mr trichet presents the annual report of the bank of france address by jean - claude trichet, governor of the bank of france before the president of the french republic, senate and national assembly on the occasion of the presentation of the annual report, in paris on 21 / 5 / 99. i am honoured to present you with the report on the operations of the banque de france, monetary policy and the prospects for it, as required by law. as is the custom, i also submit herewith the monetary policy council ’ s comments on the events of the past year, which was marked by the choice of the european union member states authorized to participate in monetary union and by the creation on 1 june 1998 of the european system of central banks. the upturn in growth that started in 1997 accelerated in 1998. annual average gdp growth stood at 3. 2 %, after 2. 3 % in 1997 and 1. 6 % in 1996. in 1998, the expansion was fuelled by vigorous domestic demand, particularly household consumption. furthermore, total investment, which had stagnated in 1997, posted a dynamic increase in 1998. by contrast, foreign trade made a negative contribution to gdp growth owing to the deterioration in the international environment. although france was comparatively less severely hit by the spread of the emerging country crisis, the economy was affected by weaker demand from our main european trading partners. thanks to faster growth, the french economy created 300, 000 jobs in the non - farm market sector in 1998, compared with 196, 000 in 1997. the unemployment rate fell from 12. 2 % to 11. 5 % from the end of one year to the next. against the backdrop of quickening growth, inflation was brought further under control. the year - onyear rise in consumer prices stood at 0. 3 % in december 1998, after 1. 1 % in 1997, and thus met the objective of less than 2 % set by the monetary policy council. this was the lowest rate of inflation recorded since 1954. one of the main factors in the slowdown in price rises was the fall in the price of oil and other commodities. “ underlying ” inflation, which reflects the fundamental trends in the economy, showed a slightly more sustained progression than the consumer price index. according to france ’ s national institute of statistics and economic studies, insee, it posted a year - on - year rise of 1. 1 % in december 1998, the same as in december 1997. according to the harmonized index of consumer

united states. monetary policy the euro should be at least as solid and stable as the best currencies of the european union and therefore at least as solid and stable as the french franc in the past. this is what inspires the policy of the european system of central banks, the european central bank and its governing council. this is what is required by the treaty and also by our fellow citizens, who want a new currency that is at least as solid as the french franc. and it is indispensable in order to preserve the competitiveness of the european economy, ensure low medium - and long - term market interest rates on a lasting basis and therefore favour growth, job creation and the fight against unemployment. the stability - oriented monetary policy of the european central bank and of the european system of central banks is guaranteed by their independence, which is enshrined in the treaty. it is buttressed by the support of european public opinion which, like french public opinion, is deeply attached to the stability of the currency. in the final analysis, an independent institution is always accountable to the public. in a world monetary and financial system characterized by totally free capital flows, confidence is the most precious asset : the confidence that we inspire in economic agents and french, european and international investors ; and the confidence with which we are credited today, tomorrow and in the future. the independent banque de france has over the last six years shown great determination in helping to ensure that the euro inherited as much confidence as possible at its birth. this legacy of confidence is in good hands. fiscal policy in the field of european fiscal policy, the monetary policy council draws attention to the following three points. – first, it remains essential that the mutual surveillance by euro area governments of national fiscal policies, within the framework of strict compliance with the stability and growth pact, function smoothly. the european union does not have a significant federal budget for economic policy — the european budget only represents 1. 27 % of union gdp. therefore, all the national budgets of the member states combined function as the union ’ s budget. the preservation of confidence in the euro, and consequently the prosperity, growth and creation of jobs in the euro area, will depend on the quality of fiscal surveillance throughout the area. – second, by adopting the stability and growth pact each individual european country, and not just the european union, set itself the medium - term objective of achieving public finances “ close to balance or in surplus ”. the monetary policy