Реферат: Европейская денежная система

 Both the reasoning in the Maastricht Treaty and many economic analyses show that the best contribution the single monetary policy can make to employment growth is to concentrate on price stability. Without such a clear approach there is a danger that the public may question the commitment of the Eurosystem to the goal of maintaining price stability. Inflation expectations, risk premia and thus long-term rates would rise. This would increase the cost of the investment which is necessary for a sustained and lasting rise in the standard of living.

 Even under the best possible circumstances, though - i.e. if it proves to be possible to assure lasting price stability - monetary policy alone cannot solve the major economic problems of unemployment and future problems in social security systems.

 The Governing Council regards the current high level of unemployment in the euro area as a matter of great concern. This problem is, however, predominantly a structural one. It is mainly the result of the rigidities in the labour and goods markets in the euro area which have arisen partly through an excessive and disproportionate degree of regulation. Structural economic reforms, which target the reduction of rigidities, are the appropriate solution. In those euro area countries in which such reforms have been implemented unemployment figures have declined markedly. In addition, I should like to emphasise that moderate wage developments and a reduction in the burden of tax and social security contributions would generally help to reduce unemployment. This would be the case even if the country concerned did not trade heavily with its neighbouring countries. The positive influence of low taxes and wages on employment clearly has overall benefits from an international perspective. Such a policy should not be denounced as "wage dumping".

 Turning to the role of exchange rates between the euro and other important currencies outside the EU, in particular the US dollar, the Eurosystem has, in formulating its monetary policy strategy, made an unambiguous choice. This strategy clearly rules out explicit or implicit objectives or target zones for the euro exchange rate. The pursuit of an exchange rate objective could easily jeopardise the maintenance of the objective of price stability and could thereby also be detrimental to real economic development. Target zones for exchange rates could, for example, lead to the ECB having to raise interest rates in a recession, despite increasing downward pressure on prices. I am sure you will agree that such a mechanistic response to a change in the euro exchange rate would not be optimal. Furthermore, it is important to remember that we are living in a world with high capital mobility. Exchange rate agreements, which might have been possible to implement until recently, are no longer feasible.

 The lack of an exchange rate target does not mean that the ECB is totally indifferent to or takes no account of the euro exchange rate. On the contrary, the exchange rate will be observed and analysed as a potentially important monetary policy indicator in the context of the broadly based assessment of the outlook for price developments. A stability-oriented monetary and fiscal policy, as stipulated by the Maastricht Treaty and the Stability and Growth Pact, is an essential pre-condition for a stable euro exchange rate. Of course, there is no guarantee of lasting exchange rate stability, not even in a fixed exchange rate regime. Exchange rate fluctuations are often caused by structural or fiscal policy, asymmetric real shocks or conjunctural differences. Monetary policy would clearly be overburdened if it had to prevent such movements in the exchange rate.

 We cannot and shall not gear our monetary policy towards a single variable, whether a money supply aggregate, an index, the exchange rate or an inflation forecast for a particular point in time. Nor can we be involved in any ex ante co-ordination which would entail an obligation to react to particular commitments or plans. The ECB will always carefully analyse all relevant indicators. In this context, it is particularly important that the economic causes of potential risks to price stability in the euro area are understood as fully as possible. Appropriate monetary policy decisions also depend upon the causes of unexpected changes in important economic variables. The Governing Council must, for example, take a view on whether changes in important indicators are of a temporary or permanent nature, and whether a demand or supply shock is involved. In our deliberations we also attempt to take into account how the financial markets, consumers and firms are expected to react to monetary policy decisions. I believe few would contest that such a complex analysis cannot meaningfully be reduced to a more or less mechanistic reaction to a few variables or a single official forecast.

 In addition, concern was often expressed that the Eurosystem would not act transparently enough. In this context, it was said that a transparent monetary policy also necessitated the publication of the minutes of the meetings of the Governing Council and disclosure of the voting behaviour of the individual members of the Council.

 For sound reasons the Governing Council decided not to adopt this approach. The publication of individual positions could easily lead to national influence being exerted over the individual Council members. The members of the Governing Council must not, however, be seen as national representatives. They decide together on the monetary policy for the euro area as a whole. The Governing Council has committed itself to go beyond the reporting and explanatory requirements laid down in the Treaty, which are among the most comprehensive requirements by international standards.

