european central bank : press conference – introductory statement introductory statement by mr jean - claude trichet, president of the european central bank and mr lucas papademos, vice - president of the european central bank, vienna, 4 october 2007. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to today ’ s press conference here in vienna. i would like to thank governor liebscher for his kind hospitality and to express our special gratitude to his staff for the excellent organisation of today ’ s meeting of the governing council. let me now report on the outcome of our meeting, which was also attended by commissioner almunia. on the basis of our regular economic and monetary analyses, we decided at today ’ s meeting to leave the key ecb interest rates unchanged. the information that has become available since our previous meeting has confirmed that the outlook for price stability over the medium term is subject to upside risks. against this background, and with money and credit growth vigorous in the euro area, our monetary policy stands ready to counter upside risks to price stability, as required by our primary objective. the fundamentals of the euro area economy support a favourable medium - term outlook for economic activity. in particular, corporate earnings and profitability have been sustained, employment growth has been robust and unemployment has fallen. however, given the financial market volatility and the reappraisal of risk seen in recent weeks, this assessment is surrounded by heightened uncertainty. in view of the only limited range of new economic data that have become available since our meeting in early september, particular caution needs to be exercised when assessing any potential impact of the financial market developments on the real economy. hence, it remains necessary to gather additional information and examine new data before drawing further conclusions for monetary policy in the context of our medium - term - oriented monetary policy strategy focused on maintaining price stability. accordingly, the governing council will monitor very closely all developments. on the basis of our assessment, and by acting in a firm and timely manner, we will ensure that risks to price stability over the medium term do not materialise and that medium and long - term inflation expectations remain firmly anchored in line with price stability, thereby favouring an environment conducive to sustained economic growth, well - functioning markets and job creation. providing such an anchor for medium and long - term inflation expectations is all the more important at times of financial market volatility and increased uncertainty. as regards the financial markets, we will

the same vein, these mechanisms might also potentially amplify feedback effects of negative market developments during a crisis. to contain these destabilising effects, greater importance should be attached in future to adequate and, in particular, counter - cyclical risk buffers. a second challenge arises from the interconnectedness of the financial system. this is obviously a necessary feature of any modern financial system. but this interdependence entails consequences – macroeconomic costs which cannot be accounted for at the microeconomic level. these systemic externalities increase as institutions become larger and more interconnected. the macroprudential perspective therefore provides arguments for treating financial intermediaries differently according to their position in the system as a whole. this functional view also justifies regulating market participants outside the traditional banking system identically insofar as they fulfil similar functions or roles. the appropriate regulation and supervision of big or highly interconnected institutions poses a particular difficulty as their collapse would jeopardise the financial system as a whole ( “ too big or too interconnected to fail ” problem ). a logical corollary of this is the need for a greater intensity of supervision. moreover, additional capital requirements make sound analytical sense. yet it should be noted that the practical implementation of these theoretically advisable ideas involves some difficulties as does, incidentally, formulating anticyclical capital requirements. however, this must not lead to the issue being ignored, as the potential opportunity costs to society would be too grave. it is clear from these brief comments that adding a macroprudential perspective to microprudential oversight poses major challenges for central banks and supervisory authorities. the bundesbank is seeking to face these challenges by devoting particular attention to macroprudential analysis. since may 2009, all work on these issues has been focused within our newly created financial stability department. this department was also mandated to write this year ’ s financial stability review. getting macroprudential supervision right is indeed very much a work in progress. we are in the middle of a period of intense debate. nevertheless, concrete progress has already been achieved in some areas. in this regard, the reform agenda which is being implemented through the g20 summit process, largely under the guidance of the financial stability board ( fsb ), deserves special mention. given significant mutual interdependence as well as substantial cross - border effects, there is good reason to establish rules at the international level. inconsistencies