Introductory statement with Q&A

Jean-Claude Trichet, President of the ECB andLucas Papademos, Vice President of the ECBFrankfurt am Main, 12 April 2007

Jump to the transcript of the questions and answers

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to today’s press conference. Let me report on the outcome of our meeting, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and 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 last meeting has further underpinned the reasoning behind our decision to increase interest rates in March. It has also confirmed that the medium-term outlook for price stability remains subject to upside risks, so that very close monitoring of all developments is warranted. Indeed, it is essential to ensure that risks to price stability over the medium term do not materialise. This will contribute to ensuring that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability. Such anchoring is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. Given the favourable economic environment, our monetary policy continues to be on the accommodative side, with the key ECB interest rates moderate, money and credit growth vigorous, and liquidity in the euro area ample by all plausible measures. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted.

Turning first to the economic analysis, recent information has underpinned our assessment of ongoing robust economic growth dynamics in the euro area. Eurostat’s second estimate has confirmed quarter-on-quarter real GDP growth in the fourth quarter of 2006 at 0.9%. Over the whole year 2006, real GDP grew by 2.7% in the euro area, unadjusted for the number of working days. On the basis of the latest data, survey releases and various indicator-based estimates, it appears that robust growth is continuing in the first half of 2007.

Looking further ahead, the conditions are in place for the euro area economy to grow solidly. As regards the external environment, global economic growth has become more balanced across regions and, while moderating somewhat, remains strong. External conditions thus continue to provide support for euro area exports. Domestic demand in the euro area is also expected to maintain its relatively strong momentum. Investment should remain dynamic, benefiting from an extended period of favourable financing conditions, balance sheet restructuring, accumulated and ongoing strong corporate earnings, and gains in business efficiency. Consumption should also strengthen further over time, in line with developments in real disposable income, increasingly supported by employment growth and improving labour market conditions.

The risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. At longer horizons, downside risks remain, stemming mainly from the external side. They relate to fears of a rise in protectionist pressures, the possibility of further increases in oil prices and concerns about possible disorderly developments owing to global imbalances.

As regards price developments, according to Eurostat’s flash estimate, annual HICP inflation was 1.9% in March 2007, compared with 1.8% in the first two months of the year. A detailed breakdown of the March HICP data is not yet available. Looking ahead, barring further increases in oil prices, last year’s volatility in energy prices will lead to significant base effects, thereby affecting the profile of annual inflation rates this year. On the basis of the current level of oil prices and oil price futures, annual inflation rates are likely to fall in the months to come, before rising towards the end of the year to hover again at around 2%.

Over the policy-relevant medium-term horizon, the outlook for price developments remains subject to upside risks. These relate to the possibility of further oil price rises and additional increases in administered prices and indirect taxes beyond those announced and decided thus far. More fundamentally, stronger than currently expected wage developments could pose significant upward risks to price stability, not least in view of the favourable momentum in labour markets observed over the past few quarters. It is therefore crucial that the social partners continue to meet their responsibilities. In this context, wage agreements should take into account price competitiveness positions, the still high level of unemployment in many economies, as well as productivity developments. The Governing Council monitors the wage negotiations in euro area countries with particular attention.

The monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. Annual M3 growth increased further to 10.0% in February, from 9.9% in January. At the same time, the annual growth rate of loans to the private sector, while remaining very strong at 10.3% in February, showed some further signs of moderation. Whereas in previous months this moderation reflected a decline in the growth rate of household borrowing in an environment of rising mortgage lending rates throughout the euro area and a slowing increase in house prices in some regions, in February it was due to a moderation in the growth of loans to non-financial corporations. When assessing such developments, it should be borne in mind that monthly figures can be influenced by temporary factors and should thus not be overstated. Indeed, the strong growth in private sector credit reflects the continuation of the strong trend in the growth of borrowing by non-financial corporations seen since mid-2004.

When put in perspective, the latest data continue to point to vigorous dynamics in the underlying rate of broad money expansion in the euro area. The continued robust expansion of money and credit reflects the low levels of interest rates over a prolonged period of time and the strengthening of economic activity in the euro area. Rising short-term interest rates, in combination with low long-term interest rates, have had an impact on developments in the individual components of monetary and credit aggregates, but have thus far had only a limited influence on the overall strength of monetary developments. Following several years of robust monetary growth, the liquidity situation in the euro area is ample by all plausible measures. In this environment of ample liquidity, the continued vigorous expansion of money and credit points to upside risks to price stability over the medium to longer term. Monetary developments therefore continue to require very careful monitoring, particularly against the background of a solid expansion in economic activity and continued strong property market developments in many parts of the euro area.

