lucas papademos : presentation of the european central bank ’ s annual report for 2002 introductory statement by mr lucas papademos, vice - president of the european central bank, to the committee on economic and monetary affairs of the european parliament, brussels, 29 april 2003. * * * it is my pleasure to appear before the committee to present the ecb's annual report 2002. in my view, last year was marked by two milestones in the process of european integration. the first was the euro cash changeover. the successful and remarkably smooth introduction of euro banknotes and coins on 1 january 2002 has created a new symbol of european identity that has been fully embraced by the 300 million citizens of the euro area. on this occasion, i would like, on behalf of the ecb, to thank again the citizens of europe and all the parties involved for their contribution to the success of this unique and complex undertaking. the second historic event was the decision of the eu heads of state or government in december last year to invite ten countries to join the european union in 2004, thereby marking the end to the postwar rifts within europe. even though major challenges remain to be tackled, as many of the acceding countries are still in the process of transition to fully - fledged market economies, i believe that the signing of the accession treaty at the athens summit meeting on 16 april bore witness to our commitment to european integration. i would like to briefly elaborate on some of the consequences of eu enlargement for the escb and the ecb, before turning to the monetary and economic developments in 2002. 1. preparations for eu enlargement it goes without saying that an enlarged european union will require a number of adaptations in the working procedures and the internal functioning of european institutions and bodies. upon accession, the new member states will join economic and monetary union with the status of " countries with a derogation " and their central banks will become part of the escb. at a later stage, the acceding countries'central banks will become part of the eurosystem, after these countries have fulfilled the convergence criteria for adopting the euro. a key priority of the ecb is to have in place the necessary technical and institutional infrastructure which will ensure an orderly enlargement of the escb and, later on, of the eurosystem. to this end, and in line with the provisions of the nice treaty, the governing council of the ecb issued a recommendation on the adjustment of its voting mod

##alities, which was the basis for the decision adopted by the eu council, in the composition of heads of state or government, in march 2003. although the new voting system – like any rotation system – is characterised by a degree of complexity and was criticised for that reason by the european parliament, in our judgement it will help to ensure that the governing council will maintain its capacity for timely and efficient decision - making in a substantially enlarged euro area. another amendment to the statute of the escb was introduced at the initiative of the ecb, when the ecofin council recommended in october 2002 that the accession treaty provide for an increase, upon accession by new member states, of the ecb's subscribed capital and of the ceiling on the transfers of foreign reserve assets by ncbs. in addition to these statutory changes, the eurosystem is involved in an intense and manifold dialogue, concerning both policy and technical issues, with the central banks of the accession countries to assist them in their preparations for a smooth integration into the escb and the eurosystem. the numerous internal preparations within the escb are guided by an accession master plan, which comprehensively reviews the ecb's functions and infrastructures so as to ensure that all relevant issues are dealt with in a timely and effective manner. 2. economic and monetary developments the review of economic and monetary developments in 2002 clearly reveals that the environment in which monetary policy was conducted in 2002 was one of considerable uncertainty. in particular, signals regarding medium - term inflation prospects and risks were at times mixed and subject to change. following the slowdown in economic activity throughout 2001, which was further aggravated by the negative shocks to confidence in connection with the terrorist attacks in the united states in september of that year, a moderate recovery of real gdp growth in the euro area was recorded at the beginning of 2002. indeed, at that time, projections prepared by the eurosystem's staff as well as forecasts by international organisations and private institutions agreed that euro area real gdp growth would again be in line with trend potential growth later in the year. however, as the year progressed, the recovery lost momentum, affected by the renewed turbulence in financial markets and geopolitical tensions, which had consequences for oil prices and confidence. overall, annual real gdp growth in the euro area is estimated to have been a disappointing 0. 8 % in 2002, after amounting to 1. 4 % in 2001. despite the subdued pace of economic recovery, hicp inflation remained