european central bank : press conference – introductory statement introductory statement by mr jean - claude trichet, president of the european central bank and mr lucas papademos, vice - president of the european central bank, frankfurt am main, 5 july 2007. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to today ’ s press conference. let me report on the outcome of our meeting, which was also attended by commissioner almunia. on the basis of our regular economic and monetary analyses, we decided at today ’ s meeting to leave the key ecb interest rates unchanged. the information that has become available since our previous meeting has further underpinned the reasoning behind our decision to increase interest rates in june. it has also confirmed that the medium - term outlook for price stability remains subject to upside risks. given the positive economic environment in the euro area, our monetary policy is still on the accommodative side, with overall financing conditions favourable, money and credit growth vigorous, and liquidity in the euro area ample. looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted. the governing council will continue to monitor closely all developments to ensure that risks to price stability over the medium term do not materialise and medium to longer - term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. allow me to explain our assessment in greater detail, starting with the economic analysis. the latest data and survey releases have remained broadly positive, supporting the view that economic activity in the euro area in the second quarter of 2007 continued to expand at solid rates in line with our baseline scenario. looking ahead, the medium - term outlook for economic activity remains favourable. the conditions are in place for the euro area economy to continue to grow at a sustained rate. as regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains robust. external conditions thus continue to provide support for euro area exports. domestic demand in the euro area is also expected to maintain its relatively strong momentum. investment should remain dynamic, benefiting from overall financing conditions which remain favourable, accumulated and ongoing strong corporate earnings, balance sheet restructuring as well as business efficiency gains achieved over an extended period. meanwhile, consumption should be supported by developments

in real disposable income, as labour market conditions continue to improve. the risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. at medium to longer horizons, the balance of risks remains on the downside, owing mainly to external factors. these relate in particular to fears of a rise in protectionist pressures, the possibility of further increases in oil prices, concerns about possible disorderly developments owing to global imbalances and potential shifts in financial market sentiment. as regards price developments, as reflected in eurostat ’ s flash estimate, annual hicp inflation was 1. 9 % in june 2007, unchanged from previous months. looking ahead, the short - term profile of annual inflation rates continues to be determined largely by current and past energy price developments, as last year ’ s volatility in energy prices leads to significant base effects. on the basis of the current level of oil prices and oil price futures, which show an upward slope, annual inflation rates are likely to fall only slightly in the months ahead before rising again significantly towards the end of the year. at the policy - relevant medium - term horizon, risks to the outlook for price stability remain on the upside. these risks relate notably to the domestic side. in particular, as capacity utilisation in the euro area economy is high and labour markets continue to improve, constraints are emerging which could lead in particular to stronger than expected wage developments. in addition, pricing power in market segments with low competition may increase in such an environment. such developments would pose significant upward risks to price stability. it is therefore crucial that all parties concerned meet their responsibilities. wage agreements in particular should be sufficiently differentiated to take into account price competitiveness positions, the still high level of unemployment in many economies and sector - specific productivity developments. the governing council stresses the importance of avoiding wage developments that would eventually lead to inflationary pressures and harm the purchasing power of all euro area citizens. in addition, upside risks to price stability arise from increases in administered prices and indirect taxes beyond those anticipated thus far, and the potentially procyclical stance of fiscal policy in some countries. finally, on the external side, upside risks stem from the possibility of further unexpected oil price rises. the monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. the underlying rate of monetary expansion remains strong, in a context of already ample liquidity. the ongoing strength of monetary expansion is reflected in the continued rapid growth of m3, which increased