 On the basis of our strategy, after every first meeting in the month I deliver to the press a detailed explanation of our assessment of the overall economic situation and, in particular, the outlook for price stability. The content of this so-called "introductory statement" is very close to what other central banks refer to as minutes. In this way, the public receives comprehensive information immediately following the meetings of the Governing Council. In addition, each month we shall publish a detailed report on the economic situation and monetary policy throughout the euro area in our Bulletin. Such rapid information on the results of the meetings of the Governing Council and the current economic analysis of the ECB without doubt demonstrates a high degree of openness and transparency.

The most recent monetary policy decisions and operations

 Co-operation between the European central banks was always very close. In the last few months of 1998 the countries participating in the third stage of Monetary Union co-operated more and more closely. The co-ordinated reduction in leading rates at the beginning of December 1998 clearly showed that the currency union had begun de facto before the start of Stage Three. This co-ordinated measure contributed substantially - as we now know - to the stabilisation of market expectations.

 For more than five weeks the ECB has been conducting monetary policy operations, mainly in the form of reverse open market operations. The main operation will be carried out at a weekly frequency with a maturity of two weeks. So far, five such operations have been conducted successfully, at a fixed interest rate of 3%.

 Besides the reverse transactions which constitute the main instrument for liquidity control and targeting interest rates, the Eurosystem offers two "standing" facilities: the marginal lending facility and the deposit facility. These can be accessed by credit institutions via the national central banks. The marginal lending facility is primarily a safety valve for short-term liquidity shortages in the banking system and thereby limits upward movements in money market rates. To some extent, its counterpart is the short-term deposit facility, which is used to absorb short-term liquidity surpluses. This forms the lower limit for money market rates. For the start of Monetary Union the interest rate on the deposit facility was set at 2% and the rate on the marginal lending facility was set at 4.5%.

 As a transitional measure, the Governing Council decided to establish a narrow corridor of 2.75-3.25% between the rates on the marginal lending facility and the deposit facility from 4 to 21 January 1999. The intention was to facilitate the necessary adjustment to the new institutional environment brought about by the transition to Stage Three. As already announced, on 21 January 1999 it was decided to return to the rates on the two "standing" facilities that were set for the start of the single monetary policy. Since 22 January 1999, therefore, the rate on the deposit facility has been 2% and the rate on the marginal lending facility has been 4.5%.

 A critical factor in this decision was the behaviour of the money market for the euro area as a whole since the beginning of the year. The Governing Council established that over time there had been a marked reduction in the difficulties experienced by some market participants with the introduction of the integrated money market and, in particular, with cross-border liquidity flows. All in all, the integration of the money market in the euro area reached a satisfactory stage only three weeks after its implementation. In analysing the money market it should be noted that, inter alia, there can be a marked difference between ECB interest rates and short-term market rates. On the one hand, market rates may include credit risk premia, and on the other, expectations may lead to differences between the two rates.

 At its meeting last Thursday the Governing Council confirmed its earlier assessment of the outlook for price stability. Therefore it was decided to leave the conditions for the next main refinancing operations, on 10 and 17 February 1999, unchanged. They will be carried out as volume tenders at a fixed rate of 3%, the same conditions as the last such monetary policy operations.

 In addition, in recent weeks the first longer-term open market operations were also conducted, in the form of reverse transactions. These were carried out on 14 January 1999 in three parallel tender procedures with maturities of one, two and three months. The fixed rate tender procedure was used. By contrast with the regular main refinancing operations, the Eurosystem does not use these longer-term operations to send signals to the market and therefore usually acts as a price-taker. The ECB thus gives advance indication of the planned allocation. The interest rates which arise from these monetary policy operations should therefore be seen as indicators of prevailing market conditions.

Regular assessment of the monetary, financial and economic situation

 To conclude, I should like briefly to report on the Governing Council’s current assessment of the monetary, financial and economic situation. On the basis of these assessments the Governing Council decided last Tuesday to leave interest rates unchanged.