To sum up, in assessing price trends it is important to look through any short-term volatility in inflation rates. The relevant horizon for monetary policy is the medium term. Risks to the medium-term outlook for price stability remain on the upside, relating in particular to stronger than currently expected wage developments in a context of ongoing robust growth in employment and economic activity. Given the vigorous monetary and credit growth in an environment of already ample liquidity, a cross-check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium to longer term. Accordingly, the Governing Council will continue to monitor very closely all developments. Indeed, it is essential to ensure that risks to price stability over the medium term do not materialise. This will support the solid anchoring of medium to longer-term inflation expectations in the euro area at levels consistent with price stability. Therefore, looking ahead, acting in a firm and timely manner to ensure price stability in the medium term remains warranted.

Concerning other policy areas, the Governing Council welcomed the recommendations addressed to the euro area countries in the 2007 update of the Integrated Guidelines, which was endorsed by the European Council at its meeting on 8 and 9 March, particularly to speed up fiscal consolidation, to improve the quality of public finances, to foster competition and integration, and to promote labour market reforms. Indeed, as regards fiscal policy, it is of the utmost importance to use the momentum of the improved economic situation and to press ahead vigorously with budgetary consolidation. Government deficit and debt-to-GDP ratios in euro area countries in 2006 have turned out to be significantly better than anticipated. But this positive outcome largely reflects buoyant tax revenues in the context of a favourable macroeconomic environment, offsetting in some cases higher than planned public expenditure. The better than expected fiscal outcomes in 2006 should lead to more ambitious targets for 2007 and beyond, allowing revenue windfalls to be fully allocated to deficit and debt reduction. Furthermore, procyclical fiscal policies should be avoided in all countries. This is of vital importance to ensure fiscal sustainability in preparation for the impact of ageing populations and is fully in line with the revised Stability and Growth Pact. Reviewing public expenditure and taxation so as to improve the quality of public finances would additionally foster economic growth and fiscal sustainability. We also support ambitious structural reforms, which would further contribute to the smooth functioning of Monetary Union and support growth potential and job creation. In particular, improving labour market flexibility to better align wage and productivity developments and facilitating labour mobility would further strengthen the resilience of countries to shocks and ensure their competitiveness.

We are now at your disposal for questions.

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Question: Mr Trichet, as implied in futures, the market recently began to expect more than one interest rate increase. Do you think this bet is correct and, against this background, do you feel well understood?

Trichet: Perhaps you have noted that I have mentioned in my introductory remarks an analysis of the situation which is extremely close to the analysis we made in our last meeting, which is not surprising, because everything that we have observed since then has confirmed what we had envisaged in our last meeting. So, I would say that we are very much in the same mood. I will certainly not comment on future decisions. You know that they always depend on facts and figures. We never pre-commit in advance and I will not comment on what could happen in the months to come. I would only say that I would not say today anything that would be aiming at changing expectations for the month of June.

Question: Why are you signalling that you are planning to wait with a rate increase until maybe June, taking into account that you have mentioned robust GDP growth and inflationary pressures on the upside?

Trichet: Again, I said that we had the same analysis and judgement as we had a month ago. We do not consider that new information has arisen that would change our judgement. Most of the new information we have had – and it is true that it is good – confirms our positive judgement, in particular on the real economy, and we have the same analysis as regards the risks, both for the real economy and for inflation. Again, remember, we never pre-commit in advance. We make a judgement at the moment when we have our meeting and we take the decision to the best of our judgement taking into account all information which is available at that moment.

Question: I would like to come back to your remarks on ongoing wage negotiations, which seem to come out at more or less 4%. Would you see in a figure like this already a challenge for price stability and economic growth?

