected to stay subdued. Inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.
Risks to this outlook remain broadly balanced. They relate, in particular, to further developments in economic activity and the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years.
Turning to the monetary analysis, the annual growth rate of M3 was -0.4% in February. Annual growth in loans to the private sector also remained weak, at -0.4%, despite a positive flow in the month. Overall, the latest data continue to support the assessment that the underlying pace of monetary expansion is moderate and that, in the medium term, the inflationary pressures associated with monetary developments are low. The growth of M3 and loans is likely to remain weak also in the coming months.
The continued steep yield curve fosters the allocation of funds into longer-term deposits and securities outside M3 and implies that actual M3 growth is weaker than the underlying pace of monetary expansion. At the same time, the narrow spreads between the interest rates paid on different M3 instruments imply low opportunity costs of holding funds in the most liquid components included in M1, which continued to grow at a robust annual rate of 10.9% in February. However, the monthly flows in the components of M3 were generally small in February, suggesting that the strong impact of the prevailing interest rate constellation may be progressively waning.
The negative annual growth of bank loans to the private sector continues to conceal countervailing developments: positive, strengthening annual growth in loans to households on the one hand, and negative annual growth in loans to non-financial corporations on the other hand. At the same time, the flow of loans to firms in February was positive for the first time since August 2009 and halted the decline in the annual growth rate. Such positive short-term developments need to be assessed with caution, owing to the volatility in monthly data. In addition, it is a normal feature of the business cycle that loans to non-financial corporations remain weak for some time after economic activity has picked up.
The reduction in the size of banks’ overall balance sheets appears to have come to a halt in the early months of 2010. However, the challenge remains for them to manage possible further adjustments while at the same time ensuring the availability of credit to the non-financial sector. To address this challenge, banks should use the improved funding conditions to strengthen their capital bases further, and, where necessary, take full advantage of government support measures for recapitalisation.
To sum up, the current key ECB interest rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 4 March 2010, price developments are expected to remain moderate over the policy-relevant horizon. The latest information has also confirmed that the economic recovery in the euro area continued in the early months of 2010. Overall, the Governing Council expects the euro area economy to expand at a moderate pace in 2010, in an environment of uncertainty, with the growth pattern possibly being uneven owing to a number of special factors. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressures over the medium term. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. We will continue to monitor very closely all developments over the period ahead.
As regards fiscal policies, it is now essential that governments reduce budget imbalances and correct excessive deficits by the agreed deadlines. In a number of euro area countries, fiscal consolidation will start this year and in all others corrective measures will need to be in place by 2011 at the latest. Fiscal consolidation will need to exceed substantially the annual structural adjustment of 0.5% of GDP set as a minimum requirement by the Stability and Growth Pact, and there is a need to fully define and implement credible fiscal adjustment strategies. This requires determined efforts, notably on the part of countries with high government deficit and debt-to-GDP ratios, not least in view of the expected rising budgetary costs associated with an ageing population. A strong focus on expenditure reforms is needed. The Governing Council welcomes the statement on Greece made by the Heads of State and Government of the euro area countries on 25 March. We fully support the intention to strengthen surveillance of economic and budgetary risks and the instruments for their prevention as well as the excessive deficit procedure. We also welcome the decision to work on a robust crisis resolution framework. Progress in these fields should aim to support the sustainability of public finances and promote the smooth functioning of EMU.
Regarding structural reforms, the agreements reached at the European Council on 25 and 26 March on the Europe 2020 strategy should help to reinforce job creation, competitiveness and sustainable growth. To this end, policies should now focus on increasing competition, while sectoral support schemes implemented during the crisis should be phased out. In labour markets, sufficient wage flexibility and a reinforcement of incentives to work are required, in order to avoid higher structural unemployment over the coming years. In the same vein, an appropriate restructuring of the banking sector remains essential. Sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability.
