Trichet Says Policy ‘Accommodative’ After Rate Rise (Transcript)
European Central Bank President Jean-Claude Trichet talks about the decision to raise the benchmark rate by 25 basis points to 1.5 percent and to ease Portugal’s access to emergency funds.
He spoke yesterday at his monthly news conference in Frankfurt.
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
JEAN-CLAUDE TRICHET, PRESIDENT, EUROPEAN CENTRAL BANK: Ladies and gentlemen, the Vice President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting. Based on its regular economic and monetary analysis, the governing council decided to increase the key ECB interest rates by 25 basis points after raising rates by 25 basis points in April 2011, on historically low levels.
The further adjustment of the current accommodative monetary policy stance is warranted in the light of upside risks to price stability. The underlying pace of monetary expansion is continually to gradually recover, while monetary liquidity remains ample, with a potential to accommodate price pressures in the euro area.
All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term.
Our decision will contribute to keeping inflation expectations in the euro area firmly anchored, in line with our aim of maintaining inflation rates below, but close to 2% over the medium term.
Such anchoring is a prerequisite for monetary policy to contribute to economic growth in the euro area. At the same time, interest rates across the entire maturity spectrum remain low, thus our monetary policy stance remains accommodative, lending support to economic activity and job creation.
As expected, recent economic data indicates some deceleration in the pace of economic growth in the second quarter of 2011, while the underlying momentum of economic growth in the euro area continues to be positive, uncertainty remains elevated.
We will continue to monitor every, very closely, all developments with respect to upside risks to price stability.
The provision of liquidity and the allotment modes for refinancing operations will be adjusted where -- when appropriate, taking into account the fact that all the non- standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature.
Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of 2011, euro area real GDP posted a strong quarter-on-quarter increase of 0.8%, following the 0.3% increase in the last quarter of 2010.
Recent statistical releases and survey-based indicators point towards a continued expansion of economic activity in the euro area in the second quarter of this year, albeit at a slower pace. This moderation reflects the fact that the strong growth in the first quarter was in part due to special factors.
The positive underlying momentum of economic activity in the euro area remains in place. Euro area exports should continue to be supported by the ongoing expansion in the world economy, at the same time, taking into account the present level of business confidence in the euro area, private sector domestic demand should contribute to economic growth. However, activity is expected to continue to be dampened somewhat by the process of balance sheet adjustments in various sectors.
In the governing council’s assessment, the risks to this economic outlook remain broadly balanced in an environment of elevated uncertainty. On the one hand, favorable business confidence could provide more support to domestic economic activity in the euro area than currently expected and higher foreign demand could also contribute more strongly to growth than expected. On the other hand, downside risks relate to the ongoing tensions in some segments of the fund for markets that may potentially spill over to the euro area real economy. Downside risks also relate to further increases in energy prices, protectionist pressures and the possibility of a disability (ph) correction of global imbalances.
With regards to price developments, euro area and euro HICP inflation was 2.7% in June 2011, according to euro stats flash estimates (ph), the same rate as in May. The relatively high inflation rate, seen over the past few months, largely reflects higher energy and commodity prices. Looking ahead, inflation rates are likely to stay, clearly, above 2% in the coming month. Upward pressure on inflation, mainly from energy and commodity prices, is also still discernible in the earlier stages of the production process. It remains of paramount importance that the rise in HICP inflation does not translate into second round effects in price and wage saving behavior, and lead to broad- based inflationary pressures.
Inflation expectations must remain firmly in line with the governing council’s aim of maintaining inflation rates below, but close to 2% over the medium term.
Risks to this medium-term outlook for price developments remain on the upside. They relate in particular to higher than assumed increases in energy prices. Furthermore, there is a risk of increases in indirect taxes and administrative prices that may be greater than currently assumed, owing to the need for fiscal consolidation in the coming years.
Finally, upside risks may stem from stronger than expected domestic price pressures in the context of increasing capacity utilization in the euro area.
Turning to the monetary analysis, the annual growth rate of M3 increased 2.4% in May, 2011, from 2% in April. Looking through the recent volatility in broad money growth, owing to special factors, M3 growth has continued to adjust over recent months.
The annual growth rates of loans to the private sector continued to strengthen slightly, rising to 2.7% in May, after 2.6% in April. Overall, the underlying pace of monetary expansion has continued its gradual recovery. At the same time, monetary liquidity accumulated, prior to the period of financial market tensions, continued to be ample, with a potential to accommodate price pressures in the euro area.
Looking at M3 components, the annual growth rate of M1 moderated further in May, whereas growth in other short-term deposits increased. These developments reflect, in part, the gradual increase in the remuneration of short-term time and savings deposits over recent months. At the same time, the steep yield curve implies a dampening impact on overall M3 growth, as it reduces the attractiveness of monetary assets compared with more highly remunerated, longer term instruments outside M3. However, recent information suggests that this impact may be waning.
