jean - claude trichet : the ecb ’ s exit strategy speech by mr jean - claude trichet, president of the european central bank, at the cfs conference “ the ecb and its watchers xi ”, frankfurt, 4 september 2009. * i. * * introduction ladies and gentlemen, it is a pleasure to be with you today to participate in this 11th edition of the ecb watchers ’ conference. i am delighted to see that this conference has established itself so successfully as a venue for interaction between the european central bank and its observers. my remarks today come in the context of the ongoing financial crisis, the most severe the developed world has witnessed for more than sixty years. as the governing council recognised yesterday, “ there are increasing signs of stabilisation in economic activity in the euro area and elsewhere. this is consistent with the expectation that the significant contraction in economic activity has come to an end. ” nevertheless, it would be too soon to call the crisis over. the governing council also underscored that uncertainty remains high and that the recovery is expected to be rather uneven. exceptional times have called for exceptional actions. faced with the financial crisis, we have introduced a set of non - standard measures, which we call “ enhanced credit support ”. these measures are intended to prevent the threat of a drastic loss of liquidity in the financial system as a whole and support the flow of credit to firms and households above and beyond what could be achieved through policy interest rate reductions alone. given their exceptional nature, these measures will have to be unwound once conditions return to normal. of course, we designed technically the measures with their exit in mind, and today ’ s conference provides an opportunity for me to outline the overall exit strategy from the set of measures. to be clear, in this context, i would like to stress that, firstly, the term “ exit strategy ” should be understood as the framework and set of principles guiding our approach to unwinding the various non - standard measures. it does not include considerations about interest policy. secondly, the discussion of the exit strategy should not be confused with its implementation. as i said, it would be premature to declare the crisis over. now is not the time to exit. but i would like to make it clear that the ecb has an exit strategy, and we stand ready to put it into action when the appropriate time comes. my colleague jurgen stark, who will be on the first panel on the programme today, will

rates ; the treasury ’ s spending on this item declined in absolute terms, despite the increase of 6 per cent in the stock of debt. the improvement in the budget deficit suffered a setback, however. the overall borrowing requirement grew in absolute terms and remained unchanged in relation to gdp at 7. 4 per cent. the supplementary budget measures adopted in the middle of the year failed to prevent a large overshoot on the order of 30 trillion lire compared with the original target set in september 1995. in the forecasting and planning report published last september the government increased the 1997 budget adjustment to 62. 5 trillion lire, compared with 37. 5 trillion envisaged in the economic and financial planning document. this is a demanding commitment that is already having beneficial effects on government securities prices and the financial markets. as i pointed out in my parliamentary hearing on the finance law, the forecasts of the borrowing requirement in 1997 reflect highly favourable assessments concerning the primary surplus ; these are only compensated for in part by the significantly better - than - forecast behaviour of interest rates. the lower level of the primary surplus in 1996, with a shortfall of around 20 trillion lire compared with last september ’ s estimates, will have repercussions on the results in 1997 ; these will also be affected by the cyclical slowdown that started at the beginning of 1996 and became more pronounced in the last part of the year. the adjustment of the budget deficit will have to be pursued by curbing the growth in expenditure. on the revenue side it will be necessary to reduce tax avoidance and evasion. further fiscal tightening would have adverse effects on domestic demand and prices. in order to create confidence in a return to equilibrium in the medium term, budget adjustment measures will have to be of a structural nature. there is an urgent need to revive growth. italy, like many other leading european countries, is far from making full use of its resources of saving, labour and entrepreneurial ability, with consequent economic and social costs. in cyclical terms the level of economic activity remains unsatisfactory. according to the latest forecasts, the growth in gdp in 1997 will be just over 1 per cent. the trade surplus will remain large, as will the surplus on the current account of the balance of payments, thereby contributing to a further improvement in the country ’ s external position and providing support for the lira. it will be necessary to modify the composition of public expenditure, by reducing that on current account, in