Regarding our collateral framework, the Governing Council has decided to keep the minimum credit threshold for marketable and non-marketable assets in the Eurosystem collateral framework at investment-grade level (i.e. BBB-/Baa3) beyond the end of 2010, except in the case of asset-backed securities (ABSs). In addition, the Governing Council has decided to apply, as of 1 January 2011, a schedule of graduated valuation haircuts to the assets rated in the BBB+ to BBB- range (or equivalent). This graduated haircut schedule will replace the uniform haircut add-on of 5% that is currently applied to these assets. The detailed haircut schedule will be based on a number of parameters which are specified in the press release to be published after today’s press conference.
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, and Lucas Papademos, Vice-President of the ECB
Question: Before we started the last press conference, you and many of your colleagues expressed your scepticism about an IMF involvement in a rescue plan. Are you still sceptical or are you happy about it?
Secondly, in terms of where we stand on Greece, it seems that the markets do not believe there is a rescue package because the market spreads are still widening. Where do you stand on this? Do you believe in the rescue package? And is the market panic, let us say, unjustified?
Trichet: On your first question, the position of the ECB has always been that we want the governments of the euro area to live up to their responsibility. They are members of the Eurogroup, they have to apply the Stability and Growth Pact and, as I have always said, their countries share a common destiny. That was our main message – live up to your responsibility and, in particular, to the responsibility that you have to impose conditionality to member countries when and where necessary. I never said myself, and neither have my colleagues, that the IMF did not have very good expertise. We collaborate with the IMF, as you know. When Jürgen Stark was in Athens with Commissioner Rehn, the IMF was there as well. So it is not a question of rejecting the IMF. It is a question of having the governments of the euro area live up to their responsibility. And that is the reason why I myself said on behalf of the Governing Council a moment ago that we approved the statement made by the Heads of State and Government on 25 March 2010 in Brussels.
As regards your second question on the statement of the Heads of State and Government I would like to say that I consider it to be a workable statement that would – in case it is needed – make it possible to have joint efforts – which are not subsidies, but loans without any element of subsidisation. It would, with the appropriate conditionality, permit financing to be provided, if necessary.
Question: I have three questions which are similar or start to tie this one in. First, is it – let me put it very directly – time to react on Greece, given that the markets are just going completely crazy, if you may? Also is this uncertainty about what the aid package will really be, what the interest rates will be on the loans, that the IMF is involved and nobody really knows what the role will be, is this part of the reason for what we are seeing in the market right now, with CDSs just sky-rocketing?
And another question on the changes to the collateral framework, initially your announcement of these changes was understood as a support measure for Greece, but lately people have turned around and said, well, actually this is putting a burden on banks that are exposed to Greek assets, to Greek government bonds, because they actually have to shoulder higher haircuts going forward. So how will you make sure that the new haircut system will not interfere with banks being able to refinance?
Trichet: On the first point, I would only say that, as I said a moment ago, the statement of the Heads of State and Government is, in the opinion of the ECB, a workable framework. I will not comment on whether the market itself understands clearly what has been said. But in any case, nobody should take lightly a statement, which has been signed by all Heads of State and Government of the euro area. The way I see it myself, as President of the ECB, is that it is a very serious commitment. That having been said, you should not forget that what is very important is that the programme of the new additional measures that has been decided by Greece is implemented. We have said that this set of new measures is convincing, and that it must be implemented rigorously. That is absolutely key! And thus far I have no reason to believe that it is not being implemented rigorously. But we will remain alert.
On the collateral, let me only say that the press communiqué you will receive in few minutes makes clear that “no changes will be made to the current haircut schedule foreseen for central government debt instruments that are rated in the above-mentioned range”, namely BBB range that I have mentioned. After having examined the situation this is the position that has been taken by the ECB’s Governing Council.
Question: How do you judge the fact that from the cheap money you gave to the financial sector very little has reached the economy and, in the end, could this harm a substantial recovery?
Trichet: We look very carefully at the situation from that standpoint and, annual growth in loans to non-financial corporations was still negative in February, at -2.5%. I am very cautious and I do not draw any definitive conclusions at this stage, but the monthly flow in February was positive and we view this as a signal that perhaps the situation may now be a little more favourable.
