ECB Press conference: Introductory statement

Willem F. Duisenberg, President of the European Central Bank, 13 October 1998

Click here for the transcript of questions and answers.

Ladies and gentlemen, in line with our stated intention, the Vice-President and I are here today to report on the outcome of today’s meeting of the Governing Council of the European Central Bank. The length of my introductory statement reflects the importance of the matters dealt with today.

As usual, the Governing Council devoted part of its meeting to an exchange of views on recent economic, monetary and financial developments. This discussion took place against the background of conflicting messages. Clearly, on the one hand, the data on the economic situation in the United States and Europe, especially in the euro area, mainly indicate a continuation of real GDP growth, though possibly at a somewhat slower pace. On the other hand, however, the global macroeconomic environment has deteriorated. In particular, the number of signs suggesting that the world economy will slow down in 1999 is increasing. At the same time, uncertainty in the financial markets has been heightened by news of the near collapse of a large hedge fund, losses by individual financial institutions, and the large movements in world equity, bond and foreign exchange markets.

In the view of the Governing Council, in responding to recent economic developments and current market conditions, it is of the utmost importance that proposals inspired by policy activism that do not take due account of the complexity of the issues at stake are avoided. This would only contribute to compounding the uncertainties which underlie the prevailing global financial market volatility. Against this background, the Governing Council is of the view that proposals for a reassessment of capital controls as an acceptable policy option, or recent calls for world-wide, uniform interest rate reductions, are inappropriate as they do not address the very nature of the problems. At the same time, the Governing Council considers structural improvements at the global level to be warranted. These should focus, in particular, first on enhancing the transparency of both the public and private sectors; second, on strengthening domestic banking systems, primarily in emerging markets and economies in transition; and, third, on improving financial crisis prevention and management, in particular through the increased involvement of the private sector. A number of proposals have already been developed on these issues, which should now be finalised with a view to their early and forceful implementation.

In addition, the Governing Council stressed that such structural improvements at the global level would have to be accompanied by sound policies at home. In this respect, given the size of the euro area and its global role, it is of crucial importance that price stability - and hence a climate conducive to growth and employment - should be maintained in the euro area. Achieving this will also be of vital importance for the world economy as a whole.

With this in mind, the Governing Council reviewed the monetary, financial and macroeconomic situation in the euro area.

First, the Council discussed the monetary situation with reference to preliminary data on the basis of the new harmonised reporting system for money and banking statistics. Once internal work has been completed, these monetary statistics will be made available to the public. When looking at various definitions of broad money, our preliminary data show broadly similar and stable annual growth rates of between 3 and 5% in 1997 and the first half of 1998. According to our initial analysis, these data do not appear to signal inflationary pressures arising from money at this juncture. However, given the preliminary nature of the new data, caution should be exercised with regard to their interpretation.

Second, as regards other financial indicators, although long-term interest rates have risen recently, they are still at low levels by historical standards and the yield curve has levelled off relative to the situation some months ago. A substantial part of developments in bond markets during recent months reflects a "flight into quality".

Third, the Governing Council discussed the broad outlook for prices in the context of the overall macroeconomic environment. With respect to price developments, international factors continued to exert downward pressure. HICP rates in the euro area fell to 1.2% in August after having remained unchanged at 1.4% from April to July. This mainly reflected a decline in energy prices, which were almost 4% lower in August than a year earlier, and in other commodity prices. For the euro area as a whole, price pressure as indicated by industrial output prices and labour costs also remained modest. In 1999 average inflation in the euro area is expected to remain subdued, according to the projections available.

Fourth, considerable difficulties are encountered in precisely assessing and quantifying the impact of recent international developments on prices and, equally, on activity. Recent data seem to suggest that real GDP growth in the euro area, which reached 0.6% in the first quarter of 1998, has slowed down somewhat in the second quarter. We need to await the release of more complete and thereby more reliable data for the euro area as a whole before a final view can be taken. Other recently released data on industrial production, the volume of retail sales and passenger car registrations appear to point to continued growth. This view is also supported by EC survey data, although some indicators have remained constant or have fallen back slightly in recent months; nonetheless, all these indicators remain well above their long-term averages.

