Willem F Duisenberg: The transformation of the European financial system Welcome speech by Dr Willem F Duisenberg, President of the European Central Bank, at the Second ECB Central Banking Conference, 24-25 October 2002, Frankfurt am Main, 24 October 2002. *  *  *  Ladies and Gentlemen, I am pleased to welcome you to Frankfurt, to the second ECB Central Banking Conference, entitled "The transformation of the European Financial System". This event is the largest and most important open ECB conference and is held every two years. The first ECB Central Banking Conference took place in November 2000. It focused on price stability, which is the ECB's primary objective, and that of many other central banks worldwide. It was a successful event, and I am convinced that this year's conference will be too. Indeed, looking around, I am happy to see that this second conference has evidently aroused much interest and attracted researchers from leading institutions, officials from most of the major central banks, from ministries of finance, various European and international bodies and the media. In view of this year's topic, we also decided to invite representatives from commercial financial institutions and from supervisory authorities. I should like to extend a special welcome to the representatives of the central banks of the countries that are negotiating to join the European Union; these negotiations will hopefully be concluded fairly soon. I should, of course, also like to thank the speakers, discussants, panellists and chairpersons of the sessions.
Regarding inflation, the Board estimates that the risks are unbiased. The updating of structural parameters has a significant degree of uncertainty, particularly due to the macroeconomic effects of immigration. On the one hand, it is possible that the absorption of immigrants into the labor force is associated with a productivity fall that is more persistent, causing a lower potential growth in the projection horizon, a narrowing of the activity Page 7 of 18  gap and, therefore, higher inflationary pressures. On the other hand, it can happen that the increase in the labor supply occur with greater intensity, which would push up potential GDP growth, widen the activity gap, and reduce pressures on wages and prices. It should also be considered that the negative balance of external risks has exchange-rate effects that could raise short-term inflation beyond our current estimate (Table 5). Summing up, the evaluation of the macroeconomic scenario and its outlook, which include the updating of the structural parameters and the recent evolution of the economy, pointed to the need to recalibrate the monetary impulse. Consistent with this, we decided to cut 50 basis points off the MPR, taking it to 2.5%, in our Meeting of last Friday. We estimate that, by keeping this rate until we see clear signs of an upturn in inflation, it will be possible to ensure the convergence of inflation to the target, in a scenario where the capacity for long-term growth is strengthened by the immigrants’ contribution.