On the counterpart side, the annual growth of loans to non- financial corporations and to households remain unchanged from April at 0.9% and 3.4% respectively, confirming the pattern of developments in previous months. The overall size of bank balance sheets has remained broadly unchanged, over recent months. It is important that banks continue to expand the provision of credit to the private sector, in an environment of increasing demand.
To address this challenge, where necessary, it is essential for banks to retain earnings, to turn to the market to strengthen further their capital bases or to take full advantage of government support measures for recapitalization. In particular, banks that currently have limited access to market financing urgently need to increase their capital and their efficiency.
To sum up, based on its regulatory, economic and monetary analysis, the governing council decided to increase the key ECB interest rates by 25 basis points, after 25 basis points in April ‘11 from historically low levels. So the further adjustment of the current accommodative monetary policy stance is warranted in the light of upside risks to price stability.
A cross-check of the outcome of the economic analysis, with that of the monetary analysis, indicates that the underlying pace of monetary expansion is continuing to gradually recovery, while monetary liquidity remains ample, with the potential to accommodate price pressures in the euro area.
All in all, it is essential that the recent price developments do not give rise to broad-based inflation -- inflationary pressures, over the medium term. Our decision will contribute to keeping inflation expectations in the euro area firmly anchored, in line with our aim of maintaining inflation rates below, but close to 2% over the medium term.
Such anchoring is a prerequisite for monetary policy to contribute to economic growth in the euro area. At the same time, interest rates across the entire maturity spectrum have been low, thus our monetary policy stance remains accommodative, lending support to the economic activity and job creation. As expected, recent economic data indicates some deceleration in the pace of economic growth in the second quarter of 2011, while the underlying momentum of economic growth in the euro area continues to be positive, uncertainty remains elevated.
We will continue to monitor very closely all developments with respect to upside risk to price stability.
If I turn to fiscal policies, the current environment is very demanding and requires decisive action. Euro area countries must, as a minimum, comply with their fiscal consolidation commitment for ‘11 and beyond, as foreseen under the respective existing deficit procedures.
Illiquid and more front-loaded adjustment should ensure that structural fiscal consolidation targets are met in line with the Ecofin (ph) council recommendations and any better than expected economic and fiscal developments should be exploited to achieve faster fiscal deficit reduction.
The announcement of fully specified consolidation measures for 2012 and beyond is essential to convince the general public and market function -- and functional market participants that the corrective policies will be sustained and that public debt developments will be put on a sustainable path.
At the same time, it remains essential that substantial and comprehensive structural reforms are urgently implemented in the euro area to strengthen competitiveness, flexibility and longer- term growth potential. This is particularly relevant for countries with high fiscal and external (ph) deficits or with past losses in competitiveness.
We welcome the introduction of the European semester, including the recent submission of countries’ national reform programs that incorporate commitments made under the euro-plus pact.
We also support the European council conclusions calling for more ambitious and well-defined reforms that should be front-loaded in order to foster competitiveness. In addition, the removal of labor market agilities, which strongly support the adjustment process. Measures, which enhance wage flexibility, such as the elimination of automatic wage indexation would help to accomplish the necessary adjustment.
We are now at your disposal for questions.
QUESTION: Yanda Hanova (ph) with Bloomberg News.
A few questions, Mr. President.
First of all, you, last month, capped the inflation forecast for next year, unchanged at 1.7% on average. That’s clearly below your target or your goal. Does that mean that there is less need to raise rates further on? Or, and you also mentioned, obviously, deceleration of growth, lately. Or does the fact that interest rates have been -- or real interest rates have been negative for such a long period of time, mean that they require -- or the borrowing costs need to be tightened further?
Along those lines, economists expect one more interest rate increase this year. And I wonder if you feel well understood, both in the markets and also among ECB watchers?
And my second question is when you suspended collateral requirements for Ireland and Greece, earlier, you said you would rely on your own judgment in deciding about the quality of collateral. Now, you’re saying that you can’t accept ones that have defaulted, that have been rated defaulted by rating agencies. So my question is, what happened to your own judgment?
TRICHET: Thank you.
First, I would say that, as you know, we have not published a center of a range, but a full range, so I don’t deny that the center of the range you have mentioned for next year is very close to the figure you have pronounced. But again, we publish ranges and we capture with these ranges, much better, the uncertainty, which exists, taking into account, of course, all the parameters that are influenced -- influential as regards CPI.
All that being said, the staff projections were incorporating increase of rates. So I think we should not -- you should not deduct from the fact that we were, in the medium term, at least in this horizon, below the 2% and close to 2%. You should not deduct anything as regards the fact that we will not build in interest rate increases because they were incorporated in this projection.
As regards your second question, I confirm that we are taking, today, a decision, which is an important one and explains why we were taking this decision. We do, always, what is judged necessary by the governing council, to deliver price stability and to solidly anchor inflation expectation, which is fundamental, precisely, for delivering price stability and also for anchoring solidly the European economy in terms of price stability and of confidence.
We have no pre-commitment and you will see what we do when time comes. No other -- no other comment on the future decisions. They will, as always, as the two last decisions were done, done, in our view, at the appropriate moment to deliver price stability in the medium run.
