lucas papademos : interview with il sole 24 ore english translation of an interview with lucas papademos, vice president of the european central bank, conducted by beda romano ( il sole 24 ore ), frankfurt, 5 august 2004. the interview was published in il sole 24 ore, in the edition dated 8 august 2004 and the publication of the translation was authorised by il sole 24 ore. * * * the oil price has reached its peak for the last 20 years ( in nominal terms at least ). the price since the beginning of the year averages out at $ 37 / barrel. some governments are already very concerned, talking in terms of an oil crisis, and many are recalling the recession in the 1970s. what is your assessment? the assessment of the magnitude of the problem and of the potential impact of the increase in oil prices is somewhat complex. it must be put in perspective. oil prices have been rising since the end of 1998. if we compare the recent increase in the price of oil with two similar episodes, we will note that, in percentage terms, the increase since 1998 is similar to the one recorded between december 1973 and january 1974 and exceeds the rise between the end of 1978 and the end of 1979. the same conclusion is reached regardless of whether oil prices are measured in dollars or in euro. so there are good grounds for fears of a repetition of the crisis that struck in the early 1970s? there are major differences from that period. first of all, the increase in oil prices in the early 1970s occurred over a limited, two - month period, whereas the current upward trend in the price of oil has lasted 67 months : it has already exerted much of its impact on inflation and growth. i would also add that, in real terms, the oil price is at a relatively low level and far lower today than it was in the late 1970s. moreover the reliance of many economies on oil has declined. in other words, the oil price trend has to be viewed in perspective. all the same, the increase over the last few months cannot fail to make an impact on the european economy, in terms of both a rise in inflation and a decline in growth. it has been estimated that a 10 % increase in the oil price pushes inflation up by about 0. 1 percentage point per annum in the first year and by roughly the same amount in each of the two subsequent years. the impact in the first year is mainly direct, whereas the repercussions are indirect in the following

swayed the imf ’ s calculations. might the imf be suggesting that, with growth at 2. 0 %, the euro area is creating inflation? not necessarily. when appraising the potential emergence of new inflationary pressures, it is not only the actual growth rate that has to be compared with the potential rate, but also the level from which growth started out at the time of the recovery and the remaining gap between the actual and potential gdp levels. in other words, 2. 0 % growth does not automatically mean further inflation, regardless of the size of the so - called gdp gap and the rate of unemployment. the ageing of the population might lead some observers to think that europe ’ s potential growth is set to fall, or at any rate to remain inexorably low, at a time when the united states continues to present growth rates that are double those of europe. it would be a mistake to reach such a conclusion in general. other factors could counteract the effects of the ageing of the population. the factors explaining the difference in growth rates between the united states and the euro area are population trends, differences in the growth rates of productivity and the degrees of labour force utilisation. the negative impact of population ageing can and must be offset by introducing measures to boost the contribution of the other two factors to euro area growth. to sum up : the ecb remains cautiously optimistic as to the trend in the european economy. would you say that interest rates stand at the appropriate level? you will have noticed that we have preferred since last april to cease using this term in our communiques. is it no longer appropriate to use the adjective “ appropriate ”? in a way. we have preferred to cease using the word so as to dispel the impression that had prevailed in financial markets that by using it, we are committing ourselves to maintaining interest rates unchanged for a considerable period of time. it is a controversial decision. some observers are wondering whether the ecb may perhaps be losing some of its transparency. this decision must not lead people to think that the ecb is less transparent about its policy stance or that it no longer wants to guide the markets. we believe that monetary policy must be, generally speaking, predictable in the light of our strategy and goals. however, this does not mean that we have to send out specific signals or express a “ bias ” regarding the future stance of monetary policy. indeed, i take the view that, in general, although