Introductory statement with the Q&A

Jean-Claude Trichet, President of the ECB,Lucas Papademos, Vice President of the ECBFrankfurt am Main, 3 December 2009

Jump to the transcript of the questions and answers

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference today. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by Commissioner Almunia.

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 5 November 2009, price developments are expected to remain subdued over the policy-relevant horizon. The latest information also confirms the expected improvement in economic activity in the second half of this year, with euro area real GDP growth returning to positive territory in the third quarter of 2009. However, some of the factors supporting the recovery at present are of a temporary nature. The Governing Council expects the euro area economy to grow at a moderate pace in 2010, recognising that the recovery process is likely to be uneven and that the outlook remains subject to high uncertainty. The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit growth continues to slow down. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Medium to longer-term 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.

At today’s meeting we also decided to continue conducting our main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as is needed – and at least until the third maintenance period of 2010 ends on 13 April. We will continue to use this tender procedure in our special-term refinancing operations with a maturity of one maintenance period, which will continue for at least the first three maintenance periods of 2010. Moreover, we decided that the rate in the last 12-month longer-term refinancing operation, to be allotted on 16 December 2009, will be fixed at the average minimum bid rate of the MROs over the life of this operation. Finally, as regards longer-term refinancing operations in the first quarter of 2010, we decided to carry out the last six-month longer-term refinancing operation on 31 March 2010. This operation will be carried out using a full allotment fixed rate tender procedure, as will the regular monthly three-month longer-term refinancing operations already announced for the first quarter of 2010.

Further operational details on these decisions can be found in a press release that will be posted on our website after this press conference.

The improved conditions in financial markets have indicated that not all our liquidity measures are needed to the same extent as in the past. With these decisions, the Eurosystem continues to provide liquidity support to the banking system of the euro area for an extended period at very favourable conditions and to facilitate the provision of credit to the euro area economy.

Let me now explain our assessment in greater detail, starting with the economic analysis. Economic activity in the euro area improved further in the third quarter of 2009, with real GDP growth returning to positive territory following five quarters of contraction. According to Eurostat’s first estimate, real GDP increased by 0.4 % quarter on quarter. Available survey data suggest that the recovery is continuing during the fourth quarter of 2009. At present, the euro area is benefiting from the inventory cycle and a recovery in exports, as well as from the significant macroeconomic stimulus under way and the measures adopted to restore the functioning of the financial system. However, a number of the supporting factors are of a temporary nature and activity is likely to be affected for some time to come by the ongoing process of balance sheet adjustment in the financial and the non-financial sector, both inside and outside the euro area. For this reason, the euro area economy is expected to grow only at a moderate pace in 2010, and the recovery process is likely to be uneven.

Eurosystem staff project annual real GDP growth of between -4.1% and -3.9% in 2009, between +0.1% and +1.5% in 2010, and between +0.2% and +2.2% in 2011. The range for 2010 has been revised upwards compared with the September 2009 ECB staff macroeconomic projections. Forecasts by international organisations are broadly in line with the December 2009 Eurosystem staff projections.

The Governing Council continues to view the risks to this outlook as broadly balanced. On the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. Confidence may also improve further and foreign trade may recover more strongly than projected. On the downside, concerns remain relating to 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, the intensification of protectionist pressures and the possibility of disruptive market movements related to the correction of global imbalances.

With regard to price developments, as expected, euro area annual HICP inflation has turned positive again after five months of negative rates. According to Eurostat’s flash estimate, it stood at +0.6% in November, up from -0.1% in October. The rise mainly reflects upward base effects stemming from the drop in global commodity prices a year ago. Inflation is expected to rise further in the near term, mainly owing to upward base effects in the energy and food components. Looking further ahead, inflation is expected to remain moderate over the policy-relevant horizon, with overall price, cost and wage developments staying subdued in line with a slow recovery in demand in the euro area and elsewhere. In this context, it is important to re-emphasise that 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.