QUESTION: And do you have reason to change (OFF-MIKE) at the moment?
TRICHET: I -- nothing, but what I said. I don’t comment on that. The market expectations are changing with our own decision. Market expectations were -- no, yes, madam. Market expectations were not incorporating any interest rate increase this year until we said we are position where we are very likely to increase rates in one month time. And then you see all, of course, market expectations changing as is normal, according to the decision we are taking in the governing council of the ECB.
You had a last question. On the last question, let me only tell you that today the governing council has decided the following. We have a press communique at 3 30, as usual, immediately after the press conference. We have decided to suspend the application of the minimum credit rating threshold in the collateral digital (ph) requirements for the purpose of the all-system credit operations.
In the case of marketable debt instruments issued or guaranteed by the Portuguese government, this suspension will be maintained until further notice.
And we took that decision, taking into account the fact that the Portuguese government has approved an economic and functional adjustment program, which has been negotiated with the European Commission in liaison with us and the International Monetary Fund. The governing council has assessed the program and considers it appropriate.
Now let me turn to the last point you mentioned, implicitly or explicitly. Indeed, the position of the governing council is that we are -- we say no to selective default or credit event.
Thank you very much, madam.
DAVID TWEED, BLOOMBERG NEWS : David Tweed from Bloomberg Television.
Is it the ECB, which is going to judge whether any country is in selective default? Will you rely on your own view on that or are you going to be dictated by the credit agencies?
TRICHET: Nothing but we say no to selective default.
QUESTION: Martina Voshaf (ph), Financial Dupla (ph), Netherland.
The Dutch Minister of Finance, Jan Kees de Jager, has called for forced participation of the private sector in a second Greek rescue. He no longer says that it -- he says it’s unrealistic that they will contribute voluntarily. What is your stance on that, your response?
TRICHET: You know our position. The position of the governing council did not change. And to my knowledge, the position of the governing -- of the euro group didn’t change either.
Thank you very much.
QUESTION: Yes. Well, I would like to come back to this fourth -- the -- to the fact that I would just one step back. You say that there is -- you are just saying no to selective default. But if you -- the -- I find there is a discrepancy, between the fact that you suspended the judgment, the rating for Greece and now even for Portugal and then for Ireland.
And then that you accept that you would -- until the fourth agency, you don’t accept the collateral -- you accept the collateral until the fourth rating agency has decided that there is a selective default.
So I find there is a discrepancy there. Because if you suspended the rate, you don’t care if they declare a selective default or not.
Or can you maybe explain this? Because many people didn’t understand.
Again, it is clear that we say no to selective default and the -- of course, the selective default is associated with this PSI issue, which was not taken into account when we waived it. In the case of Portugal today, the threshold requirement.
But again, our position is clear. In the case of Portugal, we are waiving the threshold. In the case of Greece, where we have PSI, where we have this debate on the nature of PSI, we say no, to say active default.
QUESTION: Okay. And my second ...
TRICHET: Thank you.
TRICHET: My -- sir? Oh, a second question.
QUESTION: My second question, I haven’t seen any judgment about the so-to-say, the plan made by French banks on ...
TRICHET: It is the responsibility of the governments of the executive branch and of the members of the euro group to discuss with the private creditors. We let them take the responsibility.
I would say, in the present circumstances, where you know that our own responsibility is to deliver price stability for 331 million federal citizens, which we do, and will continue to do, I would say, with great determination.
We call all authorities to be up to their responsibilities, each of them in their own sphere of responsibility.
All this is the responsibility of the governments.
BRIAN BLACKSTONE, THE WALL STREET JOURNAL: Brian Blackstone with the Wall Street Journal.
Do you -- given all of this debate over private sector involvement in a second Greece rescue, do you think the debate over this is doing more harm than good? And should the governments, instead, focus on austerity, privatization and official assistance and set this whole issue aside?
And secondly, given the nature of bank lending, it seems that interest rates tend to filter more quickly in the periphery. Are you doing more damage to the periphery with these rate increases?
TRICHET: On the first question, I would say that we clearly, clearly, have said what we -- what was our position on private sector involvement. We have said publicly, since the concept was floated, that we asked the governments to stick to the international doctrine, to the IMF doctrine, to the doctrine, which has been applied recently in Asia, for instance, where we had the last crisis, which is really a few years ago.
We are shipping this message constantly to governments. That is -- and again, we are asking and we do not want and we cannot want to substitute to the responsibilities of the various authorities concerned. So we are giving our own advice as clearly as possible to governments on PSI, namely don’t depart from the global doctrine. If you depart from the global doctrine, you’re weakening what you are aiming at, namely maintaining financial stability in Europe as a whole and in the euro area as a whole.
As regards our decision today, again, as I said, when we have, for the last time, took such a decision, we considered that maintaining stability for an entire continent, for 331 million fellow citizens, maintaining price stability, maintaining confidence, is essential for the prosperity of the entire continent, if I may. At least for the entire 17 economies that are part of the euro area.
