FRANKFURT (MNI) – The following is the verbatim text of European
Central Bank President Jean-Claude Trichet’s introductory statement at
the Quarterly Hearing before the Committee on Economic and Monetary
Affairs of the European Parliament on Thursday:

It is a pleasure to be back in Parliament and your Committee for
our regular exchange of views.

Once again, our meeting comes at a time when important decisions
are being taken but also pending. Of particular concern is the
conclusion of the legislative procedure on the economic governance
package.

Je tiens tout dabord a saluer les efforts continus du Parlement
europeen et du Conseil afin de rapprocher leurs positions sur le paquet
de gouvernance economique. Le Conseil des Gouverneurs aurait souhaite
que le Conseil europeen du 24 Juin dernier fasse un geste d’ouverture
envers le Parlement europeen sur ce dossier. Le principal point de
desaccord l’extension de la majorite qualifiee inversee dans le volet
preventif du pacte de stabilite et de croissance est d’une importance
cle. La zone euro a urgemment besoin d’un cadre de gouvernance
economique renforce et ambitieux. La crise actuelle demontre, de maniere
irrefutable, s’il en etait encore besoin, les consequences nefastes de
politiques budgetaires et economiques malsaines.

Deshalb ist es unerlaesslich, zu einer ambitionierten Einigung zu
kommen. In der aktuellen Lage wre eine Einigung besonders
begruessenswert, um deutlich zu machen, dass die richtigen Lektionen aus
der Krise gezogen werden.

Let me now turn to the economic and monetary developments in the
euro area since our previous meeting in March, as well as the two topics
you have asked me to focus on, namely fiscal consolidation and monetary
policy on the one hand, and sovereign debt developments on the other. I.
Economic and Monetary Developments

ECONOMIC AND MONETARY DEVELOPMENTS

Let me first turn to the economic and monetary developments in the
euro area since our previous meeting in March. In this context, let me
also note that we are now in the purdah period, as the next Governing
Council meeting will take place on 7 July. This means that nothing in
what I will say is intended or should be interpreted in any respect in
terms of future monetary policy.

Incoming information since I last spoke to you has confirmed a
positive underlying momentum of economic activity in the euro area. We
expect the continued expansion of the world economy and domestic demand
from the private sector as the main driver of economic growth in the
euro area. The latest Eurosystem staff macroeconomic projections are in
line with this assessment. They foresee the economy to grow between 1.5%
and 2.3% for 2011 and between 0.6% and 2.8% for 2012. In our view, the
risks to this outlook remain broadly balanced in a context of elevated
uncertainty.

As regards price developments, we are observing continued upward
pressure on prices, especially in the earlier stages of the production
process. Inflation in the euro area stood at 2.7% in May, after 2.8% in
April. The inflation rates seen over the past few months largely reflect
higher energy and commodity prices. Going forward, inflation is likely
to stay clearly above 2% over the months ahead, mainly due to energy and
commodity prices. The Eurosystem staff projections indicate inflation
ranging between 2.5% and 2.7% for 2011, and between 1.1 and 2.3% for
2012. It is of paramount importance that the current relatively high
inflation rates do not translate into second-round effects, via higher
wages and price-setting, and thereby do not lead to broad-based
inflationary pressures.

Risks to the medium-term outlook for price developments continue to
be on the upside. Notably, energy prices could increase faster than
currently expected, and indirect taxes and administered prices might be
raised faster with a view to reducing budget deficits. In addition,
increasing capacity utilisation may exert stronger upward pressure on
domestic prices.

As regards our monetary analysis, we see the underlying pace of
monetary expansion gradually recovering. At the same time, monetary
liquidity remains ample. This has the potential to accommodate price
pressures.

As you are aware, we are strongly determined to secure that
inflation expectations remain firmly in line with our aim of keeping
inflation rates below, but close to, 2% over the medium term.

Against this background the Governing Council raised the key ECB
interest rates by 25 basis points in April, in order to adjust the very
accommodative monetary policy stance in the light of upside risks to
price stability. Since then we have kept the rates unchanged. At the
same time, as I said in the press conference after the last Governing
Council, we see the monetary policy stance as still accommodative and
risks to price stability on the upside. Accordingly, I said that we are
in a state of strong vigilance and that we stand ready to act in a firm
and timely manner to avoid that recent price developments give rise to
broad-based inflationary pressures over the medium term.

As regards our non-standard measures, the Governing Council earlier
this month decided to maintain its fixed rate tender procedures with
full allotment in its refinancing operations up to the third quarter of
2011.

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