european central bank : press conference - introductory statement introductory statement by mr jean - claude trichet, president of the european central bank, at the press conference following the meeting of the ecb governing council, madrid, 8 june 2006. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to the press conference here in madrid. i would particularly like to thank governor caruana for his kind hospitality and express our special gratitude to the staff of the banco de espana for their excellent organisation. let me now report on the outcome of today ’ s meeting, which was also attended by the president of the eurogroup, prime minister juncker, and commissioner almunia. at today ’ s meeting, we decided to increase the key ecb interest rates by 25 basis points. this decision reflects the upside risks to price stability over the medium term that have been identified through both our economic and monetary analyses. the further withdrawal of monetary accommodation will thus contribute to ensuring that longer - term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. as stressed on previous occasions, such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting economic growth and job creation in the euro area. overall, also after today ’ s increase, the key ecb interest rates are still low by historical standards, liquidity is ample and our monetary policy remains accommodative. given the outlook for price developments and the dynamism of money and credit growth in the euro area, we will continue to monitor closely all developments to ensure price stability over the medium and longer term. allow me to explain our assessment in greater detail, starting with the economic analysis. all the main indicators of economic activity that have recently become available are positive. according to eurostat ’ s first estimate, on a quarter - on - quarter basis, real gdp grew by 0. 6 % in the euro area in the first quarter of 2006, compared with 0. 3 % in the previous quarter, with domestic demand making a significant contribution. the expected re - acceleration of real gdp growth in the first months of 2006 has thus materialised, confirming our view that economic growth is broadening and becoming more sustained. this assessment is further supported by information on activity in the second quarter – such as various confidence surveys and indicator - based estimates – which continues to be encouraging. looking further ahead, the conditions are in place for growth in the euro area to remain close

the forecasts published recently by the commission point to a broadly unchanged situation in the euro area in 2006 and 2007 ; deficit ratios are expected to remain at around the 2005 level of 2. 4 %, while debt ratios, after declining only marginally, are forecast at levels still above 70 % of gdp. this is disappointing against the background of the economic outlook. most countries with an excessive deficit have not corrected their position in a timely manner. furthermore, there is a risk of consolidation delays in other countries. it is crucial to avoid the mistakes of the past, when many countries failed to consolidate sufficiently in good times. the governing council considers that more determined progress is required towards sound public finances in a number of countries, that concrete and credible measures should be implemented swiftly as part of a medium - term - oriented strategy, and that it is vital to consolidate confidence in the revised stability and growth pact by ensuring the sustainability of public finances in the euro area. in terms of structural reforms, the governing council reiterates its call for the implementation of firm measures to ensure open, competitive and well - functioning product and labour markets, so as to foster an attractive environment for investment and innovation and to promote flexibility in wages and prices. there is a broad and firm consensus that such reforms are beneficial in promoting growth and employment and in enhancing the resilience of the euro area economy to external shocks. at the same time, these reforms would further facilitate intra - euro area adjustments by reducing rigidities that contribute, in some economies, to wage developments that lead to high and persistent unit labour cost growth, higher inflationary pressure and losses in competitiveness. examples of such rigidities are low productivity growth due to a lack of competition in some sectors and an explicit or de facto indexation of nominal wages to prices. all in all, a comprehensive set of reforms is essential to strengthen the foundations for sustained growth in output and employment across the euro area, to underpin the ongoing economic recovery and to further smoothen the functioning of adjustment mechanisms in the euro area, thereby facilitating the conduct of the single monetary policy. we are now at your disposal for questions.