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, 23 may 2005. * * * madame la presidente, mesdames et messieurs les membres de la commission economique et monetaire, je me rejouis de paraitre devant votre commission aujourd ’ hui et de poursuivre ainsi notre dialogue regulier. vous connaissez le role important que jouent nos rencontres trimestrielles dans le contexte de la responsabilite de la banque centrale europeenne vis - a - vis nos citoyens, responsabilite a laquelle, comme vous le savez, la bce attache beaucoup d ’ importance. je commencerai mon discours avec une evaluation de la situation economique et monetaire. aus anlass des unlangst erfolgten beitrittes von drei neuen mitgliedstaaten zum wechselkursmechanismus ii mochte ich sodann auch kurz zu diesem thema stellung nehmen. economic and monetary developments recent data confirm that some of the downward risks to economic growth identified in the past, in particular those related to persistently high oil prices, have partially materialised over the last few months. according to eurostat ’ s flash estimate, real gdp rose by 0. 5 % quarter on quarter in the first quarter of 2005. while this compares favourably with the 0. 2 % increase observed in the previous quarter, the apparent improvement largely reflects technical factors related to working day adjustments to the data. taking those factors into account, the recent available indicators of economic activity suggest that the modest growth observed in the second half of 2004 will continue in the first half of 2005, with no clear signs as yet of a broadening or strengthening of the growth dynamic. looking further ahead, investment is expected to continue to benefit from robust earnings, improvements in business efficiency and very favourable financing conditions. on the external side, euro area exports should continue to benefit from global economic growth. accordingly, we expect continued, relatively moderate economic growth in the euro area in 2005 and 2006. this picture is broadly in line with available forecasts from international and private sector organisations. the

causes of such differentials. monitoring national and sectoral developments is key to understanding the underlying trends in the euro area as a whole with a view to formulating the most appropriate monetary policy response. consequently, the ecb regularly reviews and analyses all relevant information relating to the various sectors and countries of the euro area. in this respect, particular attention must be given by responsible authorities to the evolution of competitiveness indicators, in particular of unit labour costs in the various national economies. these indicators are key in a single currency area where realignments are excluded by definition. the ecb ’ s quantitative definition of price stability, its high degree of credibility and its focus on the achievement of its primary objective have enabled it to control inflation and to anchor inflation expectations in the euro area at a very low level in all countries of the euro area. this has resulted in low interest rates and extremely favourable financing conditions to the benefit of all euro area economies. moreover, by anchoring inflation expectations and increasing transparency, monetary policy contributes to the adjustment of relative prices and facilitates the role of such prices in guiding the allocation of resources across countries and sectors. this is the best contribution that monetary policy can make to economic welfare and the achievement of high levels of activity and employment in our economies. fiscal policies and the stability and growth pact let me now turn to fiscal policies. while a few countries succeed in maintaining sound budgetary positions, developments in many euro area member states remain disappointing. unless additional measures are taken, it is looking increasingly unlikely that those countries will reduce their deficits this year below the reference value of 3 % of gdp or prevent them from exceeding that level. in the meantime, the indebtedness of euro area governments as a percentage of gdp has again increased. it is therefore essential that consolidation be given the highest priority in the countries concerned and that the reformed stability and growth pact be implemented in a strict and timely manner to ensure a rapid return to sound budgetary positions. this is primarily in the interests of the countries themselves, especially in view of the increasing pressure being placed on government budgets by ageing populations. lisbon strategy i would also like to take this opportunity to stress again the need to implement structural reforms in europe. these reforms should be aimed at realising a more dynamic and competitive economy with flexible labour, product and financial markets, allowing for a more rapid adjustment of production factors to a constantly changing environment. we are faced with the unavoidable challenges arising from an ongoing deepening in the global division