The Governing Council welcomed recent interest rate reductions by a number of euro area national central banks. As a result, euro area-wide three-month interest rates have now reached a level of 3.8%, which implies a decrease of around 15 basis points since the end of August. These changes underline the fact that the process of the convergence of central bank interest rates in the euro area, which is to be concluded by the end of this year, is clearly under way. The Governing Council considered further interest rate convergence towards the lower end of the current range prevailing in the euro area as being appropriate, given our current knowledge of monetary trends and the prospects for price developments and taking account of an environment characterised by risks of downward pressures. The Governing Council will continue to monitor closely monetary, financial and economic developments within the euro area with a view to determining the appropriate level of money market interest rates for the euro area.

Meanwhile, the Governing Council will continue to monitor closely fiscal intentions in the euro area Member States. The structural budgetary positions in several Member States are still far from being close to balance or in surplus as required by the Stability and Growth Pact. Therefore, these Member States are not yet sufficiently prepared to enable automatic stabilisers to function in the event of a slowdown in real GDP growth, while still respecting the 3% reference value set out in the Treaty and ensuring a decline of debt ratios at an appropriate pace. Moreover, in a number of Member States, against the background of a still favourable and partly better than expected growth performance, short-term budgetary targets appear not to represent structural improvements.

In addition to the review of economic developments, a number of decisions were taken with regard to various aspects of the preparatory work for Stage Three.

(a) Monetary policy issues

First and foremost, let me turn to the issue of the monetary policy strategy. I can inform you that at today’s meeting the Governing Council reached agreement on the main features of the stability-oriented monetary policy strategy that the ESCB will pursue in Stage Three of Monetary Union.

Before explaining our decision on the strategy, let me emphasise certain important characteristics of the environment in which the single monetary policy will operate as of next January. Of most concern to the ESCB are some uncertainties which will inevitably arise as a result of the move to Stage Three. These relate, in particular, to the way in which the transition to Stage Three of Monetary Union will affect economic behaviour and institutional and financial structures in the euro area. They also relate to statistical issues.

Against this background, the Governing Council has chosen a distinct monetary policy strategy, one that reflects the special circumstances it faces at present. This strategy will ensure continuity with the successful strategies pursued by participating national central banks in recent years, while taking into account - to the extent needed - the unique situation created by the transition to Monetary Union.

With this context in mind, the Governing Council today agreed on the main elements of the stability-oriented monetary policy strategy of the ESCB. These elements concern:

First, let me stress that, as mandated by the Treaty establishing the European Community, the maintenance of price stability will be the primary objective of the ESCB. Therefore, the ESCB’s monetary policy strategy will focus strictly on this objective.

In the interest of transparency and in order to give clear guidance with regard to expectations regarding future price developments, the Governing Council of the ECB has agreed to announce a quantitative definition of price stability. In this context, the Governing Council of the ECB has adopted the following definition: "Price stability shall be defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%".

Let me emphasise the fact that price stability is an objective which is to be maintained over the medium term. The current rate of HICP inflation in the euro area is in line with this objective.

Three features of this definition should be highlighted:

Furthermore, the statement that "price stability is to be maintained over the medium term" reflects the need for monetary policy to have a forward-looking, medium-term orientation. It also acknowledges the existence of short-term volatility in prices which cannot be controlled by monetary policy.

In order to maintain price stability, the Governing Council of the ECB agreed to adopt a monetary policy strategy which will consist of two key elements.

This strategy underlines the strong commitment of the Governing Council of the ECB to its primary objective and should facilitate the achievement of this overriding goal. It will also ensure the transparency of the ESCB’s decision-making and its accountability. Based on its strategy, the Governing Council of the ECB will inform the public regularly and in detail about its assessment of the monetary, economic and financial situation in the euro area and the reasoning behind its specific policy decisions.

This strategy is designed to avoid giving the impression that monetary policy responds "mechanistically" to deviations from a single target or changes to a specific variable. The monetary policy strategy that has been selected by the Governing Council of the ECB signals that monetary policy in the euro area will be determined in a manner which will maintain price stability, responding to new developments in or disturbances to the economy in an appropriate manner which is consistent with this overriding objective.

The strategy therefore offers a clear and transparent framework within which the Governing Council of the ECB will be able to assess and present monetary policy decisions.

Please note that the main features of the strategy are also summarised in a press release to be distributed to you.

