Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB,Vítor Constâncio, Vice-President of the ECBFrankfurt am Main, 2 September 2010

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. We will now report on the outcome of today’s meeting, which was also attended by Commissioner Rehn.

Based on its regular economic and monetary analyses, the Governing Council continues to view the current key ECB interest rates as appropriate. It therefore decided to leave them unchanged. Considering all the new information and analyses which have become available since our meeting on 5 August 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures. Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors. Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing. Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, 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 our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.

The Governing Council has today also decided to continue to conduct its main refinancing operations (MROs) and its special-term refinancing operations with a maturity of one maintenance period as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of this year’s twelfth maintenance period on 18 January 2011. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. Furthermore, it has decided to conduct the 3-month longer-term refinancing operations (LTROs), to be carried out in October, November and December 2010, as fixed rate tender procedures with full allotment. The rates in these 3-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO. The Governing Council has also decided to carry out three additional fine-tuning operations on 30 September, 11 November and 23 December when 6-month and 12-month refinancing operations mature.

Overall, the current monetary policy stance remains accommodative. Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term. This is the necessary and central contribution that monetary policy makes to fostering sustainable economic growth, job creation and financial stability. All the non-standard measures taken during the period of acute financial market tensions, referred to as “enhanced credit support” and the Securities Markets Programme, are fully consistent with our mandate and, by construction, temporary in nature. We remain firmly committed to maintaining price stability over the medium to longer term. The monetary policy stance, the overall provision of liquidity and the allotment modes will be adjusted as appropriate. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.

Let me now explain our assessment in greater detail, starting with the economic analysis. After a period of sharp decline, euro area economic activity has been expanding since mid-2009. Euro area real GDP grew strongly on a quarterly basis, increasing by 1.0% in the second quarter of 2010, supported by ongoing growth at the global level but also in part reflecting temporary domestic factors. Recent data and survey evidence generally confirm the expectation of a moderation in the second half of this year, both at the global level and in the euro area. Nevertheless, while uncertainty still prevails, they continue to indicate a positive underlying momentum of the recovery in the euro area. Ongoing growth at the global level and its impact on the demand for euro area exports, together with the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system, should continue to support the euro area economy. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors and labour market prospects.

This assessment is also reflected in the September 2010 ECB staff macroeconomic projections for the euro area, according to which annual real GDP growth will range between 1.4% and 1.8% in 2010 and between 0.5% and 2.3% in 2011. Compared with the June 2010 Eurosystem staff macroeconomic projections, the range for real GDP growth this year has been revised upwards, owing to the stronger than expected rebound in economic growth in the second quarter as well as better than expected developments over the summer months. For 2011 the range has also been revised upwards, reflecting mainly carry-over effects from the projected stronger growth towards the end of 2010.

In the Governing Council’s assessment, the risks to this improved economic outlook are slightly tilted to the downside, with uncertainty still prevailing. On the one hand, global trade may continue to perform more strongly than expected, thereby supporting euro area exports. On the other hand, concerns remain relating to the emergence of renewed tensions in financial markets and to some uncertainty about growth prospects in other advanced economies and at the global level. In addition, downside risks relate to renewed increases in oil and other commodity prices, and 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 1.6% in August, according to Eurostat’s flash estimate, compared with 1.7% in July. The small decline in inflation is likely to reflect base effects in the energy component. Later in the year annual HICP inflation rates are expected to increase slightly while displaying some volatility. Looking further ahead, in 2011 inflation rates should remain moderate overall, benefiting from low domestic price pressures. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term.

This assessment is also reflected in the September 2010 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation in a range between 1.5% and 1.7% for 2010 and between 1.2% and 2.2% for 2011. Compared with the Eurosystem staff macroeconomic projections of June 2010, the ranges have been revised slightly upwards, largely on account of higher commodity prices.

Risks to the outlook for price developments are slightly tilted to the upside. They relate, in particular, to the evolution of energy and non-oil 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. At the same time, risks to domestic price and cost developments are contained.

Turning to the monetary analysis, the annual growth rate of M3 stood at 0.2% in July 2010, unchanged from June. The annual growth rate of loans to the private sector, which has been gradually increasing, rose further to 0.9%, but still remains relatively weak. The subdued developments in money and loan growth continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained.

