domestic side, investment should normally benefit from the positive global environment, the very favourable financing conditions in the euro area and the improvements in corporate efficiency, and there is scope in the euro area as a whole for a strengthening of private consumption. naturally, some uncertainties to this outlook exist. one of the risks stems from developments in oil markets. if oil prices were to remain high, or even to increase further, they could dampen the strength of the recovery, both inside and outside the euro area, despite the fact that the oil intensity of the euro area is significantly lower than it was in the 1970s. we also need to keep in mind that part of the oil price increases is due to strong global demand, which was not the case in the first and second oil shocks. but it remains true that the oil price increase constitutes an adverse supply shock for the euro area economy as a whole. for the oil price shock to be absorbed smoothly, the policy mistakes of the past must not be repeated. in particular, “ second - round ” effects must be avoided. with regard to consumer prices, oil market developments have had a direct impact on the euro area hicp. following an annual rate of 1. 7 % in the first quarter of 2004, inflation reached 2. 3 % in the second quarter and 2. 2 % in the third quarter. inflation rates over the past year have also been driven up by exceptionally strong rises in indirect taxes and administered prices. nevertheless, looking ahead, the available information does not indicate that stronger underlying inflationary pressures are building up domestically as yet. wage developments have remained moderate since the last quarter of 2003, and this trend should continue. provided that there are no further significant shocks to prices, annual inflation rates should drop below 2 % in the course of 2005. however, i should also stress that, over recent quarters, several upward risks to the outlook for price stability have emerged which call for ongoing vigilance. these again relate to oil price developments, in particular if second - round effects stemming from wage and price - setting behaviour materialise. other concerns relate to long - term inflation expectations and monetary trends. indeed, the downward trend in annual m3 growth since mid - 2003 appears to have halted over the summer of 2004, and the shorter - term dynamics of m3 have strengthened. this reflects the fact that the historically low level of interest rates in the euro area continues to support monetary expansion. the low level of interest rates is also fuelling the growth of credit to the

jean - claude trichet : presentation of the ecb ’ s annual report 2003 to the european parliament introductory statement by mr jean - claude trichet, president of the european central bank, to the european parliament, strasbourg, 25 october 2004. * * * permettez - moi de souligner tout d ’ abord que je partage entierement votre desir de maintenir les relations etroites et fructueuses que nos institutions ont developpees au cours des dernieres annees, et que je me rejouis a la perspective de poursuivre notre dialogue dans cet esprit franc et cooperatif. j ’ ai l ’ honneur de vous presenter aujourd ’ hui le rapport annuel de la bce pour l ’ annee 2003, lequel constitue, en conformite avec les dispositions du traite, un des outils principaux de la bce pour rendre compte aux citoyens de l ’ europe et a ses representants de la politique monetaire et des activites de la bce dans les autres domaines de sa competence. die ezb ist sich der grundlegenden bedeutung ihrer rechenschaftspflicht bewusst und hat stets betont, dass das sehr hohe maß an unabhangigkeit der ezb mit strengen berichtspflichten, wie sie im eg - vertrag festgelegt sind, einhergehen muss. die ezb misst daher dem regelmaßigen dialog mit den burgern europas und ihren gewahlten vertretern hochste bedeutung bei. economic and monetary issues the ecb ’ s monetary policy operated in a rather uncertain and challenging environment in 2003. in the first half of the year, real gdp growth stagnated amid considerable uncertainty related to geopolitical tensions and the turbulences in oil prices and financial markets. following the easing of economic and geopolitical uncertainties, prospects for economic activity gradually brightened after the summer of 2003. nevertheless, overall, real gdp in the euro area increased by only 0. 5 % in 2003. annual hicp inflation slowed down slightly in 2003 to 2. 1 % on average, from 2