FRANKFURT (MNI) – The following is the second part of a verbatim
text of the introductory statement by European Central Bank President
Jean-Claude Trichet at his press conference following today’s monthly
monetary policy meeting of the ECB’s Governing Council:
The reduction in the size of banks overall balance sheets appears
to have come to a halt in the early months of 2010. However, the
challenge remains for them to manage possible further adjustments while
at the same time ensuring the availability of credit to the
non-financial sector. To address this challenge, banks should use the
improved funding conditions to strengthen their capital bases further,
and, where necessary, take full advantage of government support measures
for recapitalisation.
To sum up, the current key ECB interest rates remain appropriate.
Taking into account all the information and analyses that have become
available since our meeting on 4 March 2010, price developments are
expected to remain moderate over the policy-relevant horizon. The latest
information has also confirmed that the economic recovery in the euro
area continued in the early months of 2010. Overall, the Governing
Council expects the euro area economy to expand at a moderate pace in
2010, in an environment of uncertainty, with the growth pattern possibly
being uneven owing to a number of special factors. A cross-check of the
outcome of the economic analysis with that of the monetary analysis
confirms the assessment of low inflationary pressures over the medium
term. All in all, we expect price stability to be maintained over the
medium term, thereby supporting the purchasing power of euro area
households. Inflation expectations remain firmly anchored in line with
the Governing Councils aim of keeping inflation rates below, but close
to, 2% over the medium term. We will continue to monitor very closely
all developments over the period ahead.
As regards fiscal policies, it is now essential that governments
reduce budget imbalances and correct excessive deficits by the agreed
deadlines. In a number of euro area countries, fiscal consolidation will
start this year and in all others corrective measures will need to be in
place by 2011 at the latest. Fiscal consolidation will need to exceed
substantially the annual structural adjustment of 0.5% of GDP set as a
minimum requirement by the Stability and Growth Pact, and there is a
need to fully define and implement credible fiscal adjustment
strategies. This requires determined efforts, notably on the part of
countries with high government deficit and debt-to-GDP ratios, not least
in view of the expected rising budgetary costs associated with an ageing
population. A strong focus on expenditure reforms is needed. The
Governing Council welcomes the statement on Greece made by the Heads of
State and Government of the euro area countries on 25 March. We fully
support the intention to strengthen surveillance of economic and
budgetary risks and the instruments for their prevention as well as the
excessive deficit procedure. We also welcome the decision to work on a
robust crisis resolution framework. Progress in these fields should aim
to support the sustainability of public finances and promote the smooth
functioning of EMU.
Regarding structural reforms, the agreements reached at the
European Council on 25 and 26 March on the Europe 2020 strategy should
help to reinforce job creation, competitiveness and sustainable growth.
To this end, policies should now focus on increasing competition, while
sectoral support schemes implemented during the crisis should be phased
out. In labour markets, sufficient wage flexibility and a reinforcement
of incentives to work are required, in order to avoid higher structural
unemployment over the coming years. In the same vein, an appropriate
restructuring of the banking sector remains essential. Sound balance
sheets, effective risk management and transparent, robust business
models are key to strengthening banks resilience to shocks and to
ensuring adequate access to finance, thereby laying the foundations for
sustainable growth and financial stability.
Regarding our collateral framework, the Governing Council has
decided to keep the minimum credit threshold for marketable and
non-marketable assets in the Eurosystem collateral framework at
investment-grade level (i.e. BBB-/Baa3) beyond the end of 2010, except
in the case of asset-backed securities (ABSs). In addition, the
Governing Council has decided to apply, as of 1 January 2011, a schedule
of graduated valuation haircuts to the assets rated in the BBB+ to BBB-
range (or equivalent). This graduated haircut schedule will replace the
uniform haircut add-on of 5% that is currently applied to these assets.
The detailed haircut schedule will be based on a number of parameters
which are specified in the press release to be published after todays
press conference.
We are now at your disposal for questions.
[TOPICS: M$$EC$,M$X$$$,M$$CR$,MT$$$$]