TEXT-ECB's Jean-Claude Trichet interview with European papers

Jean-Claude Trichet, the president of the European Central Bank, gave an interview last Friday to The Irish Times and three other leading European papers, Le Figaro, Frankfurter Allgemeine Zeitung and Jornal de Negocios.

The interview, carried out in the ECB headquarters in Frankfurt, covered the bank's position on inflation, money policy and interest rates.

The ECB president also addressed the wider global credit crisis, the role played by hedge funds, and the fallout from Ireland's No vote on the Lisbon Treaty referendum.

Below are excerpts from a transcript of the interview published on the website of the Irish Times.

For the full transcript of the text, please go to: here 606.html Q: Could you outline how you see the euro economy evolving over the short run and the implications for euro interest rates? A: I always said - on behalf of the (ECB) governing council - that in order to have clear indications on what the euro area economy has been doing in the last months, we should take together the first and second quarter of 2008. Whilst the first quarter was very dynamic, due to particular circumstances including the weather and its impact on construction in Germany for instance, the second quarter is likely to be weak. Our base-line scenario is that we will have a trough in the profile of growth in the euro area in the second and third quarters of this year and, following this, a progressive return to ongoing moderate growth. I have also said clearly that the risks for growth were on the downside. Amongst these risks are the influence of the ongoing very significant financial market correction, the possible further increases in oil and commodity prices, and the possible unwinding of global financial imbalances. As regards interest rates, I have nothing to add or to withdraw from what I said before on behalf of the governing council - that we trust that our decision to raise our key interest rate from 4.0 percent to 4.25 percent will contribute to achieving price stability in the medium term in line with our definition. I also mentioned that we had no further indication for our future interest rates, that we are never pre-committed and that we will do in the future what is appropriate to deliver price stability in the medium term and to be credible in doing so, since this is essential to anchoring inflation expectations. INFLATION Q: Central Banks, including the ECB, have been responsible for a lot of monetary growth in the recent past. To what extent are central banks to blame for the present inflation, in the euro area and elsewhere? A: In the euro area we have certainly not been loose or lax! I trust that the ECB did well and took the right decisions in the past. Let me give you an example: you know that when we decided to increase the rate in December 2005, we were advised by the IMF not to increase rates; we were advised by the OECD not to increase rates; we were advised by a number of other eloquent voices not to increase rates. We did it nonetheless, because our monetary analysis in particular strongly suggested that we should. Today nobody suggests that we were wrong in our analysis and in our decision - on the contrary. Q: Inflation in the United States is now about 4 percent. Would you say that the risks to price stability are now greater in the euro area than in the U.S.? A: I certainly will not judge the policies that are pursued by other central banks. We all have our own responsibilities in our economies and we have to face different challenges: the shocks are not of the same nature and the same amplitude; the economies themselves exhibit different structural features, including as regards their degree of flexibility. Those different challenges are explaining why interest rates are different from country to country. Do you know that interest rates in Britain as well as in Australia, New Zealand, Sweden and Norway, for example, are higher than in the euro area? I trust that all central banks are doing what is necessary to counter inflationary pressures and to be credible in the delivery of price stability over time. To deliver price stability in the medium term is necessary for five reasons: first, it is what the European democracies have asked us to do when they created the ECB; second, it is what our fellow citizens are asking us to do in the present circumstances; third, it is particularly necessary for the most vulnerable and the poorest segment of society; fourth, it is a necessary precondition for sustainable growth and job creation; and fifth, it is particularly important to solidly anchor inflation expectations in a period of financial market tensions and volatility. Q: Why did the recent statement by the governing council lay so much emphasis on the need to suppress second-round effects in order to quell inflationary expectations? A: Indeed, our message is that we should avoid second-round effects. We cannot change today the prices of oil and commodities. But we must avoid that prices that depend on us - for instance prices of services or the wages and salaries - would augment abnormally as if the present abnormal level of inflation would last. We are there to tell households as well as enterprises, all social partners, that we will maintain price stability - less than 2 percent, close to 2 percent - in the medium term and that they have to take that into account when they are fixing their own prices. Q: What do you mean by second-round effects? A: I mean all the price increases that would be wrongly based on the hypothesis that the inflation would remain as high as it is today in the years to come. Today price setters and social partners must take into account that we will be back to price stability - in line with our definition - say, over 18 months.