jean - claude trichet : press briefing on the ecb convergence report opening remarks by mr jean - claude trichet, president of the european central bank, at the press briefing on the ecb convergence report, frankfurt, 20 october 2004. * * * ladies and gentlemen, welcome to this special press briefing on the publication of the ecb ’ s convergence report 2004. let me start by saying that only 15 years ago i could not have imagined that we would, in october 2004, be presenting to you a report examining the economic and legal convergence of sweden and ten countries from central and eastern europe and the mediterranean. at that time, most of these countries were still deprived of democracy and economic freedom. the prospect of joining the european union and eventually adopting a single european currency was out of sight for the most imaginative minds. but since 1 january 1999 the euro has been a reality, and since 1 may 2004 ten new countries are with us in the european union. the rules of eu membership say that at least once every two years, or at the request of a member state not participating in the euro area, a report needs to be prepared by the ecb and by the european commission. let me briefly recall the relevant treaty articles and the procedure laid down therein. according to article 122 of the treaty establishing the european community, the two institutions must report to the council on the progress made in the fulfilment by the member states of their obligations regarding the achievement of economic and monetary union, in accordance with the procedure laid down in article 121 ( 1 ). article 121 ( 1 ) stipulates that these reports must include an examination of the compatibility between each member state ’ s national legislation, including the statutes of its national central bank, and articles 108 and 109 of the treaty and the statute of the escb. the reports must also examine the achievement of a high degree of sustainable convergence. this is to be done by reference to the fulfilment by each member state of the criteria on prices, fiscal positions, exchange rates and long - term interest rates. thereafter, the treaty foresees that, after consulting the european parliament and after discussion in the council meeting in the composition of the heads of state or government, the council must, acting by a qualified majority on a proposal from the commission, decide which member states with a derogation fulfil the necessary conditions to adopt the euro on the basis of the criteria set out in article 121 ( 1 ). the publication of

meetings with other central bank governors, we discuss the economic situation. in the last meeting, two days ago, they started speaking of optimistic signs. we are currently following an expansionary monetary policy, but we must be ready to change direction if and when necessary, but not before. the markets and the bank of israel expect the april cpi to rise by about one percent. nevertheless, nearly all forecasters expect inflation in 2009 to be below 2 percent, and we do not intend to react to one month's index, especially if it affected by seasonality. the governor of the bank has the role of economic adviser to the government. the budget deficit is expected to be six - and - a - half percent of gdp this year, and five percent next year. growth this year is expected to be a negative one - and - a - half percent, with a rise in the debt / gdp ratio. this is not an advisable direction for the economy to follow. what is of concern is that the debt / gdp ratio at the end of the decade may be back where it was at its beginning. in order to prevent the deficit reaching above 6. 5 percent this year and 5 percent next year, expenditure must be reduced. there are several ways of achieving that, e. g., cutting public sector wages and / or postponing reductions in tax rates. with regard to the current deficit, i suggest starting with the 6. 5 percent of gdp deficit this year and 5 percent next year, to make it very clear that the path is a downward one. 2. the second of this year's objectives is the new bank of israel law. the current prime minister and the minister of finance when i took up office expressed support on this issue, and that was one of my conditions on accepting the position. why is the new law so important? there are several reasons : the new law will formalize the independence of the bank ; it will specify the bank's obligation regarding transparency ; there will be a monetary committee that will make interest rate decisions together with the governor ; and there will be an administrative council that will approve administrative decisions. why is a decision by committee preferable to a decision by an individual? research has shown that on average, decisions made by a committee are better than those of a single decision maker. the current bank of israel law is 55 years old. 3. the third task relates to the integration of israel's economy into the global economy. progress has