The downward impact of the steep yield curve on monetary growth, which is reflected in the allocation of funds into longer-term deposits and securities outside M3, is gradually waning. Moreover, the impact of the narrow spreads between different short-term interest rates on the growth of the components of M3 is continuing to diminish. As a result, the annual growth rate of M1 has continued to moderate from high levels, and stood at 8.1% in July 2010, while the annual growth rate of other short-term deposits has become less negative.

The still weak annual growth rate of bank loans to the non-financial private sector continues to conceal positive growth in loans to households and diminishing negative annual growth in loans to non-financial corporations. These developments are consistent with a normal, lagged response of loan developments to economic activity over the business cycle.

Given the subdued developments in banks’ overall balance sheets, the challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up. Where necessary, to address this challenge, banks should retain earnings, turn to the market to strengthen further their capital bases or take full advantage of government support measures for recapitalisation.

To sum up, the current key ECB interest rates remain appropriate. Considering all the new information and analyses which have become available since our meeting on 5 August 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures. Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors. Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing. A cross-check of the outcome of our economic analysis with that of the monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, 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 our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.

Turning to fiscal policies, current developments at the euro area aggregate level appear to be broadly in line with previous expectations. At the country level, any positive fiscal developments that may emerge, reflecting factors such as a more favourable than expected macroeconomic environment, should be exploited to make faster progress with fiscal consolidation. At the same time, in countries where there is still a need to take additional specific measures to achieve consolidation targets, such measures should be adopted swiftly to ensure that consolidation commitments are fulfilled. This is a prerequisite for maintaining confidence in the credibility of governments’ fiscal targets. Positive effects on confidence can compensate for the reduction in demand stemming from fiscal consolidation, when fiscal adjustment strategies are perceived as credible, ambitious and focused on the expenditure side. The conditions for such positive effects are particularly favourable in the current environment of macroeconomic uncertainty.

In order to support the process of fiscal consolidation, to underpin the proper functioning of the euro area and to strengthen the prospects for higher sustainable growth, the pursuit of far-reaching structural reforms is essential. Major reforms are particularly needed in those countries that have experienced competitiveness losses in the past or that are suffering from high fiscal and external deficits. Measures should ensure a wage bargaining process that allows wages to adjust flexibly and appropriately to the unemployment situation and losses in competitiveness. Reforms to strengthen productivity growth would further support the adjustment process of these economies.

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 Vítor Constâncio, Vice-President of the ECB

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Question: I have two questions for you. You will set the interest rate of the three-month operation at the prevailing MRO rate. So, are you trying to signal that interest rates may change in the first quarter? That is the first question.

And the second one: spreads between German bonds and those of peripheral countries have widened considerably over the past month and yet bond purchases are only marginal. I would be interested in why that is and whether it would be fair to conclude that you think the market is functioning in an orderly way. If that is the case, then why do you not just terminate the programme?

Trichet: On the first question, I respond very clearly that there is absolutely no signal of monetary policy in this technical decision we have taken to index on the average of the MRO rate, the interest rate of the three-month operation. As you might have observed, there was no pre-announcement of any interest rate increases in the past when we took the same technical decisions for other durations. So I am absolutely clear that the Governing Council has no intention to signal any change in the present interest rates, which we consider appropriate, as I said on behalf of the Governing Council. We consider that this is a technical measure that is appropriate, taking into account the overall situation, just as we considered in the past that it was appropriate for different durations. It is absolutely not a signal of future monetary policy, which remains, as always, entirely designed to ensure a solid anchoring of inflation expectations and the delivery of price stability. By the way, your first question gives me the opportunity to mention that, when you compute the average yearly inflation during the first eleven and a half years of the euro, you obtain 1.97%. Less than, but close to 2%. As a matter of fact, very close to 2%. This is the best result in terms of price stability that has been observed over the last 50 years in, say, Germany, France, Italy or Spain; the best result for the euro itself and for the euro area as a whole fully in line with our definition of price stability.

On your second question, we have said very clearly that the purpose of the Securities Market Programme was to help to restore a better functioning of our monetary policy transmission channel, and we continue to adjust what we do with exactly this purpose in mind.