Trichet: As I said last time, we were calling upon social partners to show a high level of responsibility, taking into account the various situations – and situations are not necessarily the same – in the vast continental economy that is the euro area. There are 318 million fellow citizens. So, we have to take into account the level of unemployment in any particular economy, and it is clear that if one is not satisfied with the present level of unemployment, wage moderation should remain of the essence. We also call for analysing and taking into account the present level of competitiveness, cost competitiveness, of the economy concerned and of the sectors and firms concerned, because this has to be analysed at the level of firms as a last resort. It is the employment in firms that is at stake. So this again is a parameter which is not the same in the various countries. But if you are in a position where there are doubts about your present level of cost competitiveness, then of course wage moderation remains absolutely of the essence. And we trust that it is also important to have a clear understanding of the labour productivity increases, because what ultimately counts is the unit labour cost, and by that I mean the real cost when you take into account the nominal wage increases and salary increases and their combination with the productivity progress. So, these are the three parameters which have to be taken into consideration, on the basis of the figures that exist in the various cases. As a general rule for the full body of the euro area – and I say it on behalf of the Governing Council – we will closely monitor everything that is happening in this respect, because wage moderation remains of the essence if we want, as is absolutely necessary, to preserve the purchasing power of those wages and salaries by delivering price stability. Let us remember that those who are the less well-protected against inflation are the poorest and the most vulnerable in our societies, and this is very important to understand. And by the way, when we preserve price stability, we not only defend the purchasing power of the employees and of all our fellow citizens, but we are also solidly anchoring inflation expectations and preserving a financial environment which is favourable for sustainable growth and job creation. It is also very important to understand that when we call for wage responsibility from the social partners, we are simultaneously paving the way for defending, protecting and preserving the purchasing power of all our fellow citizens and the employees and workers, and we are also paving the way for sustained growth and job creation.

Question: I have a couple of questions: First, you note in the introductory statement that robust growth appears to be continuing in the first half of 2007. I wonder if that does play out, whether you would continue to characterise interest rates as being on the accommodative side. Second, I know you do not like to make specific comments about exchange rates, but would you say that the euro’s current level is developing in line with the euro area’s economic fundamentals. And then, finally, if you could elaborate a little bit – has the Governing Council entertained the idea that interest-bearing components of M3 could be rising specifically because interest rates are rising and are thus perhaps not a sign of inflation pressures to come? I think you mentioned that, but I just want to make sure I’ve understood it correctly.

Trichet: On your first question, I would fully confirm that we consider our current interest rates to be on the accommodative side. I said that in my introductory remarks. On the exchange rates, you know that I permanently call upon myself to exercise verbal discipline in this very important domain which we discuss with our major partners in the floating exchange rate system. And we will have a G7 meeting very soon. Between two G7 meetings, we have what has been said in the previous communiqué; a communiqué that we have agreed upon, that I have signed. I will tell you that what is said in that communiqué remains valid until we have a new discussion, and you know that I never say in advance what I will say in our future discussion. I reserve that for the discussion itself. At this moment in time, let me only say that we all agreed in Essen that excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We also said that, in emerging countries with large and growing current account surpluses, especially China, it is desirable that the effective exchange rates move such that the necessary adjustment will occur. We all agreed on that, and it is my own sentiment because I signed it. And I also said after some comments made by Minister Omi and Governor Fukui that we believe that the Japanese economy is on a sustainable recovery and that the exchange rate should reflect these economic fundamentals. I said that because they had said precisely that, and I said that I shared the view that had been expressed by the Governor of the Japanese central bank and the Minister of Finance of Japan. So, all this was agreed upon in Essen, and I am now preparing to participate in the next G7 meeting in Washington. As regards M3, I would say that, as you know, we look at the monetary pillar with a view to understanding as much as possible the complex dynamics that underlie it. We have M1, we have M2 minus M1, we have M3 minus M2, all of which have different dynamics as far as the components of M3 are concerned. We have counterparts that we look at regularly. I regularly comment on the dynamics of the counterparts, and – as I have said – we see different dynamics in this complex environment where we have increased short-term rates, where long-term rates remain low in historical terms, and I cannot deny that the dynamics of M3, in particular, remain very impressive – 10% is higher than the 9.9% that we had last month. I have also to note that M1 has a much lower rate of growth, but remains at a level of growth which is dynamic – 6.6% this time, versus 6.5% in the last month. We even see a little picking-up. As regards the counterparts, I said that loans to the private sector were a little bit less dynamic – the current growth is 10.3%, compared with 10.6%. We see some slowing down, but it remains extremely dynamic. The increase in lending to households has remained at the same level, at around 8%, and I have very often commented on the loans to non-financial corporations. Such lending is declining, but the level of growth is one of extreme dynamism, because it stands at 12.6%, compared with 13.2% last month, so there has been a downturn. So, we are seeing forces that move these various entities. We look at the overall situation carefully on a broad basis as you see and try to extract that information that is pertinent for us. It is clear, as I have said, that on the basis of all plausible measures, we are living in a universe of ample liquidity. This will not surprise any of you because it is exactly what you are told when yourselves talk to professionals. They would say exactly the same.

