jean - claude trichet : hearing at the economic and monetary affairs committee of the european parliament speech by mr jean - claude trichet, president of the european central bank, brussels, 8 december 2008. * * * madame la presidente, mesdames et messieurs les membres de la commission economique et monetaire, je me rejouis de cette quatrieme rencontre avec votre commission au cours de cette annee. je commencerai mon intervention par une evaluation de la situation economique et monetaire, en expliquant les raisons sous - jacentes a nos recentes decisions de taux. je vous fournirai ensuite de plus amples informations sur nos operations de politique monetaire ainsi que notre dispositif de garanties. am schluss mochte ich auf das management der finanzkrise in europa eingehen und einige der reformvorschlage fur das internationale finanzsystem hervorheben, die ich fur besonders wichtig halte. danach beantworte ich wie immer gerne ihre fragen. economic and monetary developments since my previous hearing before your committee on 10 september, euro area annual inflation has continued to decline, falling to 2. 1 % in november. with lower commodity prices and weakening demand, annual inflation is expected to be in line with price stability over the policy - relevant horizon. risks to the outlook for price stability are more balanced than in the past. unexpected further declines in commodity prices could put downward pressure on inflation, while upside risks to price stability could materialise if the fall in commodity prices were to reverse or if domestic price pressures were to turn out stronger than assumed. turning to economic developments, since september, there has been an intensification and broadening of the financial turmoil, contributing in the third quarter to a contraction of 0. 2 % in real gdp growth compared to the previous quarter. global economic weakness and very sluggish domestic demand can be expected to persist in the last quarter of 2008 and in the next few quarters. subsequently, a recovery should gradually take place, supported by the fall in commodity prices and assuming that the external environment improves and financial tensions weaken. as a whole, average growth in 2009 could be between - 1 % and 0 % according to the eurosystem staff

. this outlook remains surrounded by exceptionally high uncertainty. risks to economic growth lie on the downside, relating to concerns for a stronger impact on the real economy of the ongoing financial turmoil, protectionism and possible disorderly developments owing to global imbalances. all parties concerned should make their contribution to lay sound foundations for a sustainable recovery. the measures announced by governments to address the financial turmoil should be implemented swiftly so as to support trust in the financial system and prevent constraints on credit supply. estimates of underlying broad money growth point to a sustained but moderating rate of expansion. this supports the view that inflationary pressures are diminishing further, with some risks remaining on the upside in the medium to longer term. on 4 december we decided to reduce the key ecb interest rates by 75 bps, putting the overall reduction of our key interest rates at 175 bps in less than two months. we will continue to keep inflation expectations firmly anchored in line with price stability, thereby supporting sustainable growth and employment, and contributing to financial stability. overview of recent monetary policy operations and the eurosystem ’ s collateral framework ladies and gentlemen, i would now like to say a few words about our recent monetary policy operations and the collateral eligible in the ecb ’ s operational framework. the widening and deepening of the financial turmoil over the last three months triggered an unprecedented rise in risk aversion, which was felt particularly on the money markets. in view of this intensification of money markets tensions, the eurosystem stepped up its efforts to ensure that solvent banks continued to have access to liquidity. most notably, we decided to supply liquidity on an unlimited basis and at a fixed rate. in addition we intensified our close cooperation with other central banks, in particular with the federal reserve. these measures have enhanced the capability of euro area banks to refinance themselves with the eurosystem and have helped to ease liquidity tensions in the money markets. yet i should like to stress that these measures are very exceptional and we very much look forward to the reactivation of inter - bank lending and to banks resuming their traditional intermediation activity. the eurosystem ’ s operational framework has proved to be “ fit for purpose ”. three features of our operational framework have served us particularly well in dealing with the money market tensions. first, the broad set of eligible counterparties, which ensures that our operations have a sufficient scope. second, the large scale of our operations, which ensures that our