Question: Two questions Monsieur Trichet. One, can you give us an idea of your assessment of how the money market feels at the moment? Is there an unclogging of the systems and are banks a bit more relaxed with regard to lending? The operations that you announced today are, correct me if I am wrong, to smooth the money market over the year-end so that the bottlenecks there are not causing any tightening.

And the other question is that, you rightfully mentioned that the history of the euro and the track record of the euro are better even than that of the Deutsche Mark. Why, then, do you think it is sometimes so difficult for politicians and maybe also for central bankers to bring the euro and its advantages home to the people and to the market?

Trichet: To start with your second question I think it depends also very much on you as well and how you communicate our message. We have achieved something remarkable in terms of price stability. This is not a judgement. These are facts and figures that can be checked by anybody. So, we will continue to make the point that we are inflexibly attached to deliver price stability and that we are delivering price stability. And, by the way, the sentiment of the markets, observers and different panels as regards future inflation is fully in line with our past performance and with our inflexible goal of price stability, because I see a very solid anchoring of inflation expectations, as I said on behalf of the Governing Council in today’s introductory statement.

As regards your first question on the money markets, as you might have seen, we have taken a set of measures today. At 3.30 p.m. you will be given a press release containing a fully fledged explanation of the various decisions taken, including the three fine-tuning operations, which will allow us to be sure that, when we have the maturities of the previous long-term operations, there is the appropriate supply of liquidity to the markets. We will continue to very carefully follow what happens in the money markets, which, in our eyes, are on their way to functioning more normally. But it is a process which takes time.

Question: First, you have just said that money markets are improving, and I think they have improved quite significantly over the past couple of months. Yet, previously you always said that you wanted to withdraw liquidity support in tandem with improving market conditions. So, your decision today appears to run somewhat counter to that plan. Are you now making policy for banks in the periphery that are still dependent on your support? Given the slow recovery in the periphery, will you also be forced to postpone rate hikes eventually, even if aggregate levels would call for such a move in the euro area?

Second, last month you said with some confidence that the euro area will not see a double-dip recession. Can you reiterate that statement today with the same level of confidence?

Trichet: With regard to the first question, we are withdrawing part of the previous non-standard measures. The three fine-tuning operations are there precisely to cope with the end of the maturity of the last six-month and twelve-month operations. It is clear that we are in a process. The process of withdrawing these long-term operations is in operation. Our decisions today, we believe, are appropriate and commensurate with the situation that we are observing. From that standpoint, as you know, we look at the markets with great attention. Our overall intention is to consider the non-standard measures as coping with the abnormal functioning of some markets. To the extent that we can observe a normalisation of the situation, we will continue to withdraw these non-standard measures. The decisions today speak for themselves. With regard to the rate hikes, I have said already that we consider the present interest rates to be appropriate taking everything into account. I have said that we had no intention of signalling any intentions for future interest rates at this stage. You know our overall concept – we do what is necessary to deliver price stability. It is not just a promise; it is a track record, over eleven and a half years. As regards growth, you know that since we started to observe the pick-up in growth four quarters ago (we have had four successive quarters of growth), we have never declared victory. Instead we said: now we are in black figures; it is better, but let us remain cautious and prudent. It is clear that the second quarter has been exceptionally good. And, when I compute growth over the four last quarters in the euro area, I arrive at a figure of 1.9 % growth. This figure is much better than that anticipated a year ago. So, we have had a succession of positive surprises, but as I said we have not declared victory. We consider that we are still in an uncertain universe. We had hard and soft data at the beginning of the third quarter that were also mostly better than expected. All this explains why our staff has revised projections significantly upward in comparison with the June projections, not only for this year, but also for the next, because of the carry-over. Nevertheless, again, the Governing Council must remain cautious and prudent: we do not declare victory.

With regard to your second question, I have already said that a double-dip recession was not on the cards. Based on the staff projections I am even more inclined to say that.

Question: My first question is on the provisions you have made for the fourth quarter regarding the extension of the liquidity operations. Were there calls for bidding already to be re-introduced for the three-month operation?