Consistent with this assessment, the December 2009 Eurosystem staff projections foresee annual HICP inflation of 0.3% in 2009, between 0.9% and 1.7% in 2010, and between 0.8% and 2.0% in 2011. Compared with the September 2009 ECB staff projections, the inflation projections for 2010 remain largely unchanged. Available forecasts from international organisations provide a broadly similar picture.

Risks to this outlook remain broadly balanced. They relate, in particular, to the outlook for economic activity and the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.

Turning to the monetary analysis, the data for October confirm the ongoing decline in the annual growth rates of M3 and loans to the private sector, to 0.3% and -0.8% respectively. These concurrent declines continue to support the assessment of a moderate underlying pace of monetary expansion and low inflationary pressures over the medium term. At the same time, the annual growth rate of M1 was 11.8% in October 2009, down from 12.8% in September, mainly reflecting a base effect.

The current decline in the annual growth rates of monetary aggregates is influenced by a number of special factors and is thereby likely to overstate the deceleration in the underlying pace of monetary expansion. First, base effects associated with the intensification of the financial turmoil in autumn 2008 have had a downward effect on the annual growth rate of M3 in the past two months. Second, and more fundamentally, the steep slope of the yield curve provides an incentive to shift funds out of M3 into longer-term deposits and securities, thereby dampening M3 growth. The current constellation of interest rates also continues to trigger shifts of funds within M3, as the narrow spread between the rates on different short-term deposits reduces the opportunity costs of holding the most liquid assets contained in M1.

The annual growth rate of bank loans to the non-financial private sector turned somewhat more negative in October. In the case of loans to households, the latest data provide further confirmation of a levelling-off at low rates of growth. As regards loans to non-financial corporations, it is worthwhile to note that the growth of loans to enterprises typically picks up with some lag compared with the cycle in economic activity. In this respect, the still subdued levels of production and trade, as well as the ongoing uncertainty surrounding the business outlook, are likely to dampen firms’ demand for bank financing also in the coming months, especially for short-term loans. At the same time, overall financing conditions continue to improve, which should support the demand for loans in the period ahead. Banks are currently faced with the challenge of managing the size and structure of their overall balance sheets, and at the same time ensuring the availability of credit to the non-financial sector. Against the background of their improved liquidity situation and access to market financing, banks should address this challenge by taking appropriate measures to strengthen further their capital bases and, where necessary, take full advantage of government support measures for recapitalisation.

To sum up, the current rates remain appropriate. Taking into account all the information and analyses that have become available since our meeting on 5 November 2009, price developments are expected to remain subdued over the policy-relevant horizon. The latest information also confirms the expected improvement in economic activity in the second half of this year, with euro area real GDP growth returning to positive territory in the third quarter of 2009. However, some of the factors supporting the recovery at present are of a temporary nature. The Governing Council expects the euro area economy to grow at a moderate pace in 2010, recognising that the recovery process is likely to be uneven and that the outlook remains subject to high uncertainty. Cross-checking the outcome of the economic analysis with that of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit growth continues to slow down. All in all, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households.

With all the measures we have taken in response to the intensification of the financial crisis, we have supported both the availability of liquidity to the banking sector and the recovery of the euro area economy. As the transmission of monetary policy works with lags, we expect that our policy action will continue to progressively feed through to the economy. We will continue our enhanced credit support to the banking system, while taking into account the ongoing improvement in financial market conditions and avoiding distortions associated with maintaining non-standard measures for too long. Looking ahead, the Governing Council will gradually phase out, at the appropriate time, the extraordinary liquidity measures that are not needed to the same extent as in the past. In order to counter effectively any threat to price stability over the medium to longer term, the liquidity provided will be absorbed when necessary. In this way, the Governing Council will continue to ensure a firm anchoring of medium-term inflation expectations. Such anchoring is indispensable to supporting sustainable growth and employment and contributing to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead.