All are benefiting from this, I would say, confidence and stability, preserved by our own action, in line with our treaty mandate, in line with what the people of Europe is asking from us. And the fact that we had, at the same time, difficulties in some countries and so that they are risk premier, has nothing to do with the fact that the solid soil on which all the euro area is functioning is precisely this soil of confidence that we are preserving.
Again, if there was any increase in the inflation expectations over the medium term, this increase in the inflation expectation would be transmitted to all interest rates, all interest rates, in all countries.
Thank you very much.
QUESTION: Luis Regudiaro (ph) the economical newspaper from Portugal.
Mr. Trichet, should a country in a -- one of these countries that are in the Troika (ph) programs, should these countries still be ahead of the curve in terms of consolidation to give extra guarantees to the markets? Even though they have no specific maneuver given by a better economic growth? Or should they strictly apply to the program as was approved by the ECB and the other international organizations in order not to damage the growth itself?
And secondly, if I may, after the downgrades done, recently, from Moody’s to Portugal, do you think that the contagion from Greece to other countries is now stronger?
TRICHET: Thank you.
I would say, first, of course, rigorous respect of the commitment and the decisions that have been negotiated, discussed and approved by the government and by the international community, by the European Union, is absolutely of the essence.
That being said, being ahead of the curve is always a positive, of course, in the circumstances. And you heard me, here, repeating and repeating month after month that all countries have -- would have a great advantage in being ahead of the curve.
I have to say that in the case of the Portuguese government, I have noted that it was very, very good that some decisions were taken by the government on top of what had been in the program. For instance, the list of privatization goes beyond what was in the program, which had been published. And that is something, which I consider as an important positive.
We have, also, a decision, which was not in the program, but it -- which is taxation on the Christmas bonus that has been decided by the government.
I also noted, but this is not a decision, which goes beyond what I -- was already decided, but I know that 80% of the parliament has approved the adjustment program, which is, of course, something, which I trust is important.
I have no particular comment on the -- on any recent decisions.
QUESTION: Nora Inan (ph) from the Irish Independent in Dublin.
Just two Irish questions for you.
First of all, the interest rate hike is, obviously, as a number of my colleagues said earlier as well, very difficult for the periphery. Do you have any sympathy for the hardship that the interest rate hike will impose on the people of Ireland? And do you have any concerns that it could ultimately undo Ireland’s ability to complete the program, which it has agreed with the international authorities?
And then separately, on the topic of the IRF (ph) program, our government is now saying they hope to be able to carry out next year’s budget without cutting social welfare and without increasing income tax. Do you think that this -- is -- if it is going to be possible to do?
TRICHET: First of all, of course, it is extremely important that the program is applied and I don’t elaborate more on that.
Our interest rate increase, again, is designed to permit, to continue to deliver price stability for Ireland and the other fellow citizens that are up to 331 million people. It is what we have in mind when we take such a decision.
And Ireland, as all other countries, is benefiting from the fact that we are credible in delivering price stability and we have a solid anchoring of inflation expectations. All countries, without exception, are associated with the positive, which is solid anchoring of inflation expectations.
On the implementation of the program, I have to say that the results that I see are going in the right direction. I only mention the fact that, for instance, the current account of Ireland is positive. It was positive last year. The last figure we have. And that is, of course, something, which demonstrates that the adjustment is proceeding in line with what was foreseen.
Thank you, madam.
RALPH ATKINS, FINANCIAL TIMES: Ralph Atkins from The Financial Times.
A couple of questions.
One very quick one, was today’s decision unanimous or was there anyone suggesting that you should not raise interest rates today?
Secondly, maybe, could you just tell us how you imagine the global doctrine as regards dealing with countries facing solvency and liquidity issues? Because, I mean, in the past, we have had countries that have defaulted. I’m not quite -- exactly what you’re saying when you say uphold the global doctrine perfectly use of -- so if you could spell out exactly what that means?
And the final question is, a lot of people, particularly in Germany, worry now. The biggest worry of Germany is now, apparently, is the stability of the euro zone, rather than unemployment, which it was before. Can you give the people of the euro zone an assurance that whatever happens in Greece, even if -- against your wishes, there is a selective default, the ECB will do whatever is necessary to preserve the stability of the financial system in the euro zone, even if that means, for instance, allowing emergency liquidity assistance in the case of Greek banks? Or such measures or exceptional collateral, even if the bonds have defaulted?
TRICHET: On your first question, my response is we were unanimous.
On your second question, the comment is when a country is determined in practicing cost monitoring in the best fashion possible, in order to regain competitiveness, don’t forget that Germany started the euro with a current account deficit. And a competitiveness, which had been considerably hampered by the reunification.
So when a country is very attentive to its costs, when the nominal evolution of costs and prices are well in order over time, you have the benefit. And the benefit is growth. The benefit is diminishing of unemployment and augmentation of employment. And in the case of Germany, we are in presence of a country, which has less unemployment today than before Lehman Brothers.