As regards loans to households, they recorded positive growth in February, at 1.8%. Growth in loans for house purchase, for instance, was 2.1%. We have always observed after a recession – and we have had a very big and very sharp recession in Europe as well as in the rest of the world – that loans to households start to recover earlier than loans to non-financial corporations. So what we have observed has – up till now – been in line with what we observed previously.
That being said, we have a strong message for commercial banks: we are telling them that they have to do their job, which is to finance the real economy, and we are asking them to take all appropriate measures to permit them to do their job. And that is something which we at the ECB consider extremely important. We have taken measures that were traditional and conventional as well as non-traditional and non-conventional measures. These are now progressively being phased out, but it was not for the sake of pleasing the banks, it was for the sake of financing the real economy.
Question: Two quick questions: First, if you look at the market rates, CDSs for Greece are actually higher than the ones for Iceland at this moment, and if we also look at the spreads between German ten-year Bunds and the respective ten-year Greek bonds, they are also at the widest spreads since the inception of the euro, so the market is really very concerned at this particular moment in time. So when do you think, and what has to happen for an intervention or a reaction from the Community to happen?
Second, to simply turn this around, can you, in your position, as of now categorically rule out a Greek default?
Trichet: First of all, I do not comment myself on spreads or on the evolution of the market, and I take it that your remarks are an observation of what is going on. I will only repeat that what counts, what is important, is, first, the adjustment measures that are taken and implemented by the Greek government and the Greek parliament and, second, the accord that has been reached at the level of the Heads of State and Government. As for us, we are responsible for 330 million fellow citizens and for 100% of the GDP of the euro area; Greece represents around 2.5% of the GDP of the euro area. But it is presently an important issue. I was present at the meeting of the Heads of State and Government and I had messages for them. I consider that what they have agreed upon is very important.
As regards your second point, I would say that based on all the information that I have, default is not an issue for Greece.
Question: You support the decision of the Heads of State and Government. You support it and you welcome it. So why are there other national central banks criticizing it and saying they are sceptical about the plan? Why is the ECB not speaking with one voice?
Trichet: Could you be more precise?
Question: This was in AFP this morning and several other newswires, saying that the Deutsche Bundesbank is considering with scepticism the IMF intervention …
Trichet: I cannot comment because I didn’t read that. I would only say that as regards the ECB position there is only one Governing Council and one President, and also only one Vice-President.
Question: Let’s move out of Greece. Let’s go to Spain. My question concerns the issue of the exposure of the EU banking system. And in this context many observers do say that Greece represents a systemic risk for the exposure of the European banking system. Maybe you could just answer yes or no to this. But there is a growing concern about the presence of a whole array of high-risk assets in the banking system, a system which is guaranteed by states, by central banks etc. And there is growing concern for the case of Spain not only because of the collapse of the real estate values, and therefore the assets related to the real estate bubble. But also – if you take the case of Santander, which is the largest bank in the eurozone – the other bubble is represented by the high-yield investments in Brazil. And therefore, in view of the risk of this whole array of high-risk assets, wouldn’t it be appropriate to think about reorganising the system according to a Glass-Steagall standard like many propose, so that there would be a guarantee only for commercial bank activity, but not for investment bank activity?
Trichet: What you describe is, I would say, the normal functioning of the market economy. In a market economy banks – commercial banks, banks in general – have to analyse the various risks – public risk and private risk – being very careful not to take undue many risks. So you are describing the normal preoccupation of the risk management of a financial institution. And we are, as you know, working actively on that in the Basel Committee, in the Financial Stability Board, in order to be as sure as possible that we draw all the lessons from the present crisis. It’s not a Spanish problem, it’s not a European problem, it’s a global problem, and we are reflecting at the global level on these issues. You mentioned also an important emerging economy. In any case we are in a phase of very active interaction with the private sector after the publication of the document of the Basel Committee. And we envisage taking decisions before the end of the year on those very important issues of new appropriate prudential rules and the necessary significant improvements in risk management.
