jean - claude trichet : the economic situation in france and the euro area speech by mr jean - claude trichet, governor of the banque de france, at the press conference of the monetary policy council of the banque de france on 20 december 2000. * * * ladies and gentlemen, allow me to welcome you on behalf of the monetary policy council of the banque de france. as the euro stands on the threshold of its third year, i shall discuss in the name of our mpc the economic situation in france and the euro area, before commenting upon the latest monetary policy decisions made by the eurosystem. activity advanced at a sustained pace in the euro area the upturn experienced by the euro - area economies in the first half of 1999 continued and strengthened throughout 2000. foreign trade contributed significantly to the rebound. in addition, the euro area benefited from a marked improvement in domestic demand, with household consumption increasing at a fast clip before stabilising at a high level in the third quarter. at the same time, good borrowing conditions and the prospect of robust demand, coupled with a substantial increase in the use of production capacity and improved corporate profitability, gave investment a strong boost. according to the most recent estimates, the conjunction of these auspicious developments should translate into 3. 4 % growth in euro - area gdp in 2000. given the prevailing wage moderation, this acceleration in activity has been particularly propitious for job creation : the euro - area unemployment rate has declined by one percentage point since october 1999 and stood at 8. 9 % in october 2000. surging oil prices and the depreciation in the euro ’ s effective exchange rate have fuelled a marked rise in inflationary pressure since the autumn of 1999. inflation as measured by the harmonised index of consumer prices ( hicp ) thus rose above the 2 % threshold in the twelve months to february 2000. in november 2000, the year - on - year increase amounted to 2. 9 %. there have also been increasing signs of pressure on the productive system, with the appearance of production bottlenecks and rising capacity utilisation rates throughout the euro area. the latter work out to 84. 7 % for the fourth quarter of 2000, i. e. almost three points above their long - term average of 81. 8 %. in addition, the value of imports rose substantially under the combined impact of buoyant economic activity, an almost two - fold increase in oil prices and the euro ’ s

with the european central bank in versailles that " a strong euro is in the interests of europe ". this phrase is the most concise and clear statement of europe ’ s position with respect to the external value of the euro. moreover, the g7 also concurs with the eurosystem ’ s analysis. on 23 september, following the concerted intervention on foreign exchange markets on 22 september, the g7 expressed " the shared concern of the finance ministers and the governors about the potential implications of recent movements in the euro for the world economy ". financial stability in europe, price stability is the statutory responsibility of the central banks, that is, the eurosystem. not just because that is how one safeguards the purchasing power of our fellow citizens, in particular of the most vulnerable amongst them, who have the least protection against price increases. but also because price stability allows us to create the conditions for sustainable growth and dynamic job creation, and to combat unemployment effectively. in today ’ s world, however, financial stability, for which price stability is a prerequisite, is of great value. we must unremittingly endeavour to create conditions for the international economy that minimise misalignments in asset prices, excessive volatility, purely speculative phenomena and dangerous herd behaviour. this is the underlying message in central banks ’ repeated calls for prudence and caution. nothing is more conducive to economic euphoria than ample monetary liquidity, but the after - effects can be very painful, with the formation of speculative bubbles, sharp swings in asset prices, and the herd behaviour of huge capital flows. a monetary policy based on stability is the indispensable complement to the remarkable efforts undertaken these past years to improve the international financial architecture. * * * the economy of the euro area has the favourable monetary, financial and competitive conditions necessary to contribute to the pursuit of growth that is sustainable because non - inflationary. but as the monetary policy council has indicated these past years, monetary policy needs to be relayed by the other main components of economic policy. four conditions would appear necessary to preserve and reinforce the complete success of the single currency. firstly, national fiscal policies should contribute to maintaining the framework of stability the single monetary policy cannot, by itself, ensure price stability in the best possible conditions. fiscal policies must respect the letter and the spirit of the stability and growth pact. in the absence of a significant community budget, the close co - ordination of national fiscal policies and