Question: You were very helpful in suggesting that you were quite happy with financial market expectations at the moment about …

Trichet: I said that “I would not say anything that would be aiming to change market expectations for the next two months.” And I also said that we are never pre-committed in any respect.

Question: Previously, when I have asked whether “monitoring very closely” means in two months’ time, you said that it was the wrong interpretation … maybe you want to say something different this time. My substantive question was: markets are obviously looking at June, but also beyond, wondering whether or when euro zone interest rates might reach some kind of peak. I don’t expect you to give a categorical answer, but perhaps as people try and make their analyses of the situation, you could help on three fronts. Firstly, if the US economy slows and if the US Federal Reserve starts moving towards interest rate cuts, what sort of bearing will that have on calculations? Second factor, related obviously to currency developments: I know you can’t talk much about that, but do you not regard the modest appreciation that we’ve seen, the gradual appreciation of the euro over time, as already having had a tightening effect in moving you away from an accommodative stance and how does that bear on the discussions of the Governing Council, going forward. And thirdly, coming back to the monetary pillar, you’ve just talked about the complexity of this pillar – I think there is a lot of confusion in lots of people’s minds about how much weight you are actually attaching to this pillar at the moment because, if you look at the sort of numbers you’ve just been reading out, you’d be thinking that you’d be raising interest rates already.

Trichet: First question, we each have our own responsibility. We look at what we ourselves are doing. The fact that the other responsible major central banks, and all other central banks, are doing their jobs within their own respective context and in line with their own responsibility has no influence on us. We do what we have to do, taking into account that we have to deliver price stability and be credible in the delivery of price stability over time. So, I do not have any particular comment on what the United States could do, or could not do. Second point: as I have always said, when we take a decision – which is based on judgement – we are not underwriting any specific model for our economic analysis, which would mechanistically guide our decision. We capture all pertinent information. We look at what our own staff is doing, particularly as regards their projections. We look at what other entities, all pertinent institutions, are doing in order to come to a judgement of our own, a judgement based on our own wisdom, the collective wisdom of the colleagues that sit around the table, the 19 members of the Governing Council. And we also do the same with the monetary pillar, exactly the same. We always take all parameters into account. Exchange rate developments are, of course, one of the elements that we take into account. I have always said that we take all parameters into account. But, in a system of floating exchange rates, we have no other particular remarks to make on exchange rates on top of what I just said. As regards the monetary pillar, I think that, in order to understand the functioning of the monetary pillar, you have to imagine yourself back at the end of 2005 and at the beginning of 2006. You may remember that I said several times that, on the basis of our cross-checking of the economic analysis and the monetary analysis, we had judged it to be time to increase rates. I remember that, at the time I said that here, we had a great deal of good advice from major international institutions, from a lot of economists, a lot of advice telling us not to do that, saying that it was premature, that we should not move our rates. But we did it nevertheless and the monetary pillar played an important role in our decision. Everybody in this room knows that we have been fully vindicated for what we did at that time in December 2005, and then in 2006 and at the beginning of 2007. So, if you want to understand how the monetary pillar functions, you have to understand that it plays its role – we have the economic analysis and we have the monetary analysis, we have the cross-checking and we have the judgement that we make on the basis of the best of our own collegial deliberations. I think it functions pretty well.

Question: Maybe you do not want to comment on it, but I would like to ask about the JPY/EUR exchange rate again. Do you think that the current strong euro situation has a bad influence on the European economy?

Trichet: I think I have said all that I had to say on exchange rates and on the yen in particular. I stick to what I have said. Thank you very much indeed.

Question: I have two questions. The first one is on your deliberations today and yesterday on the interest rate decision: were there suggestions to move rates at this meeting by some of the participants or suggestions to introduce the phrase “exercise vigilance” at this meeting? And the second question, regarding potential growth in the euro area: some economists and institutes in Germany have been revising upwards their forecasts or their estimates of potential growth in the largest euro area economy, which is Germany. Are there any indications that the ECB will follow suit and also revise upwards its potential growth estimates for the euro area?