Question: A couple of questions: Firstly, on Greece. If I understand it correctly, the activation of this rescue package that has been prepared would depend on an assessment by the ECB. Am I correct in thinking that, at the moment, the ECB’s assessment is that there is no need to activate this package at the moment?
And, secondly, just following up on that, the idea of this package is that the interest rates for loans would be, to quote, “non-concessional”, i.e. not contain any subsidy element. Can you tell us how you imagine that being calculated? Does that therefore mean the current market rate at the time that the package is activated?
And, then, finally, a broader, political question about the new collateral arrangements. I wonder if you could tell us what the motivation has been for this change. It doesn’t seem to me that it’s about protecting the risk on your balance sheet. It seems to be more moving into a political dimension, a sense that the ECB has a broader responsibility within the euro zone. At the moment the scale is quite restricted to quite a small spectrum. Is it possible that you might expand this at a later stage?
And perhaps in this more political context, can you confirm that you now have full currency swap arrangements with Hungary and Poland, suggesting that you are prepared to act more outside the euro zone?
Trichet: As regards your first question on Greece, I would say, at this stage, that what counts is that there has been a decision by the Heads of State and Government. I said already that I was taking it very seriously and as an important decision. The start of the activation of the possible loans is, as far as I understand, in the hands of the Greek government itself. And then, if the loans are called for, the euro area governments will have to see how to organise the package. It is the responsibility of the governments in question, and we in the ECB will liaise with the European Commission, as mentioned by the Heads of State and Government in their previous meeting. And we will be extraordinarily keen on having the executive branches of members of the euro area assume the highest level of responsibility. As far as we are concerned, we will continue to live up to our responsibility as the central bank, together with the national central banks of the euro area, of 330 million people.
On the second question, I will not embark on technicalities which are the responsibilities of the executive branches. It is up to governments to decide, but there is a minimum minimorum, which is that the interest rates that would be applied to Greece would be at least the cost of the refinancing by the governments concerned all included. They, themselves, have their own access to markets. But I say that as a remark of an external observer. Again, it is up to the governments in question to see what they will decide in this respect. In any case the principle of no subsidy is absolutely clear.
As regards the collateral, you will receive a press release, so you will see exactly what we say. We list the parameters that we will apply. On an issue which was an important one, namely the issue of central government debt instruments at investment grade level, I have already said that the new regime will not change, in practise, the haircuts at the end of the year. For private securities the new regime will incorporate a more pertinent than the 5% add-on that we have today. So, it will be an improvement from the standpoint of our risk management. Let me also mention that the following instruments will no longer be eligible as collateral as from 1 January 2011: (i) marketable debt instruments denominated in currencies other than the euro, including the US dollar, the pound sterling and the Japanese yen, and issued in the euro area; (ii) debt instruments issued by credit institutions, which are traded on the accepted non-regulated markets; and (iii) subordinated debt instruments when they are protected by an acceptable guarantee. These had been part of the enlargement of our collateral framework and will not be in place as from 1 January 2011. It’s an additional clarification I make.
On your last point: we have confident and close relationship with the central banks of Hungary and Poland, and I will only say that it is, perhaps, up to them to say exactly what they want to say at this stage on the nature of our very close relationship.
Question: What do you tell the growing numbers of commentators who say that you are not clear on your communication on Greece, saying that the ECB’s Executive Board is speaking with different voices and even the President has different opinions on how to bail out Greece?
Trichet: You have a unique opportunity to hear from me what I have to say. I will not comment on comments. Ask me questions if you think that I have not been sufficiently clear as regards Greece.
Question: The question would be for example on whether to involve the IMF or not.