And, second, regarding the bigger picture, we have just seen some headlines flash up on the European Union plans to limit naked short-selling on stocks and also government debt. In my mind, this was one element that Angela Merkel pushed through in the beginning of this year at the height of the crisis. Do you think this sends out a signal of more fragility in the market in order to calm the markets in general? Where does this fit into the picture, in particular if you also look at the widening spreads that we are seeing between bonds and also countries such as Greece etc.?

Trichet: In answer to your first question, the decision on the liquidity operations was taken by consensus. There was unanimity on the interest rates. As regards the bidding for the three-month LTROs, you have seen that for the last quarter we have confirmed the return to the full allotment procedure. We will see what happens in the future. We took no decision in this domain and we will see when we take the next decision. For now, we have taken the decision for the next four operations, because we have the one at the end of September, and then we have the three three-month LTROs for the last quarter.

As regards your second question, I will not comment particularly on short-selling.

Question: At the beginning you said there is a strong anchoring of inflation expectations, but at the same time you pointed to inflation risks being slightly on the upside. Putting those two together, does this mean that even if inflation risks are on the upside, they would stay within the definition of price stability?

Second, in the opening statement you mentioned a couple of downside risks, including financial market protectionism and so forth. If those risks were to materialise, what would the ECB be willing to do to help the economy?

Trichet: On your first question, the anchoring of inflation expectations is really exceptionally good. This has always been fundamental for us because it is a major tool for delivering price stability, and all the information we have from surveys and from the markets show that we are going in the right direction. When I said that the Governing Council was of the view that risks are “slightly tilted” to the upside, it was in comparison with the inflation projections themselves which are fully in line with price stability. It was to take into account all eventualities, and not only all the other factors I mentioned in the introductory remarks, but also the indirect taxation increases and administrative price increases that are needed in order to bring the fiscal position back in line. This is the main element that is captured in what we described as a slight tilt to the upside. But again this is in comparison with a baseline that is fully in line with our definition of price stability.

On your second question with regard to the overall situation, you know our views. We consider that by ensuring price stability – price stability meaning less than, but close to two percent – we are guarding against inflation and against the possible risk of deflation, which never materialised. I have to say I am very encouraged when I compare developments in the euro area with observations from other economies. We have guarded the euro area from inflation as well as from deflationary risks materialising. This is, for us, the appropriate way to contribute to sustainable growth and sustainable job creation, and of course we will continue to be very attentive in this respect. We never see any contradiction between pursuing our primary mandate and helping to deliver sustainable growth and job creation.

Question: I have a few questions. First, you are now extending your provision of unlimited liquidity into a third year. What would your answer be to those who say you are simply encouraging banks’ addiction to this emergency liquidity?

Second, you talk about risks to growth being tilted slightly downwards and you mention other major advanced economies – I guess you probably had the United States in mind there. Could you tell us, particularly as you were there at the weekend and talked to Mr Bernanke, what is your assessment of the outlook for the United States?

And third, just building on comments you made in your speech in Jackson Hole, you talked about the qualities required of central bankers. I wonder whether you also think a central banker needs to be a diplomat, particularly when it comes to making comments ahead of Council meetings.

Trichet: On the first question as I already said, we are managing the progressive phasing out of the exceptional measures we introduced. The maturity of the last 12-month operation and the maturity of the last six-month operations are two examples of factors that justify the three fine-tuning operations I have mentioned. So we are very aware of the concerns you mentioned in your first remark and consider it to be something which must be taken into account very carefully. It is a process and we are in the course of that process We must also consider that these non-standard measures and their withdrawal, including the full allotment mode, have to be fully commensurate with the situation we see on the markets.

As regards your question on the United States, I would say that one has to be careful not to follow a mood which is a little too cyclical. What we see is more or less what we had in mind and we are not too much disappointed because we did not consider extraordinary dynamic growth to be very likely. As for our own situation, you see that we are very anxious not to create abnormal expectations. We have very good results for the last quarter but we do not declare victory. In any case, I very much stick to the analysis of Ben Bernanke and the Federal Open Market Committee on the situation in the United States. They know well what is happening in the US.

On your last question, I will only say that there is one Governing Council and I am very happy to be its porte-parole.

Question: I would like to know if you spoke about the Bundesbank having a problem with an Islamophobe like Board Member Sarrazin. And are you happy with the situation, and if you are not, what do you intend to do?