So you -- from time to time, some are asking whether austerity or sound management or soundness are paying off. Yes, they are paying off. You have that under your own eyes.
Of course, it has called for great attention in the time. The kind of attention, the surveillance of the other governments should have been exerted on other countries.
And I would also say, of course, that not only you have growth, not only you have jobs, but you also have resilience, which, again, is demonstrated by the fact that in the worst crisis since World War II, could have been the worst since World War I, the country -- and Germany is not alone in this situation, but Germany is a very good case in point for us.
I would draw the provisional conclusion that the formidable reinforcement of governance that we call for the 27 and for the 17, particularly, is extremely important. And for the rest, I would say each authority has its own responsibility. We are, ourselves, responsible for the euro area as a whole, and for the price stability of the euro area as a whole, which is one of the preconditions for stability and confidence.
We expect the other authorities, and of course all the other authorities, without any exception, to be up to their own responsibility in the case of country A, B, C.
QUESTION: Wolfgang Polst (ph) with Financial Times Deutschland.
I have three short questions.
You said any country should avoid, at all costs, a default or selected default. Who should decide if there is a default or a selected default?
Secondly, the S&P has been dormant, I think, now for 14 or 15 weeks. Are we -- can we expect that this is going to continue to be the case? Or may there be changes?
And lastly, are you happy with the central role that rating agencies have in today’s financial system?
TRICHET: First of all, I have to go back to Mr. Atkins, because I did not respond to part of your question.
If you would permit, as regards the so-called global doctrine, the presumption of the international community is that if you have a particular country problem, you do what you can to have a very strong conditionality, which is in the global doctrine, of course.
The -- negotiated by the IMF.
And then you are financing the adjustment, with a view to going back to normal credit worthiness and normal market financing, as soon as possible.
For instance, in the case of the Asian countries, all Asian countries, with the help -- that had problems, with the help of the IMF and the help of neighbors, different kind of help, came back to appropriate credit worthiness, but Indonesia.
So you have exception -- possible exception to the rule at the global level.
At -- that is something, which we had under our eyes in a recent episode that I am mentioning.
What is not in the global doctrine, not at all in the global doctrine, is the idea that you are asking, as soon as, on top of the IMF loan, there is a loan made or supplied by a neighboring country or any country, that you asked for restructuring, haircuts, you name it.
That is not the international doctrine. That is not the international doctrine.
You cannot, let’s say, eliminate a failure. You cannot eliminate a drama, but you cannot presume that it is the normal situation to have some kind of private sector involvement. It’s clear. It is what has been said repeatedly. It is what has been decided by the euro group. Because I have it on my eyes, the euro group decision, which was taken, if I’m not mistaken, at the end of November, and which exclusively refers to the international doctrine.
But it has to be repeated.
So you give me a good occasion of repeating it.
Now, I’m sorry, because I’m back to your own question.
Could you repeat -- remind me of the first one?
QUESTION: You said that defaults or selective defaults should be avoided at all costs. So my question is who decides if there’s a default or a selective default for the ECB?
TRICHET: Well, again, we say no. We don’t take the decision. Decisions are taken by governments in that particular case and by those who are negotiating and discussing. So again, we are saying no. But we are not the decision makers. And we do not want to substitute to the decision makers.
Every institution, every authority, has to take up its responsibility.
The default or selective default could be the consequence of some of the action and then we would say no, it is not what we would consider appropriate in the circumstances.
Credit events or selective default, we said no, full stop.
TRICHET: Pardon me?
TRICHET: Three questions? Okay. Fine.
QUESTION: About the S&P, its not been used for 14 weeks, I think, and so I wanted to ask you if there is -- if that’s going to stay that way?
And the last question was if you think that the importance of the rating agencies in today’s financial system is rising?
TRICHET: On the S&P, I would only say that we are totally transparent. So week after week, you see what we are doing. Or not doing. And you have been a good observer of what we were -- what was done during the last weeks. I have no other comment than that.
We continue to be totally transparent.
On the S&P, I would also say, as you know, that we are continuing, of course, to restore the liquidity that had been supplied by the S&P and that also is transparent and done every week and published every week.
On the rating agencies, I think we have to reflect on it at a global level, as is being done, by the way, by all authorities concerned on both sides of the Atlantic, as well in the world.
We have to -- we reflect on that through the -- at the global level, the financial stability board.
It is clear that there is an element of poor cyclicality, which is embedded in the functioning of the credit rating agencies that is not optimal, that’s absolutely clear.
It’s also clear that a small group, a small oligopolistic structure, is not what is probably desirable at the level of global finance. And taking into account the fact that there are big advantages of having a large set of private authorities, private institutions, private participants in the global finance, that could confirm their views and not exert an overwhelming influence.
But all that being said, I would say it’s a work in progress. And it would be a little bit naive to think that we have the solution and that the solution is easy to apply.
QUESTION: I have an additional question.
TRICHET: No, no, no, no, no, don’t do that.
You have one?