As regards fiscal policies, we re-emphasise how important it is for governments to develop, communicate and implement ambitious fiscal consolidation strategies in a timely manner. These strategies must be based on realistic output growth assumptions and focus on structural expenditure reforms, not least with a view to coping with the budgetary burden associated with an ageing population. As agreed by the ECOFIN Council on 2 December 2009, governments need to set out concrete and quantifiable adjustment measures that will lead to a sustainable correction of fiscal imbalances. Several countries will have to start consolidation in 2010, and all others in 2011 at the latest.

With regard to structural reforms, most estimates indicate that the financial crisis has reduced the productive capacity of our economies, and will continue to do so for some time to come. In order to support sustainable growth and employment, labour market flexibility and more effective incentives to work will be needed. Furthermore, policies that enhance competition and innovation are also urgently needed to speed up restructuring and investment and to create new business opportunities. An appropriate restructuring of the banking sector should also play an important role. Sound balance sheets, effective risk management, and transparent as well as robust business models are key to strengthening banks’ resilience to shocks, thereby laying the foundations for sustainable economic growth and financial stability.

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

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Question: Mr Trichet, there is a lot of talk these days, especially from the Anglo-Saxon environment, about two-speed Europe and about strains in the system. How concerned are you by the deterioration of the quality of sovereign debt in some European countries? Is there such a strain? Is that the point of your concern?

And the second question, if I may, a lot of times, we have talked about excessive M3 growth or excessive monetary growth, now, of course, there is no such thing, especially M1, very weak, does that point only to a lack of demand for credit, or do we actually have credit crunch scenarios, as many often suggest?

Trichet: On your first point, as you can see, we continue to strongly encourage the governments to take care of their fiscal policies and to go very rapidly back to sustainable finances, in some cases starting in 2010 and in all others in 2011. And this, as we all know, was decided on 2 December 2009 by the ECOFIN. I expect these decisions to be implemented. These are decisions of the governments themselves, and I expect that they will help improve the creditworthiness of the various treasuries concerned. And that is why I consider essential that when governments are confronted by their own responsibilities, they face up to them and go in the right direction.

As regards your second question on the monetary aggregates, I confirm that M1 remains quite dynamic, as you might have noted, even if the rate of growth, which is in double figures, is a little bit lower than before. Let me say that we have a number of explanations for why M3 is much less dynamic. I should merely mention that, as regards loans, amongst the counterparts of M3, what is interesting to see is that in October, as in September, we observe some increase in credit outstanding in the form of loans to households. And it is important to note that we also observe this phenomenon in the case of lending for house purchase. Month after month, we see now the same phenomenon of positive increases in loans outstanding to households. As regards loans to non-financial corporations, in our judgement the main issue here is that demand is much less dynamic, which is normal after a very important and deep recession. At the same time, we are doing everything we can, and we call on the commercial banks to do everything that they can, to avoid a supply-of-credit-problem.

Again, my message to the commercial banks, on behalf of the Governing Council, is very strong. We are asking banks to do their job, we have helped them considerably ourselves. We are continuing to help them considerably and the governments themselves stepped in very boldly. So, we are expecting them not to create a supply problem. That being said, it is clear that demand is much less dynamic after the recession we have experienced. Let me mention, nevertheless, that when I look at the various durations of the loans to non-financial corporations, I still see a slight positive increase in outstanding credit, in the case of loans over five years. This is something that you do not observe for all the durations of below five years, which explains why, overall, loan outstanding is diminishing.

Question: First of all, with the twelve months loans, it would be great if you could just confirm that December is going to be the last operation and whether your decision to make it track the average minimum bid rate could be seen by markets as a signal that you might raise policy rates in 2010.

And then my second question: you know, just recently, we have heard that Daimler have decided to start making their C-class cars in the US instead of Germany because of the stronger euro. How concerned are you about the rate of the euro and what can you, as central bankers, do about it?

