jean - claude trichet : testimony before the committee on economic and monetary affairs of the european parliament introductory statement by mr jean - claude trichet, president of the european central bank, brussels, 16 february 2004. * * * in my testimony today i will first comment on recent economic and monetary developments. i will then make a few remarks about the benefits that have been brought to us by the euro in its first five years of existence. economic and monetary developments when we last met in december, economic indicators and financial market developments were already supporting our view that a gradual economic recovery had started in the euro area in the second half of 2003. the evidence that has since become available has made us more confident that the recovery did indeed begin in the second half of 2003 and has strengthened our expectation of an upswing in economic activity. an upturn in economic activity is well under way at the global level. this view was shared by all participants at the recent g7 meeting in florida. the robust real gdp growth in the economies of the euro area ’ s major trading partners over the past few months can be expected to support foreign demand for euro area goods and services. looking ahead, the external environment of the euro area should continue to develop favourably, and the broadly - based global economic recovery should gain further momentum. external developments should thus support the continued recovery in the euro area. we expect this economic recovery in the euro area to proceed gradually. after real gdp growth picked up in the third quarter of 2003, survey evidence on business confidence and the eurostat flash estimate for real gdp growth in the fourth quarter point to a continuation of the recovery around the turn of the year. while domestic demand remained subdued in 2003, the conditions for some improvement are now in place. investment activity should profit not only from strengthening global demand, but also from companies ’ earlier efforts to enhance productivity and profitability, from the historically low levels of interest rates and from the favourable financing conditions prevailing in the euro area. growth in euro area private consumption is also expected to progressively recover, benefiting from price stability and supported by the growth of real household disposable income. the scenario of a gradual economic recovery in the euro area is reflected in all available forecasts from official and private sources and seems to be in line with developments in financial markets. over the shorter term, risks to the main scenario of a gradual euro area recovery remain balanced. nevertheless, over longer horizons, some uncertainty related to the sustainability of economic growth remains, given

of all its citizens. it would also enhance the confidence of economic agents over shorter horizons. all parties involved must strive to convince the public at large that everybody would benefit from such reforms - in terms of growth, more and better jobs, and higher incomes. the euro after five years it is now five years since the start of stage three of economic and monetary union and two years since the introduction of the euro banknotes and coins, and i would like to make a few remarks on the benefits the single currency has had for our economies and our citizens. first of all, i am proud to say that, in accordance with the mandate set out in the maastricht treaty, the ecb has, despite substantial adverse price shocks, successfully kept inflation and inflation expectations at low levels by historical standards. the single monetary policy and its clear focus on the maintenance of price stability have helped to anchor inflation expectations in the euro area over the medium and long term. this has facilitated a reduction of inflation uncertainty and the associated risk premia. as a result, market interest rates have remained historically low and our citizens, our companies and the euro area as a whole now enjoy financing conditions which are very favourable by historical standards. this is a key factor for growth and job creation. we should not forget that prior to the euro, there were significant differences in long - term interest rate levels across countries. it was a remarkable achievement that the creation of a credible monetary union allowed market interest rates to converge towards the levels of the legacy currencies inspiring the maximum level of confidence and therefore having the lowest market interest rates, and not just to the average level. this very significantly improved the financing conditions in a large part of the euro area which previously had much higher market interest rates, and this is a success of the euro which is often underestimated. second, let me remind you that by adopting the single currency, euro area countries also eliminated their exposure to intra - euro area exchange rate volatility and risks. prior to the introduction of the euro, intra - euro area exchange rate developments were very significant sources of uncertainty for trade and investment. this uncertainty was in turn priced into high - risk premia on interest rate markets. these phenomena hampered investment, job creation and growth all over what is now the euro area. moreover, the macroeconomic implications of exchange rate developments vis - a - vis non - european currencies are now much less significant than they were prior to the introduction of the euro. this is