QUESTION: Thank you, Mr. Trichet. Three questions.
Ripal George (ph) from Journal de Universe (ph) in Portugal.
Specifically, still on rating agencies, how do you comment on this recent decision by an agency to downgrade a country that has just been one month into the program that the IMF is -- the European Commission and the ECB have developed?
And would you find any support for any analysis that would actually say that it could be -- actually be some kind of attack on the euro itself? This type of decisions?
And finally, were a country to default, and impose losses in other countries and the ECB, could it be considered as severe violation of the treaty?
TRICHET: On your third question, as you say, we say, to those who have a number of decisions in their hands and that are responsible, we say avoid such events. Avoid. We say, as I said, it’s part of our no’s. No to default.
As regards the position that has been taken, the present position today of the governing council is in a way a response. Immediate response.
And I will not comment on attack on the euro.
Mr. Trichet, the Italian government has just approved a 40 billion fiscal plan, which is, in the words of the finance minister, designed in order to bring a balanced budget within three years. At the same time, the Italian spreads over the German Bund are, today, at record highs. So I was wondering, in the eyes of the ECB, what the -- what your evaluation of these measures are? If they are as efficient? If they are enough ahead of the curve? Or if you would have expected more from Italy, given the fact that the bulk of those measures actually is brought forward to 2013 and 2014?
TRICHET: I would say that, of course, these decisions that are not that easy to take, are good and are going in the right direction. And we -- I have -- possibly because we did not discuss that, in the governing concept. So it’s in my constant view, that it goes in the right direction.
As I said, we are sending the message to all countries, without any exception, that being ahead of the curve is good, not only in the presence circumstances, but good by all means and is rewarded, is rewarded, by more growth and more job creation.
By being ahead of the curve, I would say, particularly, engaged in the structural reforms, that the main problem of Europe, the main problem of Europe, as a whole, if you took the bird eye’s view, is not that we are, again, as a whole, in a worst situation on the financial -- public finance standpoint or the current account standpoint, in the worse situation than other comparable advanced economies. The problem, the main problem, of the open is that they had too much rigidities in the functioning of their economies and selfish inflexibility.
And so all structural reforms of welcome and being ahead of the curve in structural reforms is very important. Because it gives much more -- it could give much more flexibility to the European economy and therefore would deliver the growth potential.
So only to enlarge, of course, your perspective.
ARTHUR BEESLEY, IRISH TIMES: Thank you. Arthur Beesley from the Irish Times.
A couple of more Irish questions.
There is concern in Dublin that the turmoil in Greece is going to make it very difficult for the Irish government to make its return to private debt markets next year or in 2013. Do you agree with that proposition? And what should the government do about it?
Secondly, Mr. Biddis-Maggie (ph) was quoted by Les Echos (ph) last week saying the ECB was working on a new funding plan for Irish, Portuguese and Greek banks. I wonder is there anything you could tell us about that?
TRICHET: I have a lot of questions, I have to say, on Ireland, on Portugal, implicitly or explicitly on Greece.
Shall I remind you that we are responsible for the monetary policy and the price stability of 330 million persons?
Order of magnitude of the United States of America.
And the governing council is called to take decisions with the euro area as a whole in mind. We are all experts on the euro area as a whole, according to the treaty.
And, again, those issues that you are addressing constantly, which I can understand in some respects, should be addressed to governments.
They are responsible.
And again, as far as we are concerned, we try to be up to our responsibilities.
I would say that we are not -- I mean, I have -- I don’t visualize what you alluded to on special --
BEESLEY: The interview with Mr. Biddis-Maggie (ph) gave to Les Echos (ph).
TRICHET: Yes, well, I never comment on what is said by colleagues. Otherwise, I would have to comment on 22 declarations.
I say that we are following very cautiously and very attentively, of course, in the three countries that have programs. They interface with the banks because it -- they are all part of the overall program that had been negotiated.
BEESLEY: Yes. Thank you.
First, coming back to the -- to interest rates, in April you said you have not decided that you’ve started an interest rate hike cycle. And now, we’ve seen two hikes. You’ve said that still the monetary policy remains a commodity and there are still upside inflation risks.
Are we now in a rate hike cycle?
Second related question is about the interest rate corridor. Why did you decide to not re-widen it now, when you lifted interest rates?
And I’d like to ask about your confidence on the general economy. You sounded relatively confident that this soft patch we are currently seeing in the economy will pass. What are your reasons for that thinking?
And if I very quickly may come back to the plans for dependent banks, is your solution still being developed or are you just waiting for the -- is it done and are you just waiting for the right moment to implement it?
TRICHET: On the first question, I had said we have taken the decision to increase rates by 25 basis points. We did not decide today that we would have a series of interest rate increases, which is fully in line with our own doctrine. You know that our doctrine is that we are never pre-committed. Never. And we take the decision according to our judgment on the basis of the facts, the figures and the judgment of the governing council, when we meet.
This is true for -- even when we say that we are in a mode of strong vigilance, which has a signification in terms of probability of what could happen, but nevertheless, I always say that at the same time we are not pre-committed.