 Taking into account the latest monetary data for December 1998, the three-month moving average of the 12-month growth rate of the monetary aggregate M3 (for the period from October to December 1998) remained more or less stable at 4.7%. This value is very close to the reference value set by the Governing Council. According to our analysis, the evolution of the money supply shows no risks to price stability. Credit to the private sector also grew strongly in December last year. Although at present we do not perceive any inflationary signals, further developments will be very carefully monitored.

 With regard to the broadly based assessment of the outlook for price developments and the risks to price stability in the euro area, monetary and financial developments can be seen to indicate a favourable assessment of the latest monetary policy decisions of the Eurosystem. They indicate that market participants expect a continuation of the environment of price stability. Long-term rates fell to new historical lows at the beginning of 1999 and there was an overall downward shift in the yield curve. Therefore, financing conditions for investment are currently exceptionally favourable.

 At present the growth prospects for the euro area are, however, still marked by the uncertainties relating to the development of the world economy in 1999. These uncertainties have had a negative impact on indicators of the economic climate in the euro area. There are widespread expectations of an economic slowdown in the near future. This deterioration in the external economic environment can be linked, above all, to the financial crises in Asia, Russia and Latin America. However, there is a mixed picture. While the growth rate for industrial production fell up to November 1998, retail sales figures and consumer confidence have recently shown positive trends. Furthermore, growth in real gross domestic product in the euro area was relatively robust in the third quarter of 1998. In the United States real growth in the fourth quarter actually turned out higher than expected. Measured against the Harmonised Index of Consumer Prices, the HICP, consumer prices in the euro area rose by 0.8% in December 1998. This is a tenth of a percentage point lower than in November. This development is in line with earlier trends. It can be linked, in particular, to a further decline in energy prices and a weakening in price increases in industrial goods.

 All in all, the above-mentioned economic development and the available forecasts for 1999 do not indicate any noticeable upward or downward pressure on prices. Potential upward risks could arise from a change in the external global economic situation and any associated effects on the euro area, via import and producer prices. These developments must be carefully monitored. There is concern that inflationary pressure might develop in the event of a strong increase in wage prices and an easing of fiscal policy. Developments in the exchange rate will also be closely monitored in view of their significance for price developments.

 Finally, let me emphasise that the current level of real interest rates is exceptionally low. If real interest rates are taken simply as the difference between nominal rates and the current increase in consumer prices (HICP), short-term real interest rates in January 1999 stood at 2.3%, i.e. around 80 basis points lower than one year ago. Long-term real rates have fallen even more, by 110 basis points, and stood at 3% in January. These levels are very low, both compared with other countries and with historical data. In line with the safe-guarding of price stability, the current monetary and financial conditions thus clearly support future economic growth. Monetary policy can do no more than this without jeopardising the great overall economic advantages of price stability and its own credibility.

 Real structural reforms which increase the flexibility of the labour markets, as well as a continuation of the moderate increase in wage prices, would not only ease the burden on monetary policy but would also support employment growth. This will be all the more true if the deterioration in the economic situation this year is worse than expected owing to the negative aspects of the external economic environment.

The statistical requirements of the ESCB

Speech delivered by Eugenio Domingo Solans,

Member of the Executive Board of the European Central Bank

on the occasion of a visit to the Banque Centrale du Luxembourg

Luxembourg, 25 March 1999

 The booklet introducing statistical requirements for Stage Three, which the EMI published in July 1996, began with the bold statement: "Nothing is more important for the conduct of monetary policy than good statistics." These challenging words show the importance which the EMI attached to this area of preparations for Monetary Union, and I must say this has been fully justified by our experience in the first few weeks of the life of the euro.

The statement of requirements

 But let me start back in 1996. Because of the time it takes to implement statistical changes in reporting institutions and central banks, a statement of prospective statistical requirements could be delayed no longer. But that statement had to be made with very imperfect knowledge. Nobody knew at that stage (for example) what definitions of monetary aggregates would be chosen for the single currency area, or what their role would be. Given the differences in financial structures in our countries, it was not clear how to identify the financial institutions from whose liabilities the money stock would be compiled. It was decided to define them in functional terms, and in such a way that money-market funds as well as banks of the traditional type would be included. It was not clear at that stage whether minimum reserves would be applied, and, if they were, what form they would take - although it had been decided that the banking statistics data would provide the basis for any such system. Implementation had to start quickly for the statistics to be ready in time for a Monetary Union starting in 1999, but no one knew which Member States would adopt the single currency - though it was clear that the distinction between business inside and outside the euro area, would be of critical importance for monetary and balance of payments statistics, and would have to be planned for in statistical systems.

