ECB President calls for 'flexible wages' to ensure competitiveness

At today’s meeting in Frankfurt, the Governing Council of the ECB has also decided to keep the interest rates on the marginal lending facility and the deposit facility unchanged at 1.75% and 0.25% respectively.

This was the sixteenth consecutive month that the ECB was keeping the interest rates unchanged

Addressing journalists after the meeting, ECB President Jean-Claude Trichet  warned that in order to support the process of fiscal consolidation, to underpin the proper functioning of the euro area and to strengthen the prospects for higher sustainable growth, “the pursuit of far-reaching structural reforms is essential”.

Major reforms “are particularly needed in those countries that have experienced competitiveness losses in the past or that are suffering from high fiscal and external deficits,” the ECB President insisted.

 Measures should ensure “a wage bargaining process that allows wages to adjust flexibly and appropriately to the unemployment situation and losses in competitiveness” he warned.

Moreover, reforms to strengthen productivity growth would “further support the adjustment process of these economies,” Trichet insisted..

Trichet  told journalists that considering all the new information and analyses which had become available since our meeting on 5 August 2010, “we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures”.

Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors.

Trichet explained how looking ahead, the recovery “should proceed at a moderate pace, with uncertainty still prevailing.

“Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth,” he added.

The ECB expects price stability “to be maintained over the medium term, thereby supporting the purchasing power of euro area households,” Trichet said.

Inflation expectations remained “firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term”, the ECB President explained.

“The firm anchoring of inflation expectations remains of the essence,” he warned.

Turning to monetary policy, the ECB President explained how the current monetary policy stance adopted by the bank remained “accommodative. “Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term,” he insisted.

“This is the necessary and central contribution that monetary policy makes to fostering sustainable economic growth, job creation and financial stability,” Trichet added.

Trichet explained how all the non-standard measures taken during the period of acute financial market tensions, referred to as enhanced credit support and the Securities Markets Programme, were “fully consistent with our mandate” and, by construction, “temporary in nature”. “We remain firmly committed to maintaining price stability over the medium to longer term,” he insisted.