Trichet: On the first point, I confirm what I just said a moment ago, but also what had been understood before by all observers, namely that the third operation was the last one. It was not the intention of the Governing Council to prolong this operation. As regards the indexed rate that we have decided, it should not be interpreted in any respect as a signal on interest rates. The present interest rates are appropriate. I confirm they are appropriate. It is not at all our intention to modify the way we are handling the money market at the present moment and it is not our intention to increase the EONIA rate. We again consider that the constellation of rates is appropriate. We have also taken into account the fact that we are using the appropriate indexation for this twelve-month period. You remember that, for all those operations, we had said that we could have either fixed rates or another way of dealing with it. We consider that the best way is to be totally neutral. And we have absolutely no signal incorporated in this decision.

As regards the euro, you know the extent to which we consider that, particularly with regard to the relationship with the US dollar, we have a very important stake in the US dollar being strong. The position of the US authorities – and I am speaking of the Secretary of the Treasury, Tim Geithner, as well as of the chairman of the Fed, Ben Bernanke – has been clear. I repeat what I have already said: I have noted with the utmost interest what the chairman, my friend Ben Bernanke, said in the Economic Club in New York a few days ago, namely, and I quote: “we are attentive to the implication of changes in the value of the dollar”. I consider this speech to be important. I think this clearly shows you the way I am presently looking at this issue of the relationship between the euro and the dollar.

Question: Just sticking with the decision as to the twelve-month loans after December. Was that a unanimous decision by the Council? Did you maybe discuss a variable rate for the twelve-month loan and, if you did discuss it, why did you reject the idea? Also, the decision to keep the rates fixed at 1 per cent. Was that unanimous? And, just finally, did you discuss tying the rate of the loans to the benchmark rate and, if so, why did you reject the idea?

Trichet: First of all, let me confirm that we were unanimous in considering the interest rates to be appropriate, and all the decisions that were taken as regards the phasing out of the non-conventional measures were taken by consensus, after we had carefully weighed the pros and cons of the various possibilities. And of course, it is a multi-dimensional issue, so you have to look at it very carefully. We decided by consensus on all these issues and we looked at all the possibilities as regards the various refinancing operations. And finally, we consider that what we have decided is neutral and contains absolutely no signal for interest rates.

Question: If the decision to index the 12-month tender was not unanimous, could you perhaps let us know what the main concerns were of those who initially opposed the idea of indexing?

The second question I have relates to the fact that the IMF recently assessed that it is better to exit too late than too early. Do you see a similar attitude emerging among some central banks and if so, how concerned are you that this might lead to new bubbles in the global financial system?

Trichet: As regards the phasing out of the non-conventional measures, these measures remain very substantial, as evidenced by the fact that liquidity will remain abundant for a large number of months to come, so you have to realise what exactly our decision means. That being said, we decided by consensus. We all agreed on the decisions I have mentioned after having carefully weighed the pros and cons for each and every decision.

As regards the question of whether or not it is appropriate to have an ex-ante bias regarding the phasing out of the measures – and this is valid for the fiscal policies as well as the support given by governments to the financial sphere and the decisions within our own realm as regards central banks – we should not have an ex-ante bias. We should be perfectly balanced. There are risks associated with acting too early and risks associated with acting too late, and we must balance those risks. And when I say “we”, I mean all of us, including the executive branches and parliaments. We have to be sure that we take the right decisions. If we have an ex-ante bias in one direction or another, we risk missing the point and ultimately, having to cope with great difficulties. One of the clear lessons of the past episode, which was a very difficult period, during which we had to take very bold decisions, is that our duty is to be sure that we are correctly weighing up all of the risks associated with each and every decision we take. So we have no bias.

Question: As you mentioned before, liquidity will remain abundant, despite the changes you have introduced to the credit support measures. Are you not at all worried that this will lead to market distortions and may even fuel bubbles in some asset classes?