Trichet: I would say that, as a citizen, I have been appalled by the remarks, and as President of the ECB, I have full confidence in the Bundesbank’s decisions and the attitude of the Bundesbank’s Board, absolutely full confidence.

Question: Mr Trichet, in Jackson Hole in your speech you warned against suggestions for surprise inflation and you warned so much against this that you even mentioned the danger of hyperinflation, if I correctly remember your speech. What was Mr Bernanke’s face like when you were saying this, because we have seen from Mr Bernanke another approach in his speech? He even spoke about the possibility of raising the inflation target in the United States, although he said that there is no consensus now, but the impression he gave is that once again helicopters will fly to expand liquidity. But did you respond to suggestions for surprise inflation which were circulating in the central banking community?

And the second question I have is that you also called for governments to reduce debt and especially the debt-to-GDP ratio. And you mentioned examples of several European countries which were successful in bringing this ratio to 60% in the 1990s. But at least five of those countries now have the opposite problem. They are highly indebted because they had to rescue the private sector. So, there was simply a debt transfer. So, we are back to square one. But when you call then for far-reaching structural reforms for reaching this target, you do not mean simple corrections, I mean do you think that sectors like the pension sector and the health sector should be fully privatised or something like that?

Trichet: On your first question: I heard what other governors said, particularly Ben Bernanke, and I think we are in full agreement. He explicitly said that it was not a way out to embark on a higher definition of inflation, a higher inflation target and so forth. This was very clear. The disadvantages and the difficulties associated with such a move are very clear. I would say that the central banks are unanimous in considering that some of the suggestions that were made – and we all have in mind these suggestions – were absolutely not acceptable. I have no reservations at all on that matter.

As regards your second question on debt reduction, I mentioned the fact that in the past it has proven possible to go from very high levels as a proportion of GDP to sustainable levels. This is the proof that what is at stake for a number of countries today, after the particular difficulty associated with the crisis – namely significant debt reductions as percentages of GDP, it is doable as it is demonstrated by past experience. But of course it calls for determined decisions and action.

Question: Mr Patrick Honohan, the Governor of the Irish central bank and a member of the Governing Council, has said within the last couple of weeks that he believes that the spreads on Irish debt are “ridiculous”, to quote him. This was in an interview in the Daily Telegraph. The question is whether you agree with him and whether you believe that is a reasonable assessment from Mr Honohan?

Secondly, the Irish debt agency has criticised as flawed a Standard & Poor’s analysis which led the rating agency to downgrade its assessment of Ireland’s debt. Do you agree with that assessment that the downgrading is based on a flawed analysis?

Thirdly, there is acute political concern in Ireland about the cost of rescuing Anglo Irish Bank, the nationalised lender. The cost of the rescue is now estimated at some 25 billion euro. There are people who say that your policy of not allowing any European bank to close is, in this instance, creating an unbearable level of pressure on Irish taxpayers, on whom the burden of the rescue falls. What do you say to that? And what do you say to people who say that the rescue of this bank is, in fact, undermining the market confidence in the Irish government’s economic plan?

Trichet: As regards your first question I have no particular comment on spreads. I think what we are doing at the level of the Governing Council of the ECB with the Securities Markets Programme has been made absolutely clear, and I would not comment on spreads, just as I do not comment on a day-to-day basis on the level of stocks and shares.

As regards your second question on the overall Irish strategy, I would encourage Ireland to continue to take the appropriate decisions, as has been done since the very beginning of the crisis with the “frontloading” of very important decisions in all domains, including in the fiscal domain, which remains a very important one. It is the responsibility of the Irish government and of the Irish authorities in general to deal with their banks. That responsibility lies very much in Dublin. And I have confidence that they will manage this difficult issue as well as possible, as they did in the past.

Question: Do you not share any of the concern that there is in Dublin that the cost of bailing out this specific bank is creating an intolerable burden on the Irish state?

Trichet: I already responded on this. If I am not mistaken, it is a bank which is owned by the government. So it is the responsibility of the government of Ireland and of the Irish authorities in general to take the appropriate decisions.

Question: First, in which circumstances will there be a decision to terminate the non-standard measures taken by the ECB to support European (and especially euro area) financial systems?

