jean - claude trichet : presentation of the european central bank ’ s annual report for 2003 introductory statement by mr jean - claude trichet, president of the european central bank, to the committee on economic and monetary affairs of the european parliament, brussels, 27 april 2004. * * * in four days'time the eu will witness the most significant enlargement in its history when some 75 million people from ten central and eastern european and mediterranean countries join the european union. the importance of this enlargement goes beyond considerations of size. its significance lies in its political message. by overcoming post - war rifts, europe has passed another milestone along the way to establishing an “ ever closer union ” among its peoples. i will come back to this issue at the end of my opening remarks. i should like to start by reporting on economic and monetary issues. since i have the pleasure today of presenting to you the ecb ’ s annual report 2003, i would first like to briefly review economic and monetary developments over the past year, and then turn to developments that have occurred since our last meeting in mid - february. i should then like to address another important issue raised in the report, namely the governing council ’ s evaluation of the ecb ’ s monetary policy strategy. economic and monetary developments in 2003, monetary policy in the euro area operated in a rather uncertain and challenging environment. in the first half of the year, euro area real gdp growth stagnated in the context of considerable economic and geopolitical uncertainty, due to the escalation of tensions in iraq and the associated turbulence in oil prices and financial markets. it was only from the summer of 2003 that a global economic recovery began and euro area economic confidence gradually started to improve. after the moderate recovery in the second half of the year, real gdp growth in the euro area amounted to 0. 4 % for 2003 as a whole. in this context, hicp inflation fell from an annual rate of 2. 3 % in both 2001 and 2002 to 2. 1 % in 2003. the persistence of inflation above 2 % in 2003 was due mainly to unexpected increases in some volatile components of the hicp, such as oil prices and, in the second half of 2003, food prices. increases in indirect taxes and administrative prices also played an important role. at the same time, there were good reasons in 2003 to expect that annual hicp inflation would decline to below 2 % in 2004 and remain consistent with price stability over the medium term.

area countries towards structural reforms. these reforms are necessary to maintain and strengthen the euro area ’ s growth potential over the long term and to increase the flexibility of the euro area economy to adjust smoothly to external shocks. while progress has been made, substantial further efforts are needed. i therefore warmly welcome the presidency conclusions of the brussels european council held on 26 march 2004, which underline that the pace of reform needs to be stepped up significantly. the evaluation of the ecb ’ s monetary policy strategy turning to specific issues raised in the ecb ’ s annual report 2003, let me briefly summarise the governing council ’ s comprehensive evaluation of the ecb ’ s monetary policy strategy, which was carried out in the first half of 2003. since 1999, the ecb ’ s monetary policy strategy, with its clear focus on the maintenance of price stability, has served to anchor long - term inflation expectations in the euro area at low levels. it has also provided both a solid basis for internal decision - making and a consistent framework for the presentation of policy decisions to the public. the strategy has been an indispensable tool in organising the analysis prepared for the governing council and in structuring the discussion within the council. the strategy has also provided a sound framework for the ecb ’ s overall accountability. following the detailed evaluation, the governing council confirmed the main elements of the strategy originally announced in 1998, namely its quantitative definition of price stability and the two - pillar structure underlying the overall assessment of risks to price stability. we continue to define price stability as a year - on - year increase of below 2 % in the harmonised index of consumer prices ( hicp ) for the euro area. at the same time, we clarified that in the pursuit of price stability the ecb aims to keep inflation rates below, but close to 2 % over the medium term. in addition, the governing council also confirmed that its monetary policy decisions would continue to be based on a comprehensive analysis of the risks to price stability, comprising an economic analysis and a monetary analysis. the economic analysis seeks to identify short to medium - term risks to price stability. the monetary analysis assesses medium to long - term trends in inflation, given the close relationship between money and prices over extended horizons. the governing council emphasised that the monetary analysis would serve mainly as a means of cross - checking, from a medium to longer - term perspective, the short to medium - term indications coming from the economic analysis. given the medium to long