Trichet: Our message was that we need the involvement of the euro area governments, so we would not have been satisfied at all, had we had the IMF alone, with no conditionality coming from the governments of the members of the euro area, without the Eurogroup, and without the peer surveillance and the conditionality that is enshrined in the Treaty of Maastricht and enshrined in the Stability and Growth Pact. The heart and core of the problem is fiscal policy and EMU has been based on an E as well as on an M – Economic and Monetary Union. We in the ECB, the Governing Council, are responsible for monetary union. At the same time the core of economic union from the standpoint of conditionality is the Stability and Growth Pact. As an institution we have always defended the Stability and Growth Pact with extreme determination. At one time, in 2004 in particular, several Heads of State and Government in Europe were against the Stability and Growth Pact, which was described as “stupid”. We said NO: EMU is EMU, you have an M and you have an E, and we need the E! The economic component of EMU is essential! And we say the same on this occasion. What is fundamental is not to forget the responsibility of the countries of the euro area as regards their own peer surveillance. We never said that we did not want the IMF to be involved we said that we want the Eurogroup to exercise its full responsibility. I consider that the decision of the Heads of State and Government takes that into account.
Question: If I understand you aright, the IMF alone would not have been the right thing, but a mix or the involvement of the IMF, maybe as a minor partner, is fine?
Trichet: I said the deal of the Heads of State and Government is good. The IMF is not a minor partner in this deal. And I have always said that the expertise of the IMF is important. The IMF was in Athens when Jürgen Stark and Commissioner Rehn were in Athens, at the time when the government of Greece was finalising the additional measures that they took.
Question: A couple of weeks ago you said that it is crystal clear that you would not change the collateral framework for the sake of one country, now I think it is crystal clear that exactly this will happen. Can you please explain why you changed the collateral framework or why you will change your collateral framework for the sake of Greece although it was crystal clear a couple of weeks ago that you would not? What was the motivation at that point in time?
Trichet: First of all, I did not mention Greece myself when I explained what we had decided. You have done so, but we did not. It is for public and private instruments at investment grade level, that we have taken this decision to prolong what exists today and to reinforce the risk management of what exists today as regards, in particular, private securities.
Question: With all due respect, when this issue came up first, when you indicated that U-turn, it was at the European Parliament and you were asked in the context of Greece.
Trichet: I was asked a question, I do not remember whether it was in the context of Greece or not. I accept fully that the interpretation could have been then that for Greek bonds in particular it would have a consequence. But the decision that the Governing Council took is, by definition, for all, and not for any particular country, and is for public instruments as well as for private instruments. For private instruments, it reinforces what exists today in terms of risk management.
Question: I asked the ECB to send me the quote which you gave in the speech to parliament. You said that you would not change your collateral framework on account of an individual country. Now, why on earth if not for Greece did you make these changes now? What was the background for this? Why did the ECB change the collateral framework now with the whole catastrophe of Greece in the background?
Trichet: Let me be clear: we took exceptional measures at a certain time. We have decided that these exceptional measures will be prolonged after the end of the year. We did not say that this was for any particular country or any particular instruments. We are eliminating part of what exists today, and we are also prolonging part of what exists today with a view to reinforcing risk management. For central government bonds at investment grade level, which may be Greek bonds or the bonds of any other country, by definition, we have said that the system of haircuts after the end of the year will be in practise the same as the system that we have today. We are not changing in practise our haircut framework. We are maintaining the system for those particular instruments as it is today. What is changing is that instead of eliminating it at the end of the year, we will maintain the possibility for these investment-grade instruments still to be eligible as collateral. I have nothing else to say on that matter, it is crystal clear, it is all written down and you can form your own judgement.
Question: I have one more question, you did not say “we don’t want the IMF”, but you said, according to a quote delivered by the ECB, “It’s very, very bad that the Eurosystem or the euro area would turn to the IMF for help”.