 In mentioning monetary and balance of payments statistics, I do not want to suggest that the statistical requirements set out in 1996 were confined to these areas. On the contrary, they covered a wide range of financial and economic data, including financial accounts, prices and costs - relating directly to the ESCB's main responsibility under the Treaty, namely to maintain price stability - government finance data, national accounts, labour market statistics, production and trade data and other conjunctural statistics, and more besides. These areas are, or course, under Eurostat's responsibility.

The focus on the euro area as a whole

 In formulating and implementing statistical requirements, it was important to realise that the ESCB's attention would have to focus on the euro area as a whole. Monetary policy cannot discriminate among different areas of the Monetary Union - although in practice it may have different effects because of different national economic and financial structures. Focus on the area as a whole has important implications. The data must be sufficiently comparable for sensible aggregation; they must also be available to a comparable timeliness and to the same frequency. In some cases (monetary and balance of payments statistics) they had to be available in a form permitting appropriate consolidation. In short, with a few exceptions, it was realised that adding together existing national data would not be adequate. Important initiatives were already under way, such as the adoption of a new European System of Accounts [ESA95] and the implementation at national level of a new IMF Balance of Payments Manual. However, wide-ranging statistical preparations would be necessary for the ECB to have the sort of statistical information that the national central banks have traditionally used in conducting monetary policy.

How far the provision meets the current need

 I arrived at the ECB about 2 years after these requirements had been released and 7 months before the start of Monetary Union. I must confess that I doubted many times in those early weeks whether statistics could be ready in time to sustain monetary policy decisions. There were anxious moments too in the late stages of finalising the monetary policy strategy: would the requirements set out in 1996 correspond to the need perceived in autumn 1998?

 I am now sure that the decisions made in 1996 were correct. In practice, one choice in autumn 1998 was almost automatic: thanks to the work of Eurostat and the national statistical offices in the context of the convergence criteria (with active involvement of the EMI), there was no plausible rival to the Harmonised Index of Consumer Prices (HICP) for the purpose of defining price stability. I am aware that national consumer price indices are sometimes criticised for overstating inflation, because they take insufficient account of quality improvements and use outdated weights. While further development of the HICP is to come, and at present there is no satisfactory treatment of expenditure on housing, I believe that every effort has been made to apply the lessons from experience with national consumer price measures. The other choices for statistical elements in the strategy were less obvious. In fact the banking statistics reporting structure announced in 1996 proved able to provide the monetary aggregates and the counterpart analysis required, and - with a little fine-tuning - to meet the needs of a statistical basis for reserve requirements, details of which were also finalised in the autumn. We were thus able to begin publishing monetary statistics only a few days after the final decisions were taken (at the Council meeting on 1 December), and were able to publish with some estimation last month back data on the three monetary aggregates monthly to 1980, and a note urging caution on users of the earlier data.

 However, the monetary strategy avoids putting too much weight on one area or type of information. This is only partly for statistical reasons. The formation of the euro area is a substantial structural change, which may in time affect monetary and financial relationships. So the ECB also examines a range of economic data for the light they shed on the assessment of the economic situation and, in particular, prospects for inflation. The editorial and economic developments sections of the Monetary Bulletin show the way the ECB draws on this information; the statistical information itself is set out in tables in the statistical section. Thus, in addition to money and credit and the HICP, the editorial typically touches on GDP, industrial output, capacity utilisation, orders, the labour market, business and consumer confidence, costs and prices other than the HICP, earnings and wage settlements, fiscal positions - naturally placing the emphasis on what are judged to be the most important developments at the time. All these areas were covered by the statement of requirements made in 1996.