So you will see exposed what would have happened. It’s undeniable that we increased rates two times. And you know that we increased rates today. Of course.
As regards the corridor, we left the corridor as it was because we felt it was appropriate to let it, as it is, today, taking into account all the elements.
On the third point, I had insisted, on behalf of the governing council, quite a lot in the last month on the level of uncertainty. Even when we were observing very good results, which was the case for the first quarter of this year, at the same time, we were already saying that the second quarter would slow down quite significantly, of course, and it was absolutely clear.
And again, I mentioned, on behalf of the governing council, this elevated uncertainty, which is the mark of the time. And that, I think, we -- as you’ll remember, we are very cautious and prudent, during all the period where we were constantly reviewing up our own projections.
So uncertainty is in the perspective of, I would say, not only the open growth, but also global growth in some respects. We see the indicators less flattering now than they were before. We don’t conclude at all that we have to review our perspective.
Our profile was exactly the profile that we have -- we are observing now. Namely, a very, very good first quarter and then it’s slowing down.
So, again, what counts is that we are reasoning medium term.
We said that we didn’t see, in terms of risks, we didn’t see a bias in the risk. We see the risk balanced as regards growth for the euro area. But within the grid of a general uncertainty.
That was for the -- your third question.
And you had a fourth one, if I’m not mistaken?
BEESLEY: Well, a third, really.
BEESLEY: The first two -- the first two are together. So, it’s just a third.
TRICHET: That’s fantastic.
BEESLEY: Anyway. I asked about the dependent banks. And if you’re done -- dependent banks, banks dependent on ECB.
BEESLEY: If you have a program.
TRICHET: We already said that we -- they are, precisely, for a large part, in the countries that are under review and we are -- it’s a work in progress, if I may.
A work in progress.
QUESTION: Stefan Balling (ph), Versun Satung (ph).
One question about the suspension of the gradular (ph) framework, does that mean that you fear further downgrades by the other rating agencies, of Portugal?
And the second question, your answer, when you said we should ask governments all these questions about Ireland and Portugal and Greece, I mean, many commentators would argue that the ECB became a big player in this field by buying government bonds and by the suspension of the collateral framework. Would you say that it is a problem for your credibility when you accept more and more papers and collateral rights that are with ratings lower than investment grade?
TRICHET: First question, no, it’s not because we fear anything. It is because we consider that the program, which has been signed, and is implied by the Portuguese government and is not only is implemented, but it is also, I would say, implemented with some ahead of the curve part of the problem, as I said, as regards privatization or as regards taxation. All that is explaining the decision of the governing council.
As regards our non-standard measures, all our non-standard measures were taken without any exception to help restoring more normal functioning of our monetary policy transmission mechanism.
And I would say for those who are, if I understand well, fearing for our credibility, then I make them fully aware of the fact that amongst the big central banks of the advanced economies in the world, the big ones, we are the only one who are -- who is taking a number of decisions that are not generally considered anodyne (ph) and not generally considered without any element of credibility for the banks, the central banks, that are taking those decisions.
So I have to say on this element of credibility, yes, we are credible, sir. Very credible. And a central bank, which delivers, over 12 years, less than 2%, which is better than what was done by any big central bank in Europe over the last 50 years, has no lecture on credibility to receive.
That’s my understanding.
Thank you very much.
PAUL WALLACE, THE ECONOMIST: Paul Wallace from The Economist.
If the euro area crisis is ever to be resolved, doesn’t it require much more fiscal sharing of resources and centralization of fiscal policy than is currently envisaged?
TRICHET: Currently, we have called for what we call a quantum leap in governance, namely in surveillance of fiscal policies, but also of competitive indicators of macro policies to the extent that they have an influence on the competitiveness and on imbalances.
We said that not in the occasion of the crisis, and by the way, we are in the worst crisis since World War II. We said that before the crisis. We said that from the very beginning of the euro, vindosenbear (ph), all members of the governing council, myself, all members of the present governing council, constantly that the stability and growth pack (ph) was essential.
It was not, I have to say, necessarily the sentiment of all countries, including big countries. They were wrong. And with the benefit of the hindsight, we see where we are.
So we are very clear on that. At the present moment, there is a discussion for improving governance and there is a discussion, which is difficult, between governments and parliament.
We are encouraging going as fast as possible without, because it’s the rule of the game at the moment, change of the treaty. Tomorrow and the day after tomorrow, we might imagine to go further.
But today is today. And today we have to, certainly, to improve considerably, our surveillance of economic policies. And again, fiscal policies and macro policies, competitive indicators, all this is in the realm of governments, not in the realm of the central bank.
QUESTION: My question concerns Greece again.
On the 29th, June 29th, the Greek parliament passed the legislation on updating the memorandum in order to pave the way for a new bailout and for the release of $12 billion of the previous package.
At that same time, there was some rather unpleasant sights right in front of the parliament. There was a -- there were pictures of police using tear gas against tens of thousands of demonstrators.