Trichet: Let me clarify: that quote was reported by some press agencies after I had made a TV broadcast for the French Public Senat. I never said that, because it is not and never was my position. They have issued a correction. That was the title of their reporting about my interview and they have changed the title. I never said that we did not want the IMF to be involved. I said we do not want the IMF alone. Because our message was that we cannot run the euro area if there is no longer a responsibility on the part of the governments of the euro area countries, a responsibility, which is commanded by the Stability and Growth Pact. And perhaps you could give us credit for having defended the Stability and Growth Pact in all circumstances with extreme determination, including when the previous Chancellor of Germany was against it. We maintain this same line with extreme determination and we will continue to do so. It is essential that the governments fulfil their responsibilities. We are all interdependent. When there are important issues here or there, the euro itself moves. We all share a common destiny; wir teilen ein gemeinsames Schicksal.
Question: We are always discussing the Stability and Growth Pact and I think that the mystery behind this whole IMF debate is that Europe has one weak point, namely it has no lender of last resort. I would like your comments on whether you believe that Europe can do without such a lender of last resort in the future because the governments also say they are not lenders of last resort. So who will be responsible in the end?
Second, on growth, we talk about fiscal policies, budget consolidation, a common destiny, and so on and so forth. The question is: who feels responsible for growth? Certainly not the European Central Bank, as it is not in your statute. But would we not have to renegotiate certain aspects of the European framework, because growth is crucial? Allow me to take just one example from the real economy which is the young generation. You have certainly seen the latest statistics on youth unemployment from the European Union’s statistical office, Eurostat. Take Greece with 27.5%. But this is only in the middle range. There are countries that are far above it. For example, Spain had almost 41% youth unemployment, which means almost every second young citizen of Spain has no hope of getting a real job in the near future. So what shall we do about it? Shall we leave it as it is and tell people “well, the economy always picks up a bit later after the recovery starts” or are we finally doing something? And what is your message on this?
Trichet: On your second question, as you know, we consider that by delivering price stability in the medium- and long-run, and by being credible in this delivery, we are creating a necessary condition for growth and job creation. This institution has delivered price stability over eleven years, and will very likely have delivered price stability over twelve years by the end of this year, exactly in line with our definition of price stability of less than but close to 2% inflation. We are doing better than what was done by any country in the euro area in the eleven or twelve years before the euro. So we are credible. And we consider that this is a necessary condition for growth and job creation, but not a sufficient condition per se. This is why we are saying that we need good and sound fiscal policies and we have defended inflexibly the Stability and Growth Pact in all circumstances. Now everybody considers that we have been vindicated in that respect. But it was not that easy at the time, I can tell you from my personal experience.
Second, we call for extremely bold structural reforms. If we have growth which is not sufficient, it is because we have a lack of structural reforms. And that is obvious when you compare the various European countries, because you see the benefits that those who have appropriate structural reforms are getting out of their reforms.
And a last point which is also important is that we call upon the governments, particularly of the euro area, to follow very carefully their relative competitiveness because this is also part of the good management of any country. And it is part of the peer surveillance that must be exercised by the Eurogroup.
As regards the lender of last resort function, I am not sure I follow you, because we have a central bank in the euro area, which is the ECB, as the captain of the team, and the members of the team. And together we have all the functions, and we are fulfilling all the functions of a central bank in any other economy. In any case it is a very vast economy. So I do not see your point.
Question [Translation from French]: Let me allow myself to put the question to you in French as our Belgian friends did last time. I would like to ask another question about collateral. You said that there has been no change and that it is just an extension of the rules, which are not the normal rules. One might say that the central bank has changed its tune and is now saying that it wants to continue with the extraordinary measures. Can you say why you have changed your opinion?
And my second question is about something that is maybe not so important at the moment: the idea put forward by the Germans of a European Monetary Fund. The name is not very appropriate and the ECB has not as yet voiced any opinion on this subject. Was it mentioned today at all? And does the ECB now have a more detailed idea on this concept?
Trichet: [Translation from French] I have already answered the first question on collateral. I would only like to add that at the end of the year there will be a number of operations that are possible today which will no longer be possible. There will be other operations where we will, as we see it, improve our risk management. And there will be other operations for government debt instruments at investment grade level for which there would be in practise no change. They will be eligible under the same conditions as at present. That is the decision of the Governing Council.