Still in the context of preparing for the single monetary policy, you may recall that in July I informed you about the range of institutions subject to reserve requirements and the liabilities included in the reserve base. I also gave you indications regarding the lump-sum allowance to be deducted from an institution’s reserve requirement and the reserve ratio, for which the Governing Council envisaged a range of 1.5-2.5%. Today, the Governing Council discussed the last remaining open issues regarding the ESCB’s minimum reserve system and confirmed that, first, the lump-sum allowance will be set at a level of 100,000 and, second, the reserve ratio will be set in the middle of the indicated range, i.e. at 2%. Finally, it was agreed that a credit institution will be allowed to deduct from the reserve base 10% of its debt securities with a maturity of up to two years and of its money market paper if it cannot provide evidence of the corresponding interbank liabilities.

An ECB Regulation laying down the features of the ESCB’s minimum reserve system will be published shortly. In the meantime, further details are provided in a separate press release which is to be issued to you this evening.

(b) Foreign exchange policy issues

The Governing Council agreed on a set of legal documentation setting out the respective roles of the ECB and the euro area national central banks (NCBs) in the management of the ECB’s foreign reserve assets. The legal documentation specifies, inter alia, the role of the NCBs in carrying out operations involving the foreign reserve assets of the ECB and incorporates master netting agreements to be signed by the ECB and market counterparties.

(c) Payment systems issues

As you are aware, TARGET will not be the only system available for cross-border payments. For non-monetary policy transactions it will, for instance, also be possible to process payments via the EBA Euro Clearing System (currently the ECU Clearing and Settlement System). While TARGET is a real-time gross settlement system, the EBA alternative is a clearing system, i.e. the payments have to be settled at the end of the day. In this regard, the Governing Council has agreed that the ECB will be involved. The EBA Euro Clearing System will, therefore, open a central settlement account at the ECB for its settlements within the euro area and may also open settlement accounts with those NCBs which agree to do so. The ECB will also hold the account on which the EBA Euro Clearing System’s liquidity pool will be maintained. Agreements between the ECB and the EBA covering the operation of these accounts are currently being finalised.

(d) The euro banknotes

With a view to increasing efficiency in combating counterfeiting, the Governing Council confirmed the agreement reached by the EMI Council that a Currency Analysis Centre and a Counterfeit Currency Database will be set up, which will store technical data relating to counterfeit euro banknotes. I should point out that the intention is to continue to deal with counterfeits of other currencies (e.g. the national currencies of participating or non-participating Member States and the US dollar) at the national level. All EU Member States will have the option of full participation in the database system. Although a decision on the location of the Currency Analysis Centre will not be taken until the early part of 1999, the Governing Council today approved the principles governing the way in which counterfeit euro banknotes will be handled. Further details are provided in a separate press release which is to be issued to you this evening.

The Governing Council has also agreed on the approach to be used for estimating the number of euro banknotes to be printed before the launch date of 1 January 2002. The quantity of euro banknotes to be printed will be determined by the number required to replace the stocks of national banknotes in circulation (launch stocks) in the participating EU Member States together with the volume of the logistical stocks needed to ensure that the banknote changeover operates smoothly. It is currently estimated that up to approximately 13 billion euro banknotes will need to be printed before the issue date for the eleven participating Member States. This estimate will be updated regularly as we approach 2002.

A separate press release on banknotes is to be issued to you this evening.

Finally, the Governing Council also addressed the following matters.

First, with regard to statistics, it was agreed to publish an Addendum to the document entitled the "Money and Banking Statistics Compilation Guide - Guidance provided to NCBs for the compilation of money and banking statistics for submission to the ECB". The Addendum covers the treatment of both money market paper and bill-based lending within the harmonised framework for money and banking statistics. The original Compilation Guide was published by the EMI in April 1998.

Second, the Governing Council took stock of the current state of affairs with regard to the testing of critical ESCB systems and procedures in the run-up to the start of Stage Three. The ESCB has just commenced a general "dress rehearsal" i.e. a final testing phase for all ESCB systems and procedures.

Finally, looking a little further ahead to beyond the start of Stage Three, the Governing Council also agreed that a series of tests should be conducted during the course of 1999 in order to ensure that all ESCB-wide systems and applications are Year 2000 compliant.

We are now at your disposal should you have any questions. Click here for the transcript of questions and answers.

Q: Could I ask you, Mr Duisenberg, first of all how will you conduct the monetary policy next year in the current economic environment and how do you assess the balance of risk at the moment? I is it closer do you think to undershooting the money supply target than overshooting? In other words is deflation the possibility in Europe as opposed to inflation at the moment?

