European Central Bank: Press conference - introductory statement
Introductory statement by Mr Willem F Duisenberg, President of the European Central Bank and
Mr Lucas Papademos, Vice-President of the European Central Bank, Frankfurt, 6 June 2002.
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Ladies and gentlemen, Mr. Papademos, the new Vice-President of the ECB, and I will now report on
the outcome of today's meeting of the Governing Council of the ECB.
The Governing Council undertook a comprehensive examination of monetary, financial and
economic developments and considered the evidence that has become available since its last
meeting on 2 May 2002. Notwithstanding the recent decline in inflation, the outlook for price stability in
the medium term remains less satisfactory than expected a few months ago. However, the economic
outlook is still subject to uncertainty. Further evidence is needed before we can fully assess the
upward risks to 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 decreased to 7.4% in the period from February to April 2002,
down from 7.6% in the period from January to March 2002. While the high annual growth rate of M3
still partly reflects the portfolio shifts to liquid positions which occurred last autumn, and there was
some normalisation in the development of M3 in early 2002, this trend towards moderation has
recently been interrupted. In addition, annual rates of growth of loans to the private sector have
stabilised over recent months.
As regards the second pillar, our expectations for a gradual recovery in real GDP growth in the euro
area have been confirmed by Eurostat's recently published first estimates for real GDP growth. These
preliminary estimates show an improvement of quarter-on-quarter growth rates from -0.3% in the last
quarter of 2001 to moderately positive rates in the first quarter of this year. Moreover, business and
consumer confidence has strengthened again more recently, as reflected in the data published by the
Commission. Looking ahead, available forecasts all point to a continued strengthening in both
domestic and foreign demand, relating to a more favourable external environment, sound domestic
fundamentals and the absence of major imbalances within the euro area. Overall, they suggest that
real GDP growth in the euro area should again be in line with potential growth later this year, with a
further increase expected in 2003. Despite this rather positive outlook, the assessment of the
shortterm dynamics of real activity is still surrounded by uncertainty. Moreover, future oil price
developments and economic imbalances elsewhere in the world economy remain elements of risk.
Turning to price developments, Eurostat's early estimate indicates that annual HICP inflation fell from
2.4% in April to 2.0% in May. However, this decline is mainly due to a base effect relating to the spike
in HICP inflation in May 2001. Moreover, in the first months of this year HICP inflation excluding the
more volatile items of energy and unprocessed food prices has remained stubbornly high, reflecting in
particular trends in services prices. While a further decline in the annual inflation rate is possible in the
short run, the medium-term outlook remains less satisfactory than expected a few months ago. Over
recent weeks the exchange rate of the euro has appreciated. This will contribute to containing
inflationary pressures, but it is still too early to assess the impact of exchange rate developments on
the outlook for prices.
As stated on a number of occasions, the less satisfactory picture in the short term is due partly to a
sequence of adverse but rather specific shocks to prices, including recent oil price increases. In
principle, such shocks should unwind over time and therefore not affect the medium-term perspectives
for price stability as long as past upward tendencies in prices do not become entrenched. The
outcome of recent wage negotiations in some regions of the euro area is a cause for concern,
especially in view of the negative impact this could have on continued employment creation. High
wage increases must not spread across the euro area given that inflationary pressure, which would
have unfavourable consequences for competitiveness, employment growth and consumption, is to be
avoided.
At this juncture it is therefore particularly important for monetary policy to remain vigilant with regard to
the further evolution of the key factors determining the outlook for prices.
Regarding fiscal policies in the euro area, it is vital that all Member States maintain a medium-term
perspective in compliance with the framework of the Stability and Growth Pact. Maintaining such a
perspective will lead to a successful transition to budgetary positions close to balance or in surplus
and to a smooth functioning of automatic stabilisers in all member countries. Let me therefore reiterate
that the Member States concerned must honour the commitments made to achieve balanced budgets
by 2003-4. Moreover, governments are encouraged to push ahead with reforms relating to the size
and structure of public expenditure and revenue, which will also create room for further tax cuts and
absorb the fiscal costs of population ageing.
This reform agenda, as well as the urgent structural reforms relating to product, labour and financial
markets, will be addressed in the forthcoming Broad Economic Policy Guidelines. Overall, such
reforms reflect the key challenge for the euro area to expand its potential for non-inflationary growth
and to reduce its high level of unemployment. The Governing Council calls upon Member States to
make faster progress in accelerating and deepening structural reforms in order to provide economic
agents with the proper incentives to enhance efficiency and entrepreneurship and to progress towards
a knowledge-based economy as proclaimed in the Lisbon agenda and confirmed in Barcelona.
We are now at your disposal for questions.