 I do not need to say that, at present, an accurate assessment of the economic situation in the euro area is of vital importance. The editorial section of the March Bulletin concludes that the overall outlook for price stability remains favourable, with no major risk that HICP inflation will exceed 2% in the near future, but there is nevertheless a balance of conflicting influences. To reach this judgement, the Bulletin assesses the latest GDP data (slower growth in the provisional Eurostat figures for GDP in the 4th quarter of 1998; declining manufacturing output), the labour market (unemployment falling slightly; some signs of rising pay settlements), and confidence indicated by opinion surveys (business confidence weak; the consumer mood rather optimistic). The economic developments section supports the overall conclusion, and analyses in more detail price and cost developments and of output, demand and the labour market. It concludes with analysis of the fiscal position in the euro area in 1998, and a preview based on fiscal plans for 1999. I am drawing your attention to this to show the variety of material supporting the ECB's assessment of the economic and financial position and prospects. Although we pay particular attention to certain items - the monetary statistics, with an emphasis this time on influences contributing to recent faster growth, and to the rather rapid growth of credit, and the HICP - we draw on a wide range of information in a continuous monitoring exercise. The establishment of an institution responsible for monetary policy in the euro area has caused a fundamental change in the use of macroeconomic statistics at European level, very much as anticipated by the Implementation Package nearly 3 years ago.

Priorities for further improvement of statistics

 I would like to take this opportunity to thank Eurostat for their efforts to improve the quality and comparability of economic statistics relating to the euro area, and to deliver them to the ECB on a timely manner. They have given this high priority and much progress has been made in the last year or so. Further improvement will come with the introduction of the new European System of Accounts [ESA95] starting next month (although we must expect some temporary confusion following the introduction of a new system). Experience suggests that substantial statistical changes initially bring classification problems. Although, of course, provision has been made for back data to be available on the closest possible approximation to the new basis, we must also expect some discontinuity in important series. Implementation of last year's short-term Statistics Regulation will bring improvements across a wide range of conjunctural statistics not covered by ESA95. There are also initiatives to improve labour market statistics. With Eurostat, who are responsible for all these areas of statistics at European level, we do our best in the ECB to promote better data. Perhaps I should underline our support here for the priorities established last year by a working group of the Monetary Committee (the current Economic and Financial Committee), in which Yves Franchet and two of my ECB colleagues participated (Peter Bull and Gert Jan Hogeweg): in addition to quarterly GDP and short-term conjunctural statistics, these were government finance statistics, data relating to the labour market (including labour costs), and the balance of payments. At present the lack of comparable national statistics during the course of the year makes it difficult to monitor the fiscal stance in the area as a whole, and so to assess the balance of fiscal and monetary policy. Better labour market statistics are important, not only for the ECB's assessment of possible inflationary pressure, but also to improve understanding of the structure of labour markets in our countries, and the rigidities which impede the achievement of fuller employment. Balance of payments statistics - a shared responsibility of the ECB and Eurostat at European level - require a new approach in compiling data for the euro area as a whole. We intend to publish the first monthly data for the euro area following the new methodology next month, and to begin joint publication of a quarterly euro-area balance of payments with Eurostat in the summer. But there are deeper questions about future needs for balance of payments statistics in the new circumstances which are currently being addressed. Principally, the question arises of the usefulness for policy purposes of national balance of payments statistics for Member States participating in Monetary Union. There is no question, of course, that certain data in this area are needed within the ESA95 framework of national and financial accounts.

The organisational, legal and technical infrastructure

 I have talked mainly about statistical requirements and their provision, but this is only part of the story. The Treaty (specifically in Article 5 of the Statute of the ESCB and the ECB) clearly envisaged that the ECB would perform statistical functions, assisted by and in co-operation with national central banks, other national authorities, the Commission (meaning in this context in particular Eurostat), and international organisations. A large part of the preparatory work carried out by the EMI consisted of sorting out who would do what, avoiding so far as possible duplication, wasted effort and conflicting data, and keeping the whole development consistent with international statistical conventions. Much of this had to be framed in legal instruments, which would complete the statutory framework provided by the Treaty and the ESCB/ECB Statute. Although work on an EU Council Regulation concerning ECB statistics began as early as 1996, the Regulation could not be finalised until last autumn and the ECB could not adopt legal instruments on statistics in advance of that event - much work in this area therefore had to be done at the last minute.

 Information Technology is another of my responsibilities at the ECB. I am glad to say that essential elements of our data transfer and statistical processing systems were in place when I arrived, or brought into operation soon afterwards. But here, too, there is room for further improvement - the EMI and the ECB in these early months have had so much to do in relation to the resources available that, broadly speaking, only the essentials have been provided so far.

