jean - claude trichet : press briefing on the “ ecb financial stability review ” opening remarks by mr jean - claude trichet, president of the european central bank, frankfurt am main, 15 december 2004. * * * ladies and gentlemen, welcome to this special press briefing on the publication of the ecb ’ s financial stability review 2004. let me start by saying that in publishing this financial stability review the european central bank ( ecb ) is joining a growing number of central banks around the world that are addressing their financial stability mandates in part through the periodic issuing of a public report. under article 105 ( 5 ), the treaty establishing the european union assigned to the eurosystem the task of contributing “ to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system ”. in this vein, the purpose of publishing this review, which represents the common view of the governing council of the ecb, is to promote awareness in the financial industry and among the public at large of issues that are relevant for preserving and enhancing the stability of the euro area financial system. by providing an overview of sources of risk and vulnerability to financial stability, the review also seeks to help preventing financial tensions. central banks have a strong and natural interest in the safeguarding of financial stability. this is in particular because financial institutions, notably banks, are issuers of by far the largest component of the money stock. it is equally because a stable financial system is needed for an effective transmission of monetary policy and for the smooth operation of payment systems. a robust financial system is therefore needed to ensure that the single monetary policy can deliver on the primary objective of maintaining price stability in the euro area. finally, but not least, the health of the financial system is inextricably intertwined with the performance of the economy and its resilience to shocks. these are the reasons why the ecb and the eurosystem have an important stake in financial stability in the euro area. complex to define, financial stability is not only of the essence in avoiding financial crises but also in paving the way for the best financial environment in normal times. it is a condition where the financial system is capable of performing well in normal times all of its normal tasks and where it is expected to do so for the foreseeable future. from this viewpoint, financial system stability requires that the principal components of the system - ie financial institutions, markets and infrastructures - are

the new arrangements for the distribution of bank notes to financial institutions. they will ensure that these arrangements are carried out efficiently and that the currency system continues to provide good service to canadians. the city of quebec was the site for our second pilot of the new system for bank note distribution. bank notes are now moving directly from financial institutions with surplus notes to those that need them. notes are now returned to the bank of canada only to be destroyed when they are no longer fit for use. i hope that we can count on your help to make the new regional initiatives work. i would especially like to encourage you to contact our two senior representatives for the province of quebec in montreal - - louis - robert lafleur, economics representative and lorraine laviolette, operations representative - - to obtain information, express your point of view, or get in touch with the bank in ottawa. as i said earlier, it is important for canadians to be well informed about the economy and about monetary policy. thus, i welcome the attention that economic issues have been receiving in the last few years. there are three questions related to monetary policy that are raised frequently and that i would like to discuss with you today. first, why is the bank still preoccupied with controlling inflation when it is so low and does not seem to be a threat any longer? with this continued focus on inflation, isn ’ t there a risk that monetary policy will fail to provide the support necessary for incomes and employment to grow? second, if low inflation is good for the economy, why have we not seen more of its dividends in our economic performance? third, the bank has taken a rather optimistic view of canada ’ s economic prospects for this year and next. what is the basis for this, when we are still undergoing economic restructuring and have been experiencing its effects on consumer confidence? is the commitment to inflation control still appropriate? over the past five years, inflation in canada has averaged less than 2 per cent a year. why, then, is the bank of canada still so focussed on its target range for inflation control? why not put more emphasis on economic growth and employment? my response to the first question is simply this : a commitment to low inflation is the best contribution monetary policy can make over time to a well - functioning economy - - an economy that delivers growth in output and employment. why? because such a commitment gives canadians confidence that the value of their money will not be eroded by inflation. low inflation generally means less uncertainty about the future