And second, do you see enough effort being made in non-euro area countries to join the euro area in the future and when can this next step of enlargement take place in your opinion?

Trichet: I have already responded to the first question. We do exactly what we trust is commensurate taken into account the situation of the markets and to cope with the case of abnormal functioning of the markets. As I have already mentioned several times today, we are in the process of phasing these measures out. We took decisions today that speak for themselves.

As regards the enlargement of the euro area, you know that at the beginning of next year, a new country will join. We will be seventeen and not sixteen. It is up to the various countries of the European Union, at least those that are committed to entering the euro area, to continue to do what is necessary to converge and to fulfil the criteria, to which we are inflexibly attached.

Question: But do you see enough efforts in these countries to fulfil the criteria?

Trichet: At the present moment, one country made enough efforts to join and I encourage all the others to do likewise.

Question: I have a local type of question. Estonia is on the doorstep of the euro zone and is now debating whether to introduce the 3% budget deficit ceiling into its constitution. What is your opinion? Is that necessary and advisable, or are there more urgent issues and concerns that Estonia should worry about at the moment?

Trichet: I think the sentiment of the Governing Council is that a clear strategy to move to a sustainable fiscal situation is part of what is necessary to consolidate the recovery. Without that you are not creating the appropriate conditions for sustainable growth and job creation. We firmly believe this. It does not mean that everything can be done immediately, but there has to be a sustainable and credible path to a more sound fiscal policy. That is our message for any country in Europe.

Question: I have a question regarding the IMF. Is Europe prepared to cede IMF board seats as demanded by the United States? And should the board have more representation for emerging countries?

And the other question would be, German steel workers have demanded a 6% pay rise, and the question would be is there a danger that euro zone inflation could shoot up if they get anything close to this much?

Trichet: On the first question, this is an issue which is of great importance discussed at the global level, by the Europeans, emerging countries and other industrialised countries. I will not hide the fact that, in my view, it would be very important for the Europeans to be united and to have a clear, united position. At this stage this is a personal view, but one which I would express very strongly. It is part of the appropriate management of the global economy that we make clear what we consider appropriate. As you know, at the present moment there are still various views in Europe.

On your second question, as always, we consider it important to maintain appropriate moderation in terms of wages and salaries as long as the country has unemployment and as long as – and each economy has to be analysed very thoroughly – the economy has competitiveness problems. By the way, I would like to make the observation that when I look at the employment and unemployment level, since the beginning of the crisis I see that in most countries unemployment has increased. However, in some economies, at least in two economies in the euro area, unemployment has decreased. And the two countries in question are Germany and Austria. There are a number of reasons for this, but it is not too surprising as these are two countries where moderation of unit labour costs has been exemplary. I don’t want to generalise, or to over-simplify the situation, because it is certainly a multi-dimensional issue. But appropriate wage moderation, taking into account all the elements of the case, is very important to foster employment and sustained job creation.

Question: You mentioned that the decision on the liquidity programmes was by consensus: can you give a sense of what the nature of the conversation was, were there people who were not in the consensus, did they want more liquidity, less liquidity to be provided?

And also in the GDP numbers today for the euro zone, there was quite a significant gap between growth rates in the northern parts of Europe, particularly Germany, but also close to Germany, and southern Europe. Are you afraid that that persistent gap will endanger the recovery in the euro area?

Trichet: On your first question, I would say that we took a lot of decisions, as you can see: we have three fine-tuning operations, we are maintaining the full allotment for the one-week and one-month operations and we embarked on three three-month operations with the average MRO rate. It was a set of decisions. We examine the pros and cons of each decision and, taking everything into account, we had a consensus for this package.

