## Mr Duisenberg's opening statement at the press conference held on 7 January 1999
Introductory statement by the President of the European Central Bank, Dr W F Duisenberg, at t conference in Frankfurt on 7/1/99 (with transcript of questions and answers)
Ladies and gentlemen, the Vice-President and I are here today to report on the outcome of meeting of the Governing Council of the European Central Bank in Stage Three of Economic Monetary Union. For the first time, the Governing Council took decisions of an operational nat context of the single monetary policy.
On 1 January 1999 the euro was successfully launched. From that day onwards, the 'Eurosystem' is, the ECB and the eleven national central banks of the Member States that participate in the assumed responsibility for the conduct of monetary policy in the euro area with the primary ob maintaining price stability.
The Governing Council today expressed its satisfaction with the changeover to one integrated money market in the initial days. Money market interest rate differentials across count significant only in the first few hours of 4 January 1999, but narrowed quickly thereafter, in credit institutions were efficiently using arbitrage possibilities within the single money mark
As you will recall, the Governing Council of the ECB decided at its previous meeting that th established by the interest rates on the Eurosystem's standing facilities would, as a transiti be kept narrow. This was achieved by setting the marginal lending rate and the deposit rate at 2.75% respectively, for the period of 4-21 January 1999. We observed a relatively large rec credit institutions to these facilities in the first few days of Stage Three. To some exte surprising since the spread between the Eurosystem's marginal lending facility and the overnig market rate has been relatively small. As we noted after our last meeting, the measure of corridor is aimed at facilitating the transition to the new regime by market participants. Howe noted then that over a longer period of time, such a measure would hamper the development efficiently functioning euro area money market. We therefore confirm our intention to termi transitional measure following the next meeting of the Governing Council on 21 January 1999.
On 22 December 1998 the interest rate on the first main refinancing operation of the Eurosyste at 3.0%, with the intention to maintain this level for the foreseeable future. This first o Eurosystem was successfully settled today. The decision on the amount of liquidity allocat banking system (EUR 75 billion) is aimed at providing sufficient liquidity to allow credit ins aggregate, to neutralise their reserve deficit relatively soon within the first reserve mainte was taken on the basis of the liquidity conditions in the whole euro area money market, while attention to the uncertainties related to the phasing-in of the new system.
Let me now turn to the Governing Council's discussion on recent monetary, financial and ec developments and the decisions that the Governing Council has taken today in the field of policy.
At today's meeting, the Governing Council reviewed the latest data. The new pieces of informat not altered in any significant way the outlook for price developments. The Governing Council decided that for the main refinancing operations to be announced on 11 and 18 January 1999 t conditions will apply as for the first one, i.e. they will be fixed rate tenders conducted at of 3.0%. A separate press release was issued on these ECB interest rate decisions at 6.15pm tod
Furthermore, I should like to recall that the first longer-term refinancing operation will be 12 January 1999 and settled on 14 January 1999. It will be conducted as a variable rate tender single rate auction procedure.
Let me report in some more detail on the Governing Council's regular assessment of monetary, f and economic conditions, and thereby provide the explanations for our decisions of today.
On 30 December 1998 we released to the public the first of the monthly statements on recent m developments in the euro area. The 12-month growth rate of the broad monetary aggregate M3 dec from 5.0% in October to 4.5% in November 1998. The latest three-month moving average of M3 gro (September to November 1998) was approximately 4.7%. This result was similar to the value est for the three-month period of August to October 1998 (which was revised upwards from the fig 4.5% published on 14 December 1998) and remains very close to the reference value of 4.5% set Governing Council on 1 December 1998.
With respect to the broadly based outlook for price developments and risks to price stabilit market developments may be seen as indicating a favourable assessment of the recent monetary decisions of the Eurosystem, signalling that financial market participants expect the environme stability to continue. In this connection, I could mention the fall in long-term interest ra couple of days to new historical lows and also the downward shift of the yield curve.
No major news has come in on the outlook for the euro area economy since we last met. Henc continue to face uncertainties originating from the evolution of the world economy in 1999, reflected in a weakening of industrial confidence in the euro area over recent months. Also, real GDP growth in the third quarter weakened when compared with the first half of 1998. On t hand, consumer confidence remained high until late 1998. This mixed picture is also reflecte indicators. Order books and capacity utilisation point to a less optimistic outlook, while re the recent pattern in employment and unemployment suggest more favourable trends. In genera pattern of mixed evidence appears to characterise the economic situation in the euro area arou of the year and we shall continue to carefully monitor developments.
