European Central Bank: Press conference - introductory statement
Introductory statement by Mr Willem F Duisenberg, President of the European Central Bank and
Mr Christian Noyer, Vice-President of the European Central Bank, at the press conference, held in
Frankfurt, 7 March 2002.
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Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of
the Governing Council of the ECB.
First of all, we were pleased to see that the euro cash changeover went so smoothly - more
smoothly in fact than we could have hoped. The European public very quickly became familiar with the
new banknotes and coins, as is shown by the fact that national banknotes were largely withdrawn well
before the final deadline of their ceasing to be legal tender. The Governing Council wishes to express
its gratitude once more to all those who helped to make the euro cash changeover such a success.
As usual, at today's meeting we examined recent monetary, financial and economic
developments. The Governing Council concluded that the information which had become available in
recent weeks confirmed that the current level of key ECB interest rates remains appropriate for the
maintenance of price stability over the medium term. Against this background, the Governing Council
decided to leave the key ECB interest rates unchanged.
Starting with the analysis under the first pillar of our monetary policy strategy, the three-month
average of the annual growth rates of M3 stood at 8.0% in the period from November 2001 to January
2002, compared with 7.8% in the period from October to December 2001. The high level of the annual
growth rates of M3 is very much related to portfolio shifts to liquid positions, most of which occurred in
the autumn of 2001 in an economic and financial environment characterised by high uncertainty. While
many investors still seemed to be "parking" some of their assets in M3 in early 2002, some moderation
in the short-term dynamics of M3 could be observed around the turn of the year.
The Governing Council continues to hold the view that the information from the first pillar thus far does
not indicate risks to price stability, as the portfolio reallocations which drove M3 growth in 2001 should
remain temporary. In addition, the slowdown in the rate of growth of loans to the private sector has
been continuing over the past few months. However, we will need to analyse monetary developments
closely in the coming months.
As regards the second pillar, there are further signs that the trough in economic activity may have
been reached at the end of last year. Coincident and forward-looking indicators increasingly point to
improvements in economic conditions. A similar picture is reflected in financial market expectations,
especially those embedded in bond yields.
The economic fundamentals of the euro area are sound and there are no major imbalances that would
require a lengthy process of adjustment. The expectation of a recovery in the euro area in 2002 is
furthermore supported by favourable financing conditions and by real disposable income benefiting
from past and expected future declines in inflation. There is also increasing confirmation that economic
activity outside the euro area is picking up, which should lead to a gradual strengthening of the
external demand for euro area products and services. While the strength of the recovery remains
uncertain, there are good reasons to expect a return of economic growth to levels in line with potential
towards the end of the year.
Turning to short-term price developments, annual consumer price inflation picked up substantially in
January. Part of this increase was expected, as it related to base effects stemming from falling energy
prices in early 2001 and to higher indirect taxes in some euro area countries. Furthermore, the
increase reflected a considerable rise in unprocessed food prices due to adverse weather conditions in
parts of Europe. Part of the latter effect seems to have been reversed in the meantime, as preliminary
data for February indicate. Some increases have also been observed in oil prices and in the rate of
growth of services prices in January. While there might have been an impact on specific service
categories in January, overall there is no evidence that the euro cash changeover has had a
significant upward effect on the average price level in the euro area or that the declining trend in
annual inflation rates has been affected recently.
In the coming months, the effects of past increases in energy and food prices should gradually subside
and annual inflation rates should fall to below 2%. The recent behaviour of producer prices also points
in this direction. Beyond that horizon, we expect little upward pressure on prices from aggregate
demand and, barring unforeseen developments, inflation rates to be in line with price stability.
However, the current favourable outlook for inflation fundamentally rests on the assumption of a
continuation of wage moderation. As I already noted last month, there is some cause for concern with
regard to ongoing wage negotiations. A continuation of wage moderation in the euro area is crucial not
only to foster employment growth but also to support monetary policy in its task to maintain price
stability.
With regard to the Governing Council welcomes the reaffirmed
fiscal policy in the euro area,
commitments of the governments of euro area countries with fiscal imbalances to adhere to the
objective of achieving balanced budgets by 2003-2004. The confirmation of the political will to
continue along the path of fiscal consolidation is most appropriate. The Governing Council supports
the actions taken by the European Commission in the context of the Stability and Growth Pact and the
subsequent outcome of the ECOFIN Council meeting last month. It is now necessary to remain vigilant
in order to ensure strict adherence to the medium-term plans and rigorous implementation of the
procedures of the Stability and Growth Pact.
In order to further improve the fundamentals of the euro area and to put the expected recovery on a
broad and sustainable basis, euro area countries must strengthen their efforts to implement
comprehensive structural reforms. Over the past few years progress has been made with regard to
enhancing the flexibility of euro area product and capital markets. Euro area countries have also made
some headway in terms of improving the way their labour markets operate. These reforms, together
with moderate wage developments, have contributed to the strong employment growth and the
considerable reduction in unemployment witnessed in many euro area countries in the last cyclical
upswing. However, it is worth noting that despite the continued high unemployment in the euro area,
firms continue to report difficulties in terms of recruiting suitably qualified workers. This suggests that
further improvements in the functioning of euro area labour markets and their ability to match labour
supply and demand are needed. Evidence gathered in a recent Eurosystem analysis, which will be
published shortly, supports this view. In this context I would also like to stress that structural reforms in
different markets should not be seen in isolation. The more efficiently euro area product and capital
markets function, the greater the success of labour market reforms will be in creating employment
opportunities.
We are now at your disposal for questions.