On a possible European Monetary Fund, I would just say that to use the adjective “monetary” still seems absolutely inappropriate to me. As for the rest, I would say that this is one of the ideas proposed that could perhaps be studied further by the working group that President van Rompuy is going to set up, in line with the decision of the Heads of State and Government. This should allow us to have a considerable improvement in the conditionality and in the application of the conditionality. This should also allow us to have improved crisis resolution. So I think that this is all part and parcel of what will be studied in that group, in which the ECB will also participate.
Question: My first question is on the deal struck in Brussels. Isn’t there an inherent contradictory element in that deal? In that, if I take it at face value that it does not include a subsidy element and that the help will be only the last resort, then why should the markets believe that this sort of help, which Greece might receive in extreme circumstances, would actually really help? In order words, if market interest rates are at 10% and Greece receives help at an interest rate of 10% from its EU partners, then I would assume that this is not going to be much help to the country. Therefore, is it not a problem that, on the one hand, no one wants to call this a bailout, but, on the other, people still expect the markets to believe in a bailout and to lower the interest rates that they are demanding?
So, is there a need to clarify the message here?
My second question relates to what my colleague has just mentioned on the working group that was set up by the Heads of State and Government. Do you think that this working group should also work towards closer coordination and cooperation in terms of economic governance in the euro area – not only fiscal policy, but labour market policy and tax policy, etc? Do you think that this is a necessary condition for Economic and Monetary Union to work in the long run? Thank you.
Trichet: On your first point, I have already said that one interpretation of the fact that you are not subsidising another country would be that the interest rates that you would apply vis-à-vis these other countries would as a minimum minimorum not be below your own interest rates and total costs for your own refinancing. However, I do not want to embark on a discussion about what is clearly the responsibility of the governments themselves. If this deal is activated, it is the responsibility of the governments to decide how to apply the rule that there should be no subsidy element.
Regarding your second question, I am speaking at the level of the European Union as a whole, and there are many things: there is the Single Market and there is the EU 2020 strategy which applies to all 27 Member States. The governance of this strategy has been proposed, with new ideas from Mr van Rompuy, including the idea that Heads of State or Government should follow up themselves on these structural reforms at the level of the EU 27. This is something that we consider to be extremely important.
For the euro area itself, there are three areas of peer surveillance which, in our opinion, are absolutely fundamental. One is the Stability and Growth Pact. And, as you know, the conditionality that might be imposed by the peers might even involve sanctions, which is something that is extremely strong and the best illustration of the fact that we share a common destiny in the euro area.
Second, as I have mentioned already, there is the monitoring of relative competitiveness, namely competitive indicators, including national inflation. In the long run, national inflation – if there is no economic justification that would have to be proved – has to oscillate around the average of the euro area itself. We are setting ourselves the benchmark of below, but close to, 2%, and it is our past record, our determination and our independence that are the guarantee that we will have the same benchmark in the next ten years. This is, of course, a very strong message for all governments of the euro area countries.
Lastly, it is our continued strong message to the governments concerned that it is extremely important to have a peer surveillance of the structural reforms that are designed to elevate the growth potential of Europe as a whole, of the EU 27 and, of course, each member of the euro area.
Question: I would like to get a little more of a flavour of the discussion today, especially regarding the collateral. Did you take these decisions unanimously? And did you discuss other options – particularly adding a haircut between, say, AAA and A? Do you think that would be a good idea to give an additional incentive for governments and companies to strive to get an AAA rating for their debt?
My second question is: Would it be correct to say that this is a net loosening of your collateral standards and your monetary policy in that sense?
And finally, just a quick technical question: What proportion of the assets submitted to the ECB as collateral is BBB-level?
Trichet: As regards your last question I can’t respond immediately. I don’t want to give you an incorrect answer.
On the first question, we discussed what we have decided today. We did not discuss anything else. In any case, in July we will have an overall review of our risk situation.