The question here is the -- are you sure that this -- these policies are politically sustainable, given the opposition we’re seeing in Greece and the potential opposition we’re now seeing in Portugal -- possibly in Portugal and Spain?
Is there concern on this question?
TRICHET: Yes. Response, it is up to the various authorities concerned to be up to their responsibilities.
If you have correction today, it is because they had been in the past, decisions which were taken, nominal evolution, which had been observed, loss of competitiveness and, of course, accumulation of deficits. All this has to be corrected.
It will be corrected. All this will be corrected. And it depends, of course, on the wisdom and the determination and the courage of all those who have responsibilities, that it is corrected in the best fashion possible.
Thank you. Thank you.
QUESTION: If I may ask my second question?
TRICHET: Thank you.
A second question?
QUESTION: I only asked one.
TRICHET: Yes, but there is no right to ask a lot of questions.
QUESTION: I can ask two questions?
TRICHET: You see, it is quite late.
TRICHET: Very concisely. Second question.
QUESTION: Just a follow-up to that.
QUESTION: There is a question of whether it can be politically sustained and what it would require to pass that.
TRICHET: It depends on the wisdom of all those who have the important decision to take.
Thank you very much.
I will take three last questions.
QUESTION: Next week, the stress test in the European banks will be published. What are you -- what do you expect from this stress test? And will you follow them? The results of this stress test?
TRICHET: We will follow, of course, the results of this stress test very, very carefully. The EBA is responsible. We have been, ourselves, associated with some assumptions that we have been giving.
I understand that normally the report should be published last week, in the last half of next week, and we will follow-up on that very, very carefully.
We had already a call, of course, for this being in the best, most professional fashion, possible. It’s very important. Very, very -- very important.
TRICHET: Yes. Well, first of all, we are waiting for the stress test and we expect that all observers and the market will trust them, of course. But we have confidence in the EBA.
QUESTION: Dan Visno (ph) from Flight Global (ph) in London. Centrally issued eurobonds, any change in your thinking on the usefulness or feasibility of such a device?
TRICHET: We have made a number of very strong suggestions, as regards reinforcement of governments, as I said. We have messages. I have to say that the governing council is not necessarily of the opinion that things could change in this domain.
You already asked a question.
QUESTION: Marka Pashenko (ph), Marketing Listen (ph) International.
Mr. Trichet, is it true, as reported in The Financial Times that you consider the French PSI plan to be more bother than it is worth? Thank you.
TRICHET: To be more?
TRICHET: I have never, never expressed any opinion on that.
It is the responsibility of those who are in charge.
QUESTION: I also had a very quick question.
TRICHET: Some have not asked questions yet. So -- no, I’m sorry. I’m sorry.
You have the last question, sir?
QUESTION: Gabriel Amore (ph).
TRICHET: I’m sorry.
JACK EWING, INTERNATIONAL HERALD TRIBUNE, NEW YORK TIMES: Thank you. Jack Ewing from The International Herald Tribune and New York Times.
I’m sorry to ask another Greece question, but I just want to be clear.
I just want to be clear.
Is there a point when you cannot accept Greek sovereign bonds as collateral?
And if that happens, what would you do to prevent the collapse of Greek banks? Or is that the responsibility of governments, as you alluded to before?
TRICHET: I already said what was our message, for those who are in charge. And our message was no credit event, no selective default, no default. That’s the message, the present message, of the governing council.
So the last -- absolute last one. No, those who have already asked questions, frankly speaking.
It would -- no, but it would be unfair.
No, sir, sir, sir.
QUESTION: I thank you very much, Mr. Trichet.
Two questions on Greece.
TRICHET: We should have a ...
QUESTION: Yes, you always say that credit events and selected defaults should be avoided. But I think these are two events, not unnecessarily, that come together. For example, international derivatives swap association says that the current plan could not be a credit event for a CDFS. But on the other hand, the rating agency says it could be a selective default.
So my question is, you can avoid a credit event. But you cannot a selective default.
Is it an acceptable situation for ECB?
And to the second question is that if the Greek bank can take money, not only from ECB, but also from their own central bank, by using imaginative liquidity assistance, if the Greek bonds are downgraded to selective default and ECB cannot take it as collateral, should the Greek Central Bank also follow the decision? And they should stop accepting the bonds?
TRICHET: I’m sorry. Because the response is very simple.
Our message is no credit event, no selective default, no default.
QUESTION: One second question.
TRICHET: It’s as simple as that.
QUESTION: One second question.
TRICHET: Oh, no.
QUESTION: ELA imagines (ph) ECB.
No comment. No comment.
We are not in this -- in this working assumption. We are not, on top of that, you said you will not obtain.
We are not the actors.
The governments and the authorities are the actors.
We said very clearly what was our message.
Thank you very much. I’m sorry, but time has elapsed.
I -- next time, could we agree that we concentrate all the first part on our monetary policy, which is much more, I would say, important than some of you are suspecting.
And then, of course, we have other issues.
Thank you very much indeed.
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