european central bank : press conference – introductory statement introductory statement by mr jean - claude trichet, president of the european central bank and mr lucas papademos, vice - president of the european central bank, frankfurt am main, 5 february 2009. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to today ’ s press conference. we will now report on the outcome of today ’ s meeting of the governing council, which was also attended by commissioner almunia. on the basis of its regular economic and monetary analyses, at today ’ s meeting the governing council decided to leave the key ecb interest rates unchanged. as anticipated in our interest rate decision of 15 january 2009, the latest economic data and survey information confirm that the euro area and its major trading partners are undergoing an extended period of significant economic downturn, and that accordingly both external and domestic inflationary pressures are diminishing. we continue to expect inflation rates in the euro area to be in line with price stability over the policy - relevant medium - term horizon, thereby supporting the purchasing power of euro area households. this assessment is supported by available indicators of inflation expectations for the medium term. it is also confirmed by the further deceleration in monetary and credit growth in the euro area. fully in line with its primary objective, the governing council will continue to keep inflation expectations firmly anchored in accordance with its definition of price stability, that is inflation rates of below, but close to, 2 % over the medium term. this supports sustainable growth and employment and contributes to financial stability. overall, the level of uncertainty remains exceptionally high. accordingly, we will continue to monitor very closely all developments over the period ahead. allow me to explain our assessment in greater detail, starting with the economic analysis. reflecting the impact of the intensified and broadened financial market turmoil, economic activity throughout the world, including in the euro area, has weakened substantially. foreign demand for euro area exports has declined, and domestic factors, notably very low confidence and tight financing conditions, have adversely affected domestic demand. taken together with other available economic data for the euro area, this points to very negative quarter - on - quarter real gdp growth in the last quarter of 2008. this information is in line with our current analysis and forward - looking assessment. we continue to see persistent weakness in economic activity in the euro area over the coming quarters, as the financial market tensions have a further impact on the global and domestic economy. at the

##b financial stability review published in december 2004 we had said that a high level of risk appetite was encouraging a search for yield among investors across a wide range of markets and asset classes. this phenomenon went on for several years together with a very significant degree of innovation and creativity in global financial markets which was improving financial efficiency but also creating new sources of risk. as i just said we are now in a correction phase which can, as frequently observed in such situations, comprehend episodes of hectic behaviour, a high level of market volatility and elements of over - shooting. we had seen a distinct possibility that the ongoing deterioration of the creditworthiness of borrowers in the us sub - prime mortgage market could be a trigger for more broad - based market correction. we had said this in our financial stability review published as recently as last june. the most important channel for the propagation of the correction turned out to be the maturity mismatch and, therefore, the strains placed on the balance sheets of special purpose vehicles and conduits which had funded medium - term positions in asset backed securities – where sub - prime mortgages were an important element – with short - term financing commercial papers. it was the difficulties these vehicles faced in rolling over their short - term funding which created much of the strains we saw in money markets. now, i know that you are particularly interested in the lessons we can draw from the present episode. as we are not yet at the end of it, i would say that at this stage we must be prudent in drawing definitive conclusions. that said, i believe there are a number of areas where we know lessons will have to be drawn by the international community and where orientations for appropriate improvements can be seen. first, over the past decade, we have experienced a tremendous increase in the sophistication of financial instruments. while the positive effect of these innovations has been to allow market participants to better share risk, some negative aspects have clearly been highlighted by the ongoing episode. in particular, the degree of complexity of some products that are designed for the purposes of re - packaging and selling debt instruments has become overwhelming. although i would be very hesitant to impose limitations on the creativity of market participants in their pursuit of innovation and enhanced efficiency of the financial markets, in my view, instruments and structures that cannot be fully understood even by those who bear the ultimate responsibility of the level of risk taken by financial institutions should not be acquired or set up by banks and investors who are lacking sufficient