As regards comparing the collateral framework after the end of the year with the present collateral framework, I would say that it will not be loosened. It will be hardened somewhat, for two reasons. One is that – as I have said, and you will see this in the press release – three assets that are eligible today will not be eligible after the end of the year. And in July we will say how we will apply the rules that will improve our risk management in particular for private securities and private collateral. But I have already said that.
Question: Mr Trichet, have you discussed expanding the covered bond purchase programme?
And can you give us an indication of the maximum amount to be allotted in the upcoming three-month tender procedure?
Trichet: On the first question, we are about to publish the monthly report on the Eurosystem’s covered bond purchase programme. But it’s the usual publication. There is nothing special in there. Just to give you the figures: the total nominal value of all covered bonds purchased by the Eurosystem since the programme was first started stood at €44,898 million on 31 March 2010. So, this is the total value of purchases up to the end of March.
As regards the other question, I think that will be published next Monday.
Question: But have you discussed expanding the programme for covered bonds?
Trichet: No, we did not discuss covered bonds at all. I gave you that information but we did not discuss this question. It wasn’t part of our discussion.
Question: There are some concerns today in the market about Greek commercial banks as major holders of Greek bonds. Is there any fear that this problem with Greek bond yields may hamper the Greek banking system and are you confident that they’ll still have ample access to short-term liquidity in the repo markets?
Trichet: I have no particular comment to make on that issue concerning the Greek banks. Of course, the situation is being followed very carefully by us, in coordination with the Greek central bank. I have no other comment to make on that.
Question: I am still confused about what exactly triggers a rescue package. If I understood you right, the Greek government issues a bond auction tomorrow and the price comes in at 10% or something, and says, “Sorry, this is too high for us”. They then presumably go to the ECB or to the governments and say, “Look, we want the rescue package to be triggered”. If the rescue package is triggered and the price, and it is not subsidised, they would only, as Mr Schieritz (Die ZEIT) said, they would only get this at market rates as well. That is my understanding. If they get, let us say, money from the German government, at German government bond prices, it is subsidised, isn’t it?
Trichet: It is an issue for the governments. They will see for themselves what they consider to be a subsidy or what they do not consider to be a subsidy. In any case, they have to calculate the net present value of what they provide and draw their own conclusions. That is really their responsibility. It is not ECB money; it is the money of the governments. Of course, this is only valid if the package is activated, which presupposes that you have a request from the Greek government and a decision of the executive branches. Perhaps it would be better if you put the question to those who will have to take the decision, and not us. Every institution, every authority has to live up to its responsibilities. We try to live up to our responsibilities. It is not easy. We went through a crisis, as you know, which has been the worst since World War II. And we are a new institution, which was ten years old, and we were not considered particularly clumsy at that time. It was the worst possible challenge for the world’s central banks since World War II, and it could have been even worse. But that said, each institution, each authority has to live up to it responsibilities.
Question: Looking at the markets now, while you are talking, it seems that they were looking for a stronger message of support from you for Greece.
Trichet: I never comment in real time on market reactions.
Question: No, my question would be, do you not care about the markets, do you not care what the markets do?
Trichet: I certainly will not comment on such a question. The market is always right. And it has to be fully respected at all times. But I do not comment on its reaction and particularly not on its reaction – whether up or down – in real time.
Question: I am sorry you said that the market is always right.
Trichet: Yes, I said the market is always right.
Question: Also now for Greece?
Trichet: It will also be right tomorrow and the day after tomorrow, when the spreads have diminished considerably. It is the truth at that moment in time.
Question: One final question on the interest rates for the Greek aid package. You said it is up to the governments to decide, but what would the ECB favour? What would you say? Is it feasible to offer loans to Greece at Greek market rates, or is it more feasible from the ECB’s point of view to offer …
Trichet: I will not respond to this question. We will see when the time comes – if the time comes – what the position of the governments is. We will then adopt our position on the basis of what the authorities responsible think. All that we ourselves have said is that there should be no subsidy.