On your second question, the so-called heterogeneity or diversity of the euro area, I would comment a little bit on your question, I think it’s important. Very often I am asked “country X is now growing brilliantly, country Y is not, so what are the dilemmas that you have in such a situation” or “unemployment is very high in country A and very satisfactory in country B, so how do you solve this puzzle and the associated difficulties” and so forth. Just to make clear what the Governing Council of the ECB does: we issue the currency for a vast area, for 16 countries (shortly, 17) and for more than 330 million inhabitants. So, our size is of the order of magnitude of the United States. The Federal Reserve also has to issue a currency for a large number of states. So I was anxious to see, after all those remarks, what kind of diversity can be observed on both continents. If I look at yearly average growth in the United States, I see that over the ten years from 1997 to 2007, the slowest yearly growth is 0.9%, and the fastest is 4.7%. 0.9% refers to Ohio on the one hand and 4.7% to Arizona on the other hand, according to the figures I was given. It has to be checked, and as you know I always consider that the Fed is the judge for data in the United States. In the euro area, over an equivalent period of time, the lowest yearly growth would be of the order of magnitude of Ohio and the fastest of the order of magnitude of Arizona. So, you see, we are not in different universes. If I take the present level of unemployment, the lowest would be 3.5% and the highest 14% in the United States today. In our case, the lowest is exactly the same order of magnitude. The highest, I have to say, is higher, but if I take the number two of the highest in the euro area, I have exactly the level of the highest figure in the United States. Such diversity seems to be a normal feature of a very vast economy. Of course, each individual state or nation has its own responsibilities, this is important in the USA and is particularly important in our own case. However, we have to take decisions on the basis of the overall superior interest of 330 million people.

Question: Regarding Estonia’s preparations for the changeover on 1 January, there has been a little bit of concern raised by the European Commission in recent weeks in its report. How satisfied is the ECB with Estonia’s preparations for the changeover?

Trichet: All the information that I have indicates that it is moving in the right direction. Of course, a lot of hard work remains to be done in the next few months. I will be soon in Estonia and we will have the opportunity to review everything, but at this moment in time I would say that the preparations seem to be very much on track, and we are satisfied with that. But, as I said, hard work remains to be done by the end of the year.

Question: I have two questions: One is, in Jackson Hole you said that the interest rate policy is different from full allotment and non-standard measures. How big is the probability that we will see higher interest rates, before you reduce the full allotment on all tender operations?

And the second question is regarding the problems in the Deutsche Bundesbank. Many German politicians are putting pressure on Axel Weber to put Mr Sarrazin out of the Deutsche Bundesbank. Are you afraid that the whole thing could cause damage to the independence of the Eurosystem and of the central banks?

Trichet: On the first question, we have always said that we do not consider the interest rate level and the monetary policy stance, on the one hand, and the non-standard measures, on the other hand, to be moving “in sync”. We can have decisions on the standard measures without having the phasing-out of all the non-standard measures, and vice versa. It is, in a way, a separation principle. The non-standard measures are designed to cope with the abnormal functioning of certain markets or market segments, and to permit the appropriate transmission of our monetary policy. Monetary policy is designed to deliver price stability. I have already said how proud I am that we have proved to be able to deliver price stability over time.

As regards your second question, as I said already, personally, as a citizen, I am appalled by what I have heard from one particular person. Second, I said that I have full confidence – shared by the ECB Governing Council as a whole – in the Deutsche Bundesbank and its ability to take the appropriate decisions. These decisions are the responsibility of the Deutsche Bundesbank, which is – and this is essential – fiercely independent, like all the national central banks and the ECB. The Maastricht Treaty is crystal clear in this respect.

Question: It was suggested earlier that your decision to continue the liquidity provision was primarily motivated by the aim to smooth over the end-of-year liquidity tensions and the expiry of these longer-term operations. Can you confirm whether that was really your main motivation? Or is your main motivation indeed the ongoing dependence of some banks in periphery countries?

Trichet: If we had only been considering the end of the year, we would have announced something similar to 2007, being engaged in an enormous “jumbo” fine-tuning operation at year end. What we have announced today, as you can see, comprehends a set of several decisions

Question: I have one short question on this process we are in of let’s call it "changing from non-standard measures to less non-standard measures". I understand that you do not want to and cannot specify when it will end, but will it take years or just months?

Trichet: You have understood very well what I said. We will accompany the normalisation of the market. These measures were established because we had to cope with the abnormal functioning of a number of markets. It is our hope that we will proceed as rapidly as possible with this market normalisation, which should be part of the normalisation of the overall situation. This is more than just a hope: everything that we are doing is aimed at anchoring solidly confidence in the euro area and we are actively trying to normalise all segments of the markets.