WFD: We have no indications based on the most recent data that there is any tendency for deflation to be present, I would like to point out that the definition of price stability on purpose talks about an increase of prices of below 2 per cent over time. This is a bias in the direction that price stability is not a zero increase. Not having inflation but accept deflation that is not our aim. But that shows the formulation of monetary policy will not be easy under the current circumstances. Well, that's a statement of fact, I would say.

Q: If we have a financial and real crisis with lower growth rates in next year and monetary policy could not help. What could help? What are the reasons for this crisis we have in your view?

WFD: Well, I tried to emphasise that all the talk internationally and particularly during the annual meetings in Washington about the crisis at hand in our minds was - if not exaggerated than somewhat overdone - . We have as I indicated both in Europe and the United States still a situation of relatively robust economic developments. There are signs that there may be some slowdown but we certainly are not inclined to talk in terms of crisis in this area. Now, to come to your question: If there were to be a crisis next year what could be done? We'll see about that when that event arrives. What I indicated now is we strongly support improvements in the financial system worldwide, in the strengthening of banking systems, in the transparency of the financial structures that is and in measures geared toward prevention of crisis to be developed particularly in the context of the International Monetary Fund.

Q: Mr. Duisenberg, you said that you considered calls for global rate cuts inappropriate at the moment of course as far as calls for rate cuts especially in Europe, especially in the ECB Future ECB Area are concerned. Do you think at all that calls for getting lower convergence rates than it looks like at the moment are in any way justified? In other words, to you think we should enter at a lower end than it looks presently or should we get a quick rate cut from the ECB when it comes into power?

WFD: We explicitly refrain from already to try to make an assessment on what rates should be prevalent at the moment of transition. We'll see about that when we get there. What we say now is, we regard the current level of interest rates prevailing in Europe as appropriate for the economic situation. And we recognise at the same time that the process of convergence of interest rates which is important and which I expect to be completed by the end of this year. It has been going on, has been continued as witnessed by the interest rate declines we have seen over the past few weeks. And it also has to continue in the coming months. That is to say a convergence in the direction of the lower level of interest rates that are prevailing at the moment in Europe.

Q: I have a question about your monetary policy strategy regarding the dual pillars of the strategy the monetary element and the inflation forecast or real economy element. Will they carry approximately equal weights or will you decide the relative weighting between the two pillars on a case by case basis? And secondly, when you say you will inform ...

WFD: Let me answer the first question first, it is not a coincidence that I have used the words that money will play a prominent role. So if you call it the two pillars, one pillar is thicker than the other is, or stronger than the other, but how much I couldn't tell you.

Q: You said, if I may just add a related question to this, you said you will inform the public, if in cases you do deviate from what the monetary targets indicate and you will explain in detail why you will do so - will that explanation include detailed forecasts about future inflation or output estimates?

WFD: No. We will use inflation forecasts, but we will not publish inflation forecasts.

Q: I have two questions, is the convergence of interest rates quick enough for the current situation. Some countries, some central banks didn't cut the rates yet. Will it not be too dangerous if they come too much close to December in cutting the rates, because they will cause some fear it could cause strong monetary growth.

WFD: We do not share that fear and the Council agrees on the fact that the convergence process in the direction of the lower range of the levels at which rates currently are will and has to continue in the weeks to come until the end of this year and beyond that. Do not expect from me at least vis-à-vis you specific recommendations for specific countries.

Q: Within the last year there was great speculation in the financial community that countries like Germany would have to increase their interest rates to achieve convergence / Germany didn't. In fact the Bundesbank did raise its rates slightly to 3.3 but there was an assumption by most economists that this process was going to continue, now everybody seems to be saying that the convergence will be down to the German rate, my question is ...

WFD: And to the French and to the Dutch and to the Austrian ...

Q: True ... my question is, doesn't this in itself imply a bit more expansion of monetary policy than people were envisioning perhaps a year ago. I know you are not responsible for this speculation of independent economists, but nevertheless there is an expansionary field of things.

WFD: To the extent you regard lower interest rates as expansionary that is correct, that is the implication. I do admit that there has been some let's say change of assessment of the level of interest rates that would be appropriate for the EURO area as a whole from a year ago.