With respect to the latest data on the Harmonised Index of Consumer Prices, the annual incr November 1998 showed a further slowdown to 0.9%, compared with 1.0% in the two previous month This development was in line with previous trends, i.e. it was mainly due to lower annual p changes in the prices of food and a further reduction in energy prices. On balance, th environment continues to suggest that there is no significant upward or downward pressure on the short term. The pattern of risks to price stability has remained broadly unchanged. On th downward pressures could materialise if import or producer prices were to fall further, whi other, wage developments would become a matter of concern if wage increases were higher expected. In addition, any relaxation of fiscal policies would negatively affect the price clim the credibility of the Stability and Growth Pact.
In conclusion, taking into account the latest evidence available, the Governing Council has no assessment regarding the outlook for price developments. This is why, as I already mentio Governing Council decided that for the two forthcoming main refinancing operations the conditions will apply as for the first one, i.e. they will be fixed rate tenders conducted at of 3.0%. We also confirm our intention to maintain this rate for the foreseeable future.
I should now like to inform you about the Governing Council's review of the changeover to the e
First and foremost, I am happy to be in a position to report that, overall, the transition to the Eurosystem and the banking and financial industry has been accomplished to our satisfacti regard to the changeover weekend itself, the ECB informed you, by means of a first press relea in the evening of 3 January 1999, that there had been no reports of any incidents that w impaired the smooth start of the system. With regard to the first experiences of our operation let me focus in particular on the performance of the TARGET system.
Overall, during the first days of operation, the TARGET system has functioned well. TARGET contributed substantially to the integration of the euro money market and it has made pos
consolidation of the treasury management of institutions with different activity centres Europe. TARGET has handled more cross-border payments than anticipated in these early day Monetary Union and, in doing so, has demonstrated its processing capacities.
The problems which are being experienced in this initial period can be regarded as teething after all, it is completely normal for operators - both in commercial banks and at the central to need some time to adapt to the system and to the new euro environment. In this respect, noting that more than 5,000 credit institutions are currently participating directly in TARGET.
The value of cross-border transactions settled through TARGET already exceeded EUR 310 billi the second operating day and this figure does not yet include domestic RTGS transactions, themselves accounted for at least another EUR 660 billion. The total value of transactions s therefore almost EUR 1,000 billion.
In addition to the news concerning TARGET, the ECB also informed you, by means of a press relea 5 January 1999, that its first refinancing operation - announced on 4 January 1999 - was c successfully. Also here, the Governing Council obviously recognised that a learning process is way. The Governing Council will continue studying the best ways to adapt the liquidity provisi changing conditions of this initial period.
As a final point, as indicated at our press conference on 22 December 1998, the Governing Counc revisited the issue of front-loading euro banknotes and coins.
The Governing Council holds the view that front-loading of euro banknotes and coins to the public is excluded by Articles 10 and 11 of Council Regulation (EC) 974/98 on the introductio euro, since it would have the same effect as issuing or putting them into circulation.
However, front-loading of euro banknotes and coins is considered legally possible to credit i and security carriers as well as to other organisations (e.g. retailers and vending companies if, legal or contractual arrangements can be put in place in each national legal system in or that euro banknotes and coins will not be put into circulation prior to 1 January 2002.
We stand ready to answer any questions you may have.
## Transcript of questions asked and answers given by Dr Willem F Duisenberg, President of th ECB, and Christian Noyer, Vice-President of the ECB
Question: The teething problems that you mentioned for TARGET, can you describe what the m problems have been, even if they are teething problems, exactly what form they have taken?
Noyer: The main problems have not been technical ones, and they have not been problems link TARGET itself. They have been mainly problems linked to human factors, mainly in commercial ba The cause might also have been sometimes in the central banking system, but mainly in comm banks. Small errors made in addresses for payments or that sort of thing, so that the payme arrive at the exact time when it was deemed to be received by the receiver. That sort of pr know, developed in some cases, but - because of this - all problems identified have been rep relatively short time. This is why we are rather confident. Of course, issues may appear that yet discovered. But, for the time being, no failure or real difficulty in the system itself ha all problems which appeared so far to have been solved in a relatively short time.
Duisenberg: And I want to emphasise once again that for today there were no problems whats Simply the amount of payments to be handled was so enormously large and is growing so fast tha the larger banks in some countries which simply were not able to handle them in time.
Question: Mr President and Mr Vice-President, is the ECB aware of the fact that in several European commercial banks to exchange paper money at the counter now between two eurolan currencies is more expensive than before, significantly more expensive than before?
Duisenberg: I wasn't aware of that fact.
Question (translation): Mr Duisenberg, over the past few days there have been a whole range of government paper on the European capital market. How do you assess this wave of issuing acti there reason to fear an increase in interest rates at the long end and is there not a harmonisation of the issuing calendar in the 11 European countries?