Trichet: We are maintaining exceptional measures that are extremely generous, as you can see, precisely because we want to be just in our behaviour, and because we do not want to create risk in any area. But we have also specifically chosen the level of phasing out to accompany the fact that the market itself is improving more and more, which was our objective when we took our exceptional decisions, for the large part, a few days after the dramatic events of mid-September last year.

Question: Mr Trichet, you mentioned the projections of your staff, or the staff of the Eurosystem. The projected inflation rate remains far below the ECB’s definition of price stability, even in 2011. Does that support the market view that there will not be an increase in interest rates throughout 2010?

Then I have a question to Mr Papademos. In a newspaper article this week, you called for mechanisms to ensure that the macro-prudential recommendations of the Systemic Risk Board will be implemented in an effective and timely manner. You also called for the legal protection of the independence of the ESRB. What is your fear if these claims are not fulfilled?

Trichet: Regarding your first question, as I just indicated, we believe that the decisions we have taken are appropriate. We do not see any harm for any part of the environment in what we have been doing. I have nothing to add to what I have already said. Let me repeat: we were unanimous in taking our decision.

Papademos: As you know, the main tasks of the ESRB will be to identify and assess systemic risks and to issue risk warnings and recommendations in order to address these risks if they are considered to be significant. However, the responsibility for the implementation of these recommendations will rest either with national authorities – supervisory or economic – or, depending on the recommendation, with the European Commission or the European Supervisory Authorities. If the macro-prudential recommendations of the ESRB are not implemented in an effective and timely manner, the mission of the macro-prudential supervision will not be fully accomplished. So, implementation is key. It is absolutely essential that the macro-prudential recommendations are translated into effective action if we are going to accomplish the ultimate objective of the new framework for macro-prudential supervision, which is to prevent or at least to minimise the likelihood of future crises and to strengthen the resilience of the financial system. Mechanisms should be in place to ensure the translation of the macro-prudential recommendations into effective action.

On the issue of independence, I think it is very important that the ESRB and the members of the Board perform their tasks in the interest of the Union in order to prevent and mitigate systemic risks. This can be done most effectively if these tasks are carried out in full independence, just as we perform our own tasks at the ECB. The current legal text – the regulation that has been agreed by the Council – provides for this independence. So my point was to underline the importance of ensuring the independence for the Board in carrying out its tasks.

Trichet: If the question was that you were wondering whether this will create a problem for the Governing Council of the ECB, the independence of the Governing Council and of the ECB is guaranteed by the Maastricht Treaty and there can, therefore, be absolutely no influence, in any respect, on our own duty as regards delivering price stability. That is crystal clear.

Papademos: And it is also crystal clear that the objectives of the ESRB in no way conflict with the objectives of the ECB.

Question: Your economic forecasts for 2010 and 2011 seem to be below what many in the private sector expect as regards economic growth. What is the biggest risk that you see to the economy over the next two years, and is there a chance that the economy could slide back into a contraction for a quarter or two?

Trichet: As regards the Eurosystem staff projections, we are very much in agreement with the assessment of the major institutions, so I don’t think there is a significant difference. Perhaps some private sector projections are significantly better, but this is not necessarily the case in general. In any case, we consider that there is still a high level of uncertainty, and we consider the risks to be broadly balanced. The Governing Council considers that the level of uncertainty depends in particular on whether confidence improves further. Let’s not forget that the recession stemmed from a very dramatic evaporation of confidence. As regards risks to the upside the global economy – and therefore foreign trade – could be more dynamic than is presently foreseen or projected. We also have the effects of the policy decisions that have been taken and, as I have said, are not necessarily fully taken into account in the projections because of their lags. But we also have a number of very significant risks on the downside, which are, in our view, balancing the risks on the upside. I would say that the possible increases in oil prices and commodity prices certainly constitute a very large downside risk. We consider that protectionist pressures are still looming, and they would constitute a very adverse element. And you also have the adverse feedback loop between the real sector and the financial sector, taking into account the magnitude of the recession, which could perhaps have been underestimated in the projections. But again, taking everything into account, we have risks that are broadly balanced, together with a high level of uncertainty. We are now in positive territory with a likely bumpy road ahead. Let’s remain alert.