Q: I have two questions, Mr. Duisenberg, first of all what is the role of the external value of the euro in your strategy e.g. in your press conference a couple of months ago, you said that a fall in the dollar could be seen to have an impact of the competitiveness of Euroland. Now the dollar has fallen even further and there are forecasts this will continue. What does that mean concerning the external value of the euro versus the dollar for the monetary strategy of the ECB? And the second question what about the lender of last resort function if there's a bank crisis and someone has to react to this.

WFD: The external value of the euro in other words the exchange rate vis-à-vis the dollar and particularly the yen will be one of the broad range of indicators which will be used to assess the impact on future price developments. It will be one indicator and I can't give any indication on the relative importance of this indicator vis-à-vis all other indicators that will be monitored. On the lender of last resort: I would like to convey to you: that the Governing Council is aware that discussion is ongoing in some quarters on the so called risk of financial crisis in Europe following the launch of the euro given the absence of a unique institution responsible for lender of last resort operations. Let me answer that question as follows very firmly and concisely. The Governing Council has this issue well under control but will never make anything public in this regard.

Q: Mr. President, you said an inflationary target of CPI growth below 2 per cent. Why doesn't the Central Bank combine it with a forecast for inflation for the next 2 years, such as the Bank of England usually does that when they announce their inflationary target? Why are you not doing this?

WFD: There are several reasons why we are not doing this. One is because we don't like forecasts to become self-fulfilling prophecies. That is not to say that we do not use forecasts. Of course we do and we will only not publish them, because of the danger that they would become self-fulfilling prophecies. Can you think of any more reasons? Christian!

CN: Absolutely clear.

Q: You promised me more reasons?

WFD: Well, another reason is also which definition of inflation you are referring to. We will not only look at the HICP inflation. We will also look at other inflation indicators: output prices, wages, which is also a price factor ... so that is already a range and developments maybe divergent in the various composites of the inflation landscape. Well, that is the second reason.

Q: Mr. President, Germany got a new government with a finance minister who finds this discussion on the independence of the central banks ridiculous, he uses the German word "albern". Do you think with the new government there will come a new relation in the culture concerning the relation between the German government and the ECB?

WFD: I wouldn't think so, because they would have to change the law for that. The Treaty of Maastricht ensures the independence of not only the ECB but also the NCBs. So I don't think there will be different relation.

Q: Mr. President, a couple of questions. One, is a follow up on Mr. Hutter's question on the Dollar. The last press conference you had mentioned you were somewhat concerned about the rate of the Dollar. It was around a 1.68 DM level then. Since then we have had a fall below 1.59. I think we are at 1.63 right now. I would be interested how you feel now at a lower level and whether you are concerned that it could impede European growth? The other, you said inflation below 2 per cent at what point would you start becoming concerned and thinking that you need to reflate below 2 per cent can be 0.1 per cent or minus 2 per cent. And the other ... last question. The German-Italian-yield-spread has been widening, are you concerned about that?

WFD: The first question was the dollar. The Governing Council extensively discussed the developments in the exchange markets up until today and concluded that the current rate, which was reached by the dollar, was not a cause for concern. To the second question of under 2 per cent: If there were to be a prolonged period of deflation that would be a cause for concern. Not the single figures over one month or even 2 months. Deflation is a phenomenon to be avoided as much as inflation. I do emphasise that our monetary policy will have a medium term outlook. So if there were price decreases over a certain period of time that would become a matter of concern.

CN: There was a question about the spreads between Germany and Italy. Until now we have considered that the movements in spreads on the markets were mainly due to either very extremely short influences from the outside world. I.e. outside Europe, where spreads have developed in an unordered way. That is true, for instance, spreads between public and private debts. They caused some turbulences in Europe. But what we saw quite recently were small technical movements. And also the spreads that may have enlarged here and there, we consider them as mainly market imperfections and nothing of strategic impact. In such a difficult financial market situation as we have seen over the world recently, you can imagine that naturally some of the turbulences would have spilled over to Europe under former conditions. May I present on the dollar, neither to make it clear, as you said that we of course do not neglect nor to intend to neglect the development of the dollar? The President said that clearly. But every time the Governing Council has to make an assessment. It's an assessment of what it means in different terms. I would like to add that personally I wish the Americans the same good as I wish the Europeans: that they have a strong Dollar, as we want to have a strong euro, but this is another story.