Duisenberg: We have not discussed this today in the Governing Council, but on one thing - on rates - I would like to say that it is our impression that the way in which long-term inte particular, have developed over the last few days can be interpreted as an indication that expectations of the market remain very, very subdued indeed and that there are thus no expec the market of a change even in the longer term.
Noyer: If I may add something. I suppose that you are referring to some issuing that has taken week, particularly in Germany and France. But this was related to a calendar established well in both cases. On top of that, I know, we know, that Governments, Treasuries have discussed t sort of harmonisation of calendars. Harmonisation is perhaps not the proper word, but th exchanged their calendars of what they plan to issue, to avoid as far as possible having a lot the same day. So this process is going on, but for the total amount the President has just a there is no reason to think that there is any change.
Question: Mr Duisenberg, you stressed again the phrase: 'for the foreseeable future'. Could yo more explicitly what it means. Is it just a diplomatic phrase not to say that you want to say could this foreseeable future end on 21 January 1999?
Duisenberg: We do not put a horizon to our future that we can see. Contrary to you, I come fr flat country where we can always see the horizon which is very far there. So it certainly doe any date as you indicated that will be the end of our foreseeable future. As far as we can see no tendency which would force us to change interest rates in the future, as far as we can fores
Question (translation): President Duisenberg, the euro euphoria over the past few days must be to you, but is it not also reason for some concern because, in the long run, as you know, con currency is something that is difficult to build up. A second question: given that there is s what must policymakers do to ensure that such confidence is actually established?
Duisenberg: We as a central bank should continue to behave the way as we do, i.e. come up wi and transparent decisions which gain the credibility and gain the confidence that we indee successful in achieving our aim which is price stability over the medium term. What politics s also to continue to strive for a stability-oriented policy, particularly in the fiscal sphere gain the confidence of the people and thereby to firmly establish this idea of euphoria, so th an idea which is settled in the minds of the people. It will no longer be euphoria, but it will and credibility that we are after.
Question (translation): Mr Duisenberg, today there have been renewed calls for a stabili exchange rates from Mr Lafontaine in Brussels. Such calls have also been heard in Tokyo, and Mr has likewise again spoken out in its favour. A meeting of the G7 countries has been schedule place on 20 February in Bonn. Will you be participating in this meeting and what messag conviction will you express with respect to this issue?
Duisenberg: When I go to Bonn, and I will go, I will give the message to those who will listen we, as the central bank, are interested first and foremost in achieving our statutory aim, i.e
stability. The exchange rate for the central bank is not an explicit aim. It is one of the in look at, at its development, together with a broad range of other indicators in determining decisions. But then one cannot repeat often enough that the impact of the exchange rate on th European economy is much less than we were used to in the fragmented markets when we were eleven different markets with ten different exchange rate regimes. As you know, exports account 10-11% of the combined GDP and which makes the impact of exchange rate variations comparable those in the United States or Japan. So, most of all, we are interested in stable interna secondary, we are also interested in a stable exchange rate development. But that is the o policies rather than as the aim.
Question: Mr President, I have a further question on the same issue: the euro exchange rate po you inform us about any exchange rate interventions during the last days to support the eu dollar? And if you cannot inform us about that - for obvious reasons, I would like to ask if price stability revaluation would be needed, would you prefer to have this revaluation in the in the longer run, more gradually?
Duisenberg: I did not inform you about interventions, although I could easily mention a figure is zero, but then we do not have an exchange rate policy, we have a policy aimed at achiev stability and we do not have an explicit exchange rate policy or exchange rate aim vis-à-vis currencies. That's about all I can say about that.
Question: The euro has been not as strong as it has been in the first days. Are you happy tendency, that is the first question, and then the second question is similar to the one of th Americans have always been saying the dollar is our currency and it's your problem. Are you sa Europeans will say the same with the euro?
Duisenberg: I was happy when the euro took off with a very strong start. I was equally hap yesterday the euro came down again somewhat vis-à-vis the dollar in the direction of the va right at the start of the conversion, and I'm equally happy today that again the euro rebounde to a level, when we left the bank, of USD 1.1675. So I've been happy for three days already. of course, not be any neglect, neither malign neglect nor benign neglect, of the exchange exchange rate will be one of the indicators we closely watch in determining our monetary decisions, but only one of them.
Question: Mr Duisenberg, I just wanted to come back to these teething troubles. Well, what troubles? There has been reference to the TARGET system, but are these problems which encountered by the European monetary market as a whole, and could we say that, if more than E billion has to be covered on a single day by you, is that what you mean by teething troubles doesn't depend upon TARGET, if TARGET doesn't really have any problems, are there other probl which have been encountered or can you say, no, there aren't any other problems?