Question: Going back to your projections how is it that the ECB is talking about an exit strategy – or the start of an exit strategy – if you are indeed undershooting your price stability target? One could argue the opposite – i.e. why not expand the programmes, since there seems to be room to inflate the economy more?

And a second, related question: what is your position in the debate on whether the interest rate is the right tool to counteract bubbles? Should it be done by monetary policy or by other instruments?

Trichet: First of all, we have said that interest rates are appropriate. I was very clear on that. We consider that at the moment it is important not to signal anything on interest rates. In that respect, the message from us is clear: we are engaging in the progressive, timely, gradual phasing out of the non-conventional measures and this is something which accompanies and reflects what we are observing in the market. We are not signalling anything in terms of hardening our monetary policy. In taking these decisions we are reflecting the fact that some of the exceptional non-standard measures (i.e. enhanced credit support) that we have implemented in order to cope with an exceptional situation are progressively working and are no more needed. We are accompanying these progressive improvements. That is exactly the way we are looking at it.

As regards your second question I cannot elaborate too much on that because it would take a long time, but we believe that our own monetary policy concept, which is based on two pillars (i.e. economic analysis and monetary analysis), allows us – thanks to the monetary analysis and the fact that we have a medium-term definition of price stability – to incorporate elements that are associated with rapid increases in outstanding credit, including the impact on asset inflation, which could itself create inflation through the wealth channel and, if boom is followed by bust, destabilise prices through the deflationary risks that could materialise. So, we are working hard, as you know, on improving our monetary pillar. We consider that our monetary policy concept has proved very robust in the past. I said several times in press conferences at the beginning of 2004 and the end of 2005 that the monetary analysis had been a good guide for us in our interest rate decisions at that times.

Question: A couple of questions, if I may. You said that the decision on the withdrawal of non-standard measures today was by consensus. Can you give us a flavour of the discussion? Would I be right in assuming that some voices were in favour of maybe dismantling these measures at a faster pace? And would I also be correct in assuming that one reason for caution today was your worries that some banks within the euro zone may be particularly vulnerable, may have become too dependent on ECB liquidity, hence you have to go perhaps a little bit slower than you might otherwise. And in that context, maybe just to try again, I am still not quite clear if I know why you are indexing the 12-month operation, why you have moved away from the original announcement that there would be a fixed rate, you now say indexation. Why? What has changed?

And my second question was, quite simply, how worried are you about the situation in Greece and the risk of a possible default? Thank you.

Trichet: As regards your first point I said that we decided by consensus on the set of decisions that are dealing with the phasing-out of part of the non-conventional measures. I would say that each of us, each member of the Governing Council, very carefully weighed up the advantages and disadvantages with regard to every possible decision.

As regards your question on the one-year refinancing, we could have had a fixed rate, namely the MRO rate, as was done the first two times, we could have had a rate with a margin, as had always been indicated very clearly to the market as being possible; and we had the possibility of having this indexed rate. The Governing Council considered, after due deliberation, that this was the right way to be neutral, not to give a signal on interest rates, either in the direction of loosening our policies or in the direction of hardening our policies. The idea was to have an appropriate way of telling the market, as I already said at the beginning of this press conference, that we are neutral and the present rates are appropriate.

As regards the element of caution that you noted in our decisions today, I would say again that it is fully in line with this idea that we have to be gradual and timely. We believe that, taking everything into account – the situation of the market in some respects, perhaps the nervousness of the market – the measures that we took today were exactly the right compromise between the various constraints that we have. So, you have there the illustration of this concept of being gradual and timely.

As regards Greece, taking into account the situation that the new government of Greece has to cope with in terms of the fiscal situation in particular, I have confidence and expect that the appropriate decisions will be taken. That is what came out of the last discussion which took place in the Eurogroup and in the ECOFIN Council. I can only say that, taking into account the extreme gravity of the situation, I have confidence that the government of Greece will take the appropriate and absolutely necessary decisions.