Q: Mr. Duisenberg, you mentioned a couple of the indicators you might be looking at, and judging future price developments. And you mentioned the euro external value, you mentioned the price/labour-cost developments, and so on. What about unemployment, would that be one of the indicators as well? And the second question on an issue we haven't touched upon today, has anything changed on the role for the foreign reserves. Is anything new to be said for the role that gold might be playing in the foreign reserves?

WFD: The developments in the real economy including the development of employment or unemployment will of course also be one of the indicators which we will use in assessing the appropriateness of the monetary policy stance. It will not be an aim in itself. The primary aim of monetary policy remains solely price stability, but as an indicator of course it will be used. On gold the word has not been used today, neither yesterday.

Q: Mr. Duisenberg, you mentioned the call for uniform interest rate reductions. We have a new government in Germany, or we will have one soon. And they won't be supply supporters. They are going to try and have demand management policy together with France. Now, do you think this will mean that there will be greater pressure on the ECB in the years to come, if the to major countries in Europe follow a similar policy?

WFD: I will not deny that, but it's against a strong institution. So we can resist that, I believe. We make our own judgements, take our own decisions in view of our own analysis.

Q: Something I really didn't understand when you were speaking of the countries of which the budget deficit is not coming down enough and because of structural changes not being introduced yet. You are not so satisfied. What should be done?

WFD: What I said was that there are countries in Europe, which experience a growth performance rather better than originally estimated. Yet they do not seem to use what we than call growth dividend that arises from that, for further reductions of the fiscal deficit, And that is something which we regret.

Q: I have a question about the German government. When you mentioned these calls for lower rates, can I ask you specifically directing that towards Oskar Lafontaine?

WFD: Sorry I didn't understand.

Q: If you are specifically directing that towards Oskar Lafontaine, he has been the most outspoken, and if so, do you see this setting a new tone and perhaps also at the public, how will you deal with that even if it is a strong institution?

WFD: Well, I deal with it the way I just said and described. I didn't direct my remarks to anyone in particular. But I do suppose that everybody, who was willing to listen, had good ears.

Q: I'm just picking up on the last point that was being made with the recent results of the German election. It means that most Europeans have voted for governments that would like employment and job creation to be added to the aims of monetary policy and that view of monetary policy differs from yours. Do you interpret the independence of the Central Bank be a licence to ignore the democratically expressed views of Europeans?

WFD: Oh, because the democratically elected representatives of Europeans also concluded an international treaty, the Treaty of Maastricht. And they appointed a board of directors for the new institution. That was also done by democratically elected persons. And, of course, I do not ignore but I do emphasise that the ECB has been endowed with a unique and singular mandate namely to achieve price stability, and that in addition to that, to the extent and without prejudice to price stability it shall support the general policies of the European Community as are outlined in Article 2 of the Treaty but only to the extent that it does not endanger the primary aim.

Q: Mr. President, I have 2 questions (in French), could you be more specific about the countries which have not reached the dividend from growth to reduce their fiscal deficits further. And I also like to have your view on the proposal of the French Prime Minister to launch a major European loan to support growth, what do you feel about that?

WFD: I understood every word. But Christian Noyer may have understood you better.

CN: I will of course not name a specific country. It is more or less the case for all of them I would say. To the second question: Since I do not have a full knowledge of the precise proposal I can hardly make any comment on it. The only remark of a more general nature that I would like to make is that anything that would result in the equivalent of increasing deficits would of course run into the difficulty being of contrary of the stability pact and would not be helpful. But it might be very different. I have no idea of the content of that proposal.

Q: First question, there are more and more economists fearing a credit crunch not just in Japan but out of Japan, too. So I would like to have your opinion on that, the second question is there was this suggestion by Romano Prodi to use the reserves or some reserves of the National Central Banks to finance employment programs. And as far as I know the French Government was all delighted with the proposal. So, what is your opinion to that?

WFD: On the question of the credit crunch we have tried to carefully analyse the most recent data on the banking statistics and the Governing Council sees no signs of a credit crunch emanating in Europe. On the Prodi remarks regarding the use of excess reserves I would like to say the following. First of all I don't know - I hope he does, what excess reserves are. To the extent that you talk about Central Banks selling reserves to finance certain activities, I would like to say there is an agreement that this would be purely inflationary financing by Central bank money. With this in mind I would like to say if you want inflationary financing you don't have to sell assets. You can simply order the central bank to print money. It's far cheaper.