lucas papademos : interview with corriere della sera interview with mr lucas papademos, vice - president of the european central bank, conducted by ms marika de feo ( corriere della sera ), frankfurt, 31 march 2005. corriere della sera publishes an abstract of the text below. * * * the markets are under the impression that the ecb is unhappy with the current level of interest rates. why not raise them here and now? our message has been clear : the current level of interest rates is in line with maintaining price stability over the medium term. our latest assessment confirmed that underlying inflationary pressures remain contained and that inflation is projected to decline over the medium term. there are, however, a number of upside risks to price stability, such as high and volatile oil prices. these risks stem mainly from potential second - round effects of higher oil prices on wages and prices. up till now past oil price increases had no significant effects on wage developments, inflation expectations and core inflation. but the risks also stem from money growth, don ’ t they? yes, they do. the excess liquidity accumulated over the past few years and the acceleration of money and credit growth since the middle of last year poses medium - term risks to price stability. stronger economic growth in 2005 and 2006 could imply an increased likelihood that inflation risks associated with monetary and credit growth could materialise. this prospect requires continued vigilance. with regard to high oil prices, are you more concerned about their impact on growth or on inflation? it is an unpleasant fact that high oil prices pose simultaneously upside risks to inflation and downside risks to growth. estimates of the impact of higher oil prices on growth and inflation are surrounded by uncertainty and must be interpreted with caution. having stressed this, i can say that the average estimated effect of an oil price increase of 10 % is to add about 0. 1 percentage point to euro area inflation in the first year and to reduce gdp growth by approximately the same amount, that is by 0. 1 percentage point in the same year. in subsequent years, the effects on both inflation and growth decline. our aim is to prevent oil price shocks from having second round effects on inflation so as to minimise their cumulative adverse effects on both inflation and growth. are you still optimistic about growth? i am cautiously optimistic and expect that the economic recovery in the euro area will pick up momentum in the course of 2005. the somewhat lower gdp growth projected in 2005 by ecb

sustainability of public finances and the increased focus on debt should contribute to a better implementation of the pact. needless to say, and this is crucial, the expected - in principle - positive effects of these changes on the conduct of prudent fiscal policies will have to be proved in practice and will depend on a rigorous implementation of the revised fiscal framework. what do you think of the new rules about debt? the increased focus on debt, in both the preventive and corrective arms of the pact, is definitely warranted, as the overall indebtedness of a country, including a government ’ s implicit liabilities resulting from pension systems and ageing populations, allows for a more comprehensive assessment of a country ’ s fiscal situation and prospects. at the same time, the application of the debt criterion in “ qualitative terms ” will not be straightforward and, for this reason, it is essential that this be done in a systematic and credible manner. the increased emphasis on debt is expected to strengthen the commission ’ s position to launch an excessive deficit procedure on the basis of its assessment of debt developments. do you think that the new rules are more credible for the governments and that, consequently, they will try to stick to the new rules more than to the old ones? credibility is gained through actions. it cannot be established and it cannot be predicted on the basis of good intentions and theoretical arguments. all parties to the pact are expected to fulfil their responsibilities and implement the revised fiscal framework in a rigorous and credible manner.