Duisenberg: Structural problems and the problems which Mr Noyer has just indicated, the proble there were mainly the result of human errors and sometimes human ignorance. The operational per at the various commercial banking institutions has to get used to the new techniques, even to new instructions to their computer, sometimes they make mistakes which they will learn to avo very near future, but which then cause hiccups in the smooth process of transferring these larg from one country to another. So far it looks like there are no systemic problems with T TARGET is functioning extremely well. To be quite honest, the teething problems, or birth p whatever you may want to call them, were rather smaller than we had thought at some moment tha might emerge. We regard it as quite normal that there are these problems. If you suddenly swit a real-time gross settlement cross-border payment system which, as I indicated, already within turns out to be the largest in the world encompassing more than 5,000 credit institutions, it that there may be some ripples in the water sometimes but that'll settle down.
Question: There is one additional question on TARGET: Which consequences does it have, this c down later? Can you quantify it, that it brings additional costs to the banks, and how much?
Duisenberg: No, on the contrary, it is more or less the result of the banks, the banks' eagern to make more and more transfers even on this day, and they asked for that only in their own can assure you, this does not create more costs.
Question: My question is quite similar to the one before, but I'd like to have your opinion abo control system that the German and Japanese governments suggest. What can you do to control rates when you have the big power now?
Duisenberg: Well, what I can do is a lot, but what I want to do is nothing. It's as simple as the same question was put to Mr Greenspan a few weeks ago when we had this exchange here Frankfurt, and Greenspan said, it's simply not feasible at the moment. Well, I'm inclined carefully to what he says, and then to have a similar opinion.
Question: I'd just like to talk to you about gold reserves. The ECB said it will readjust th gold reserves on its books each quarter, and I think it has also decided to keep about 15% of reserves in gold. If there was a major change in the price of gold on the world market, that would be likely to change, and so I would like to ask you if that means that the ECB would b gold in order to keep its proportion of reserves at that percenrage amount.
## Duisenberg: Christian, you're the gold man!
Noyer: No, there is no such conclusion to draw, because it was not a decision to hold 15% o exchange reserves in gold, as a structural decision of the Governing Council. The decisio Governing Council at the time was that in the initial transfer 15% would be made of gold, but consequence on the structure of foreign exchange reserve to develop in the future, nor h consequence on the total percentage of gold holdings of the system, including the reserves that the balance sheet of national central banks, and we know that in some cases they have more t gold, and in some cases they have less, but they are for the moment and for the foreseeab keeping the proportion they have.
Duisenberg: And in this case, the foreseeable future is much longer than in the earlier case.
Question: Mr Duisenberg, the fact that the euro has got off to such a good start is to som expression of confidence in you and can we expect you to stay for eight years?
Duisenberg: This is for the first time that I give the answer which I announced I would give al December 1998, that is 'no comment'.
Question: Concerning TARGET, you spoke about human errors in dealing with this, and I would li know if you can be more specific about in which countries did these errors happen, in what euroland did they happen. And the second question is, the fact that there were human errors, do that the people were not prepared enough, that the technology didn't take into account t possibilities?
Duisenberg: No, it means very different things. In all countries, errors were being made, but a minor nature, and I mean people also have the right to make errors. They were of a minor na during two days it so happened that use was made of a rule that any single central bank can a the closing time of the payment system for an extension of opening time by one hour. Now this e in fact was asked for the first day and the second day. On the third day, yesterday, it was n yesterday everything already operated, I would not say normally, but at least within the limit again there was a request to extend it by half an hour, due not, in this case, to any faults system or the participating institutions but due to the enormous amount of payments that stil
processed in order to be able to be processed within this single day. And the causes, well, t was simply making errors in the techniques, in some cases, also we think that the number of engaged with executing these payments is not sufficient to handle this enormous amount of paym it is developing. In a way today for example, as the experts at the bank said to me, what happ that TARGET is a victim of its own success.
Question: In October/November, several people - you, Mr Tietmeyer - were talking about a scope rates, and in fact we did have the coordinated rate cut on 3 December. Now you are saying rat hold for the foreseeable future. Does that indicate that we no longer have an easing bias neutral bias as far as rates are concerned?
Duisenberg: Effectively, there has been a considerable easing in the course of last year to th the average three-months rate have in the course of last year gone down by slightly more than points, and one third of that easing has happened in the last month, in December. And for now would agree with you that there is no bias any longer in either direction.
Question: One more time about the exchange rate: There are, in the market at least, expectatio euro will get at least moderately stronger in the near future. Do you have the same kind of e or do you see this level that we now have that it will stay so in the foreseeable future?
Duisenberg: If I had expectations, I wouldn't tell you. Sorry, but when you talk to a central exchange rates, always expect either no answer or expect a lie.
Question: Of course, journalists aren't as well informed as you and there are some important that we didn't ask at the start of the year, so maybe you could help us now?
Duisenberg: I think you have asked everything which was important.