Willem F Duisenberg: Presentation of the ECB’s Annual Report 2001 to the European Parliament Introductory statement by Dr Willem F Duisenberg, President of the European Central Bank, to the European Parliament, Strasbourg, 2 July 2002 *  *  *  Six months ago we witnessed a milestone in European history: the launch of “the euro, our money”, in its visible form. European citizens are now able to perceive - and benefit from - the tangible reality of the euro, and the rapid substitution of legacy currencies at the beginning of this year bears witness to the successful launch of the euro banknotes and coins. The year 2001 provided a particularly challenging environment for the monetary policy of the ECB. The worsening economic outlook was accompanied by short-term upward pressures on prices from various sources, which complicated the conduct of monetary policy. This task was made more difficult by the extreme uncertainty which followed the terrorist attacks in the United States on 11 September. As usual, the monetary policy response of the ECB to such a situation had to look beyond short-term developments, focusing on the risks to price stability over the medium term. From this perspective, we could see that medium-term inflationary pressures were in fact receding. The ECB took account of this by reducing interest rates four times in 2001, by a total of 150 basis points.
In addition, the decline in the growth of loans to the private sector has come to a halt and credit demand has recently strengthened. These developments need to be closely monitored, as they may start to point to upward risks to price stability, in particular during a period of economic recovery. BIS Review 40/2002  1  Overall, the outlook for price stability is now less benign than it was in November 2001, when we last adjusted the key ECB interest rates. Inflation has so far declined less steeply and less rapidly than we expected at the turn of the year. This has been partly due to the temporary factors I mentioned before, and to the renewed increase in oil prices in the first quarter of 2002. At the current juncture, even though the appreciation of the exchange rate of the euro will contribute to easing inflationary pressures, we will continue to closely monitor all relevant developments, against the background of the risk that the deviations from price stability, which followed the exceptional clustering of upward shocks on inflation over the past couple of years, may be transmitted into longer-term inflation expectations, thereby potentially affecting wage and price-setting behaviour. In order to maintain price stability, it is crucial that wage moderation prevails in the future. In this respect, we are concerned about recent trends in wages. The importance of wage developments in line with our definition of price stability cannot be overemphasised.