jean - claude trichet : euro in wider circles speech by mr jean - claude trichet, president of the european central bank, at the conference “ goodbye lisbon ” organised by the european banking congress, frankfurt, 19 november 2004. * * * ladies and gentlemen, it is a pleasure for me to share with you some thoughts on the euro in wider circles. reflecting on what the term “ wider circles ” means for the euro, i think of the eu member states that still use their national currencies and that aim to adopt the single currency in the future, and in particular the ten new member states that joined the eu earlier this year and their path towards the euro. let me briefly say a few words on this aspect. the euro goes east it is now 15 years ago that the berlin wall fell, giving rise to one of the most astonishing political and economic transformations in european history. who could have imagined 15 years ago that in may 2004, eight countries in central and eastern europe, together with two countries in the mediterranean, would be members of the european union? the perspective of joining the european union and eventually adopting a european single currency was out of sight for even the most imaginative minds. in only 15 years, these countries managed to restore and entrench democratic institutions and market economies, replacing the communist ones that were imposed there before. the accession of ten new countries to the eu was an important milestone in a process that will lead to the eventual adoption of the euro by these new member states. the euro will go east and south and the road to the adoption of the euro is embedded in a well - defined institutional framework. a crucial phase before euro adoption is erm ii membership for at least two years. although there are no formal criteria to be met for entry into erm ii, successful participation in the mechanism requires that major policy adjustments - for example relating to fiscal policy and price liberalisation - are undertaken before joining the mechanism. participation in erm ii is an important means to anchor exchange rate and inflation expectations and to promote consistently sound policies. it helps to orient macroeconomic policies to stability, while at the same time allowing for a degree of flexibility, if needed, through the wide standard fluctuation band and the possibility of adjusting the central parity. as you know, three new eu countries have in the meantime entered the erm ii : with effect from 28 june 2004, estonia, lithuania and slovenia joined denmark as participants in the mechanism. the three new entrants joined

around 2 % – have been drifting downward. markets currently expect an inflation rate of 1. 8 % on average between 2019 and 2024 in the eurozone. monetary policy therefore must aim at influencing both nominal interest rates and inflation expectations. this is exactly what we are currently doing in the eurosystem. let me explain how. first, on nominal interest rates : policy rates are now close to zero ( % ). negative interest rates have been imposed on the deposit facility. forward guidance has been used to signal that rates will stay at those levels for a very lengthy period of time. a new liquidity facility, the “ targeted very long term refinancing operation ( tltro ) ” has been created, with a four - year maturity and, for the first time, a guaranteed fixed rate. basically, banks are able to get a four - year funding for a 0. 15 % fixed interest rate. most recently, the ecb governing council has decided a program of private asset purchases, for both covered bonds and abs. those purchases will have two positive effects on interest rates and credit : they will further ease banks ’ funding conditions ; and they will bring down risk premia on private assets. those measures have been extremely effective. our overnight interbank rate, the eonia, has durably settled in negative territory. the yield curve has shifted downward, both at the short and long ends. spreads on sovereigns have dropped : spain today issues debt at a lower rate than the us. expectations for future overnight rate ( the so called ois ) are flat and close to zero for the next three years. so, our action on nominal interest rates has been strong and efficient. what about inflation expectations? it would be very dangerous in the current juncture if the central bank was perceived as being more tolerant towards low inflation than towards too high inflation. such an asymmetrical approach to price stability would “ validate ” falling inflation expectations. and the economy would durably settle into low inflation equilibrium where any negative shock could push it into outright deflation. to protect ourselves against such misperception, our governing council has unanimously stated that, should it become necessary to combat persistently low inflation, it is committed to using additional unconventional instruments within its mandate. the eurosystem has also started to communicate on the size of its balance sheet, a topic that has recently attracted a lot of attention. the governing council has indicated that it now expects its balance sheet to get back