Trichet: On the first question, I would say that there was no discussion on an increase in interest rates today, and as always, we weighed up the pros and cons associated with various possibilities. There was a unanimous agreement. What I said in the introductory remarks captures the unanimous sentiment of the college. But again, a lot of discussions, a lot of views exchanged, as always. As I have said, we rely upon collegial wisdom. Each of us – the 19 – fully accept that other colleagues may have good arguments – may have good analyses – that are worth being examined and incorporated in this collective collegial wisdom that I have to express as the spokesman.

As regards Germany, we have noted – not only for Germany but, more broadly, at the level of the euro area – that a number of indicators confirm what we believed to be the case, namely that we were in a process where growth continued to be there at the beginning of this year. In that sense, we are confident that our analysis was a good one. We will have to look at our new staff projections when the time comes – in June – and we will see, then, where we stand. At the present moment, what I see is that there is very much a convergence on the estimates. To the extent that they are suceeded in time, all the new estimates are quite close. As you know, we now have the estimate for the euro area by the IMF, which I have compared with our most recent staff estimates. We are close. Of course, our own bands encompass the IMF’s estimate, which, if I am not mistaken, is 2.3% for 2007 – 2.3% for 2008. We ourselves have said 2.1%-2.9% for 2007 and 1.9%-2.9% for 2008. As I always say they are, of course, the staff projections. Germany is the largest economy in the area. Germany had very flattering growth last year and seems to be continuing to record significant growth even in the first quarter. We will see. Of course, I remain very prudent, but the information that we have had up until now is quite encouraging. What I have just said has been said by all international institutions. And I have also noted that according to the IMF, for 2007 growth in the euro area is extremely close to growth projected in the United States and extremely close to growth projected in Japan. It is the first time for a very long period of time that we are so close: the IMF says 2.3%, 2.2%, 2.3%. I will confirm what I said, perhaps when responding to one of your own earlier questions. At this stage we do not believe that we can conclude with sufficient certainty that there has been a change in total factor productivity or in labour productivity that would permit us to say that the growth potential is higher than before. We think that what we are observing as regards labour productivity might be linked to the cycle, and we are looking at it very carefully because it is a very important parameter for us of course. At the present moment, no, I cannot tell you that in our judgement we have to revise the growth potential for the euro area upwards. But we are looking at that, and we are working on better understanding the dynamics of labour productivity.

Question: Mr President, you mentioned several times risks to price stability, but you did not express in concrete terms the risk to financial stability. We have a liquidity overhang worldwide, we have some bubbles in housing markets, we have some bubbles in the equity markets in emerging countries and we have a great carry trade between the yen, dollar and euro. We have insufficient transparency in respect of the hedge funds. We have highly leveraged private equity funds. Can you be more specific about this risk to financial stability because this is a risk also to the world economy and financial markets as a whole?

Trichet: You are absolutely right, Sir. You know that when I mentioned the risks that we had in front of us, coming from the international environment, I mentioned explicitly the possible rise of oil. I also mentioned explicitly the possible unwinding of global imbalances. I would say it is a way to sum up the risks that we see in the international arena, including, of course, the risks that are embedded in global finance. And this is not new, because I already said that we believe that there are in global finance a level of spreads, a level of volatility, a level of low long-term rates, a level of pricing of risks in general in the global economy that would not necessarily be sustainable in the medium and long run. There is a risk of disorderly correction of this situation, which is, again, associated with the disorderly unwinding of global imbalances. So we have to look at it very carefully. Financial stability is a very important element and you are absolutely right to mention it. We have responsibility in this domain, together with a number of other institutions and partners. This has been looked at, as you know, at the level of the G7/G8 and work has started, including at the level of the Financial Stability Forum, to update the previous study on highly leveraged institutions and it includes the hedge fund issue that you have mentioned and other highly leveraged institutions. It is part of a more global analysis. It also includes a better understanding of what was behind the explosion of derivatives in general, the explosion of the volume of funds that are highly leveraged. What is very important for us central bankers is that the necessary adjustment takes place progressively, orderly and not sharply and abruptly, and this is true in this domain as well as in all others.

Question: If financial markets are rising and rates do go up in June, would they still be on the accommodative side?

Trichet: We will see when the time comes.

Question: The ECB has said that Romania should be more ambitious in adopting the euro and that this could happen in 2012. The IMF said that if Romania were to adopt the euro in 2014, the reforms for achieving the nominal and real convergence criteria may be slower. Why did the ECB say that we should adopt the euro earlier?