Question: Two questions: Mr Trichet, you just said that the ECB has an important stake in a strong dollar policy. Do you believe that US government officials have really done what it takes to back that strong dollar policy?

And second question: how concerned are you about the potential impact of Dubai’s debt problems on European banks? Thank you very much.

Trichet: On the first question, I trust the sincerity of the US authorities, both the sincerity of the Secretary of the Treasury and the sincerity of the Chairman of the Federal Reserve.

As regards Dubai, I think it is an illustration of the fact that we have nervousness in the market. I do not think we should over-assess the gravity of what is happening in Dubai, but at the same time we have to consider the impact that a relatively modest event had on the market. So, it calls for us to continue to be alert and to work with all the energy that we have, in the various workshops that have been opened through the Financial Stability Board and all the cooperative workshops that exist at the global level and at the European level, to work on increasing the resilience of the financial sphere. It is urgent, and we are totally determined at the ECB and in the Eurosystem to contribute as effectively as possible to this necessary improved resilience of the financial system.

Question: I also have another question on Dubai. After the Dubai shock, a couple of private bankers warned that there are more time bombs ticking in the global financial system. So, while you might be working on improving confidence and resilience, how great are your fears that we are going to see fresh setbacks?

Trichet: I have no particular comment on that. I do not know which banks you were alluding to. It is of course in all of our interests, both the public sector and the private sector, to augment the resilience of institutions, markets and the financial sphere in general of course.

Question: I think we have skipped two compulsory questions on the interest rates. Did you discuss any other options today, and was the decision unanimous?

How about your trip to China? Do you think it was a productive trip? And do you see any softening in China’s attitude towards the dollar peg?

And one more question if I may. You said that you did not want to send a message of loosening monetary policy and that is why you decided to index it. How would having a fixed rate full allotment at the refi rate have signalled a loosening of monetary policy?

Trichet: With regard to your first question, I will say once again that today’s decision on interest rates was unanimous. We did not have a lengthy discussion on this point. We considered interest rates to be appropriate and we were unanimous.

On China, I would say that it was very important that we had the opportunity to exchange views in an open and friendly fashion on both sides. We discussed the fundamentals as far as possible, starting very clearly with what we considered ourselves to be in the best interest of all parties concerned. It was an important exchange of views and the Chinese authorities themselves were also very clear on their current stance. After the meeting, I said that China confirmed that it would continue to implement the reforms of the foreign exchange market that had been introduced in 2005, but this should not be over-assessed or over-interpreted in terms of signalling future decisions. I will say again, that it was important that there was such an exchange of views between the authorities of a large economy at the global level like the euro area, in particular the ECB, and the Chinese authorities, responsible for another key economy at the global level, including Governor Zhou Xiaochuan of the People’s Republic Central Bank, with whom we enjoy a very close and confident cooperation.

On the last point, I only wanted to indicate that we did not want to change in any respect the current yield curve, and we thought that the best way to do this was to take the decisions that we took today.

Question: Just a question concerning Poland and other eastern European countries, sorry, not today’s decision. Polish fourth quarter GDP data was very impressive; we had 1.7% growth according to the Polish Statistical Office. What is your opinion about the economy in Poland and other economies in the region, and when should we adopt the euro in your opinion?

Trichet: First of all I have to say that the Polish economy seems to me to have been one of the economies which was the most resilient in the circumstances. This is an element of stability in Europe as a whole and particularly in central and eastern Europe, which is certainly important. Of course, we are in a period of difficulty. All economies have to cope with great difficulty, but the resilience of the Polish economy has been noted by all observers. On the overall strategy of the country, it is up to the country to see how to converge and how to meet the various criteria, with which you are familiar. I would say that, to my knowledge, there is a lot of discussion inside the country on what would be the best as regards your question. I do not want to take the place of the authorities or the public debate in Poland.