jean - claude trichet : hearing at the economic and monetary affairs committee of the european parliament introductory statement by mr jean - claude trichet, president of the european central bank, at the hearing at the economic and monetary affairs committee of the european parliament, brussels, 25 june 2008. * * * madame la presidente, mesdames et messieurs les membres de la commission economique et monetaire, je me rejouis d'apparaitre devant votre commission aujourd'hui. je commencerai mon intervention par une evaluation de la situation economique et monetaire, en expliquant les raisons sous - jacentes a nos recentes decisions de taux. ensuite, je vous fournirai de plus amples informations sur les operations de politique monetaire de la bce en reaction aux tensions enregistrees sur le marche monetaire. anschließend mochte ich naher auf die ersten zehn jahre der europaischen wirtschafts - und wahrungsunion eingehen. außerdem werde ich die wichtigsten elemente des neuen strukturberichts des eurosystems uber arbeitsangebot und beschaftigung prasentieren. economic and monetary developments since my previous appearance before the european parliament at the end of march, annual hicp inflation has remained high, at levels significantly above 3 %. this mainly owes to strong increases in energy and food prices. moreover, upside risks to price stability over the medium term have intensified further over the past few months, in a context of very vigorous money and credit growth. looking ahead, the governing council expects inflation in the euro area to remain high for some time to come, before moderating only gradually in 2009. in line with this view, the latest eurosystem staff projections foresee average annual inflation between 3. 2 % and 3. 6 % in 2008 and between 1. 8 % and 3. 0 % in 2009. compared with previous staff projections, this represents a significant upward revision, reflecting higher oil and food prices as well as increasing inflationary pressures in the services sector. the governing council remains particularly concerned that current elevated inflation rates, which have proved higher and more persistent than previously foreseen, may become entrenched in private inflation expectations and lead to second - round

that were backed by holdings of government bonds. national bank notes of different banks were similar in design and widely accepted in transactions, but the system had some flaws - the main one being that there was no means of quickly adjusting the supply of national bank notes to changing circumstances. in other words, we had established a national currency system but not a central bank to manage it. this beginning contrasts with the way the euro was established as a single currency out of many european currencies. rather than having no central bank, what was to become the euro area had, in fact, twelve national central banks, each managing its own currency. those currencies were brought into line with one another, first through the exchange rate mechanism and later by the permanent fixing of exchange rates. the ecb then was created as a central bank to manage the euro even before a euro paper currency came into existence. federal reserve notes began to circulate in 1914. the system ’ s treatment of these notes serves as an example of tommaso ’ s observation that central bank operations respond to financial events. initially, notes issued by one reserve bank could not be reissued into circulation by another reserve bank. a person could travel from boston to new york with notes from the federal reserve bank of boston in his pocket, spend the notes in new york, and have them accepted. but when the notes made their way to the federal reserve bank of new york, that bank returned the notes to boston for re - issue. with regard to currency, then, the federal reserve system ’ s charter established twelve banks issuing similar, but not identical, currency. over time, however, financial practice made this distinction unimportant, and the treatment was later discontinued. today, currency is treated fungibly padoa - schioppa ( 2004 ), pg. 86. by the reserve banks, regardless of which bank issued the note. the notes still carry identifiers that let us track the reserve bank to which the notes were originally assigned, and they are still allocated as liabilities to individual reserve banks. but there is no practical distinction between the notes of the reserve banks. my understanding is that euro banknotes circulate in a similar fashion within the euro area and that any national central bank can re - issue fit euro banknotes regardless of the original issuer. although the country that originated the production order is indicated by the letter prefix to the euro banknotes ’ serial number, even that designation is becoming less important as