Trichet: I am a little bit surprised because I do not see that we have sent a message of that sort. What we are telling Romania is that we encourage Romania to reform as efficiently as possible. I think that Romania has made a lot of important accomplishments over the last years and it was a milestone when Romania entered into the European Union in January 2007. We have noted that Romania had a very good year in 2006, with a number of economic results that were quite flattering. We also believe that there is no room for complacency because the convergence process is certainly a very important one and very ambitious one, taking into account the starting point. We encourage Romania in all respects to continue to work very actively on its own reforms and its own convergence. But I will not say that we are ourselves communicating a precise date. I would say that Romania is welcome when Romania is ready. Again, I do not remember any such message being sent by our institution. Our own message is very simple. “Bravo for what has been done until now, but a lot of work remains to be done, so it is no time for complacency. Continue working very actively to converge and the more rapidly you converge, the better of course for Europe as a whole, for Romania in particular and, when the time comes, for the euro area.”

Question: I have two questions. First of all, I was wondering if you could comment on the fact that although the euro is appreciating strongly against the dollar and the yen, it seems to be losing ground against such currencies as the Romanian leu, the Polish zloty and the Hungarian forint, and I am curious if the ECB is following this trajectory of the euro in this area? And my second question: I know it is still a little bit early, but I am very curious if the ECB’s policies are influenced or are changing in any way in order to account beforehand for the new big economies that might join the euro area, such as Romania and Poland, which are probably going to have a bigger impact than the latest one which joined.

Trichet: On the first point, I have already commented on exchange rates and I have no further comments. On the second point, the process of setting up the euro area according to the Maastricht Treaty, which was signed and ratified by our democracies, was based on a concept of benchmarking. We benchmarked the economies that were performing less well against the economies that were performing best, according to the various Maastricht criteria. You remember that the Maastricht criteria are very much based upon benchmarking on monetary stability, benchmarking on low levels of inflation, benchmarking on low levels of long-term interest rates. This process has been followed by all those who are currently inside the euro area, and that is why I am able to say here to you that our currency is as credible, is as confidence-inspiring and has the same degree of solid anchoring of inflationary expectations over the next 5, 10, 20, 30 or 50 years as was the privilege of the best national currencies before the euro. It is precisely because we benchmarked the full body of the euro area on this level of credibility and of confidence. This process should continue in exactly the same fashion, for the benefit of the newcomers and, of course, in order to preserve the credibility that we have accumulated over the last eight years. And while we are speaking of the eight years since the euro was introduced, let me remind you that more than 12 million jobs have been created in the euro area since the euro was set up on 1 January 1999. During the eight years before the euro was set up, less than three million jobs were created in the euro area. I am not saying that the euro has created jobs, but those who say that the euro plays against job creation are not confirmed at all by the figures at the level of the euro area as a whole. If I take the example of one particular country – I could take many of them – the case of France: since the euro was created, around two million jobs have been created in France during those eight years. In the eight years before the euro was created, there were less than 500,000. I am not suggesting that you now have a magic wand and you say: “The euro is there, you create jobs”, but let us be aware of the facts and figures, as always.

Question: The President of the Bundesbank, Axel Weber, has recently criticised that the HICP does not cover the cost of living in owned property or housing. Given that the ratio of owning property or housing in the different countries of the euro zone is very different, this was not economically satisfying. Is there an ongoing discussion in the Governing Council on improving that measure of inflation, and what is your judgement on this issue?

Trichet: I think it is an important point. It is not the only thing to improve; we have to continue improving our instruments of measure. As you know, we are not responsible for that computation, it is done at the European level by Eurostat. I would only say that, to my knowledge, work is always ongoing on improving the instruments of measure. I think that Axel is right in this respect. We have already an instrument that we believe to be a very good one. There is an overwhelming sentiment that this is a very good instrument. It could be improved more, and better harmonised. It could also be improved at a global level, because we have still significant differences on a transatlantic basis and at a global level.

Question:I just want to clarify something. In prior introductory statements, you have listed increasing rates of capacity utilisation among euro zone firms as an upside risk to inflation. I do not see that in this today. I wonder if that is because you do not see that as a risk anymore?

Trichet: Do not over-interpret that. In any case, as I said, we did not change our own overall analysis in comparison with last time. The fact that we are in a mode of robust growth is evidently something that we take into account as an element which creates an environment for risks that is different from what you would have if growth was not that robust. And again, I have said how we had been vindicated for our own judgement in December 2005. It was very much based on our understanding of the dynamics in the real economy and they have been confirmed in the most recent period of time.