jean - claude trichet : testimony before the committee on economic and monetary affairs of the european parliament introductory statement by mr jean - claude trichet, president of the european central bank, brussels, 16 february 2004. * * * in my testimony today i will first comment on recent economic and monetary developments. i will then make a few remarks about the benefits that have been brought to us by the euro in its first five years of existence. economic and monetary developments when we last met in december, economic indicators and financial market developments were already supporting our view that a gradual economic recovery had started in the euro area in the second half of 2003. the evidence that has since become available has made us more confident that the recovery did indeed begin in the second half of 2003 and has strengthened our expectation of an upswing in economic activity. an upturn in economic activity is well under way at the global level. this view was shared by all participants at the recent g7 meeting in florida. the robust real gdp growth in the economies of the euro area ’ s major trading partners over the past few months can be expected to support foreign demand for euro area goods and services. looking ahead, the external environment of the euro area should continue to develop favourably, and the broadly - based global economic recovery should gain further momentum. external developments should thus support the continued recovery in the euro area. we expect this economic recovery in the euro area to proceed gradually. after real gdp growth picked up in the third quarter of 2003, survey evidence on business confidence and the eurostat flash estimate for real gdp growth in the fourth quarter point to a continuation of the recovery around the turn of the year. while domestic demand remained subdued in 2003, the conditions for some improvement are now in place. investment activity should profit not only from strengthening global demand, but also from companies ’ earlier efforts to enhance productivity and profitability, from the historically low levels of interest rates and from the favourable financing conditions prevailing in the euro area. growth in euro area private consumption is also expected to progressively recover, benefiting from price stability and supported by the growth of real household disposable income. the scenario of a gradual economic recovery in the euro area is reflected in all available forecasts from official and private sources and seems to be in line with developments in financial markets. over the shorter term, risks to the main scenario of a gradual euro area recovery remain balanced. nevertheless, over longer horizons, some uncertainty related to the sustainability of economic growth remains, given

- anchored inflation expectations. independent central banks with a clear mandate to maintain price stability have been successful in anchoring inflation expectations. having an explicit inflation objective provides its own stabilising narrative – people can trust the central bank to deliver inflation, and can base their economic decisions on that expected inflation rate. in recent years, the ecb has been an anchor of stability, creating an effective bulwark against deflationary narratives when they appeared in the euro area. by acting forcefully, the ecb has prevented deflationary dynamics from materialising. but institutions need to be strong in order to deliver in the face of shocks. to put this in perspective, consider how two periods of global economic integration have fared under different institutions. global economic integration has fluctuated over time and is now higher than at any time in the past. another period of high integration, in the decades prior to world war i, ended abruptly as a financial crisis of global proportions, accompanied by a credit crunch, broke apart bilateral arrangements and paved the way for several rounds of retaliatory tariff increases. multilateralism has been a cornerstone of economic expansion since world war ii. the current legal framework for world trade, embodied in the multilateral world trade organization, has proven much more robust to the recent global financial crisis. it has played a key role in preventing the re - emergence of protectionism in the aftermath of the great recession. three stylised facts emerge from comparing the evolution of world trade in goods in the periods 1922 – 38 and 2001 – 16. first, the pre - crisis expansion was very similar in both eras. second, world trade collapsed in 1930 and 2009, immediately after the two shocks, but the decline was sharper in 2009, even though the total decline in the 1930s was larger. third, the subsequent recovery has been noticeably stronger in the most recent episode. 4 / 7 bis central bankers'speeches sources : ecb staff calculations based on data in federico and tena - junguito ( 2016 ) 9 and cpb trade monitor data. notes : the year 0 on the horizontal axis is 1929 in the case of the great depression ( blue line ) and 2008 in the case of the great recession ( yellow line ). 1922 – 1938 trade flows are constructed using current country borders. data for 2016 are available until november. on both occasions, falling output was the main driver of the trade collapse, but protectionism after the great depression was largely due to the emergence of a new political