Conclusion

 "Nothing is more important for monetary policy than good statistics." The formation of Monetary Union has shifted the focus of interest on to data covering the euro area as a whole. This has required substantial changes to statistics, which need time to settle down and are some way short of completion. At the same time, the adoption of the single currency is itself a massive structural change. This will surely affect economic and financial relationships and make any data harder to interpret, although these deeper effects may occur over a period and take some time to become apparent. What is clear, however, is that the ECB must take policy decisions and explain them publicly in terms of the data available relating to its policy responsibility. What we continue to strive to do, through our own efforts and with the help of Eurostat, is to improve the quality of the data underlying policy decisions, which are so important in gaining public understanding and acceptance for them.

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The tasks and limitations of monetary policy

Speech delivered by Christian Noyer

Vice-President of the European Central Bank,

at the Volkswirtschaftliche Tagung of the Oesterreichische

Nationalbank,

on 10 June 1999 in Vienna

Ladies and Gentlemen,

 It is a pleasure for me to be here in Vienna today and I should like to start by thanking the conference organisers for giving me the opportunity to elaborate on the tasks and limitations of monetary policy.

 This topic is extremely important. Looking back over the history of economic thought, it is clear that the perception of what monetary policy can do and what it cannot or should not do has changed. This has clearly shaped the role of monetary policy in economic policy. In the 1960s economic theories suggested a long-run trade-off between inflation and output. These theories provided the intellectual basis for policy-makers to pursue monetary policies biased towards higher inflation. The high inflation experience of the 1970s together with new theoretical findings, especially on the role of expectations, led policy-makers to move towards lowering and stabilising inflation.

 Theoretical considerations as well as empirical evidence over several decades suggest that high rates of inflation are clearly unhelpful - indeed detrimental - to growth and employment in the long term. A large number of economic arguments point to the benefits of price stability for economic growth and employment prospects. Stable prices eliminate economic costs such as those arising from unnecessary uncertainty about the outcome of investment decisions, the distortionary effects on the tax system, rising risk premia in long-term interest rates and the reduced allocative effectiveness of the price and market systems. To quote Alan Greenspan, chairman of the United States Federal Reserve, "Price stability is achieved when the public no longer takes account of actual or prospective inflation in its decision-making." Monetary policy must take into account the fact that the horizon for decisions by economic agents is rather long-term in nature. By guaranteeing price stability, monetary policy supports the efficient functioning of the price mechanism, which is conducive to the allocation of scarce resources. Price stability is a means of promoting sustainable economic growth and employment creation and of improving productivity levels and living standards.

 Against this background, the predominant view has emerged that the best and most lasting contribution that monetary policy can make to long-term economic welfare in the broader sense is that of safeguarding price stability. Central banks throughout the world have been moving towards adopting long-term price stability as their primary goal.

 In order to achieve this goal most successfully, independence from political interference and a clear legal mandate for price stability are of the utmost importance. A lack of central bank independence and an ambiguous mandate can easily force central banks to focus on the short term and, thus, fail to adopt the forward-looking, medium-term orientation that is crucial for a successful monetary strategy.

 All these issues were taken into consideration by policy-makers when drafting the Treaty establishing the European Community and designing the blueprint for the European Central Bank. Both central bank independence and an unequivocal commitment to price stability are therefore tenets of the monetary policy framework enshrined in the Treaty. There can be no doubt that the European Central Bank (ECB) is determined and well-equipped to tackle its main task, namely, that of maintaining price stability in the euro area over the medium term. It will thereby make a significant contribution to the achievement of other Community objectives such as high employment and sustainable non-inflationary growth. In this connection, the pursuit of sound macroeconomic policies by the EU Member States would considerably facilitate the task of the ECB. The room for manoeuvre in monetary policy and the degree of success in terms of maintaining price stability are crucially dependent on the support of sound fiscal policies and responsible wage settlements in the euro area.

 The Treaty establishing the European Community states that the primary objective of the European System of Central Banks (ESCB) is to maintain price stability. Without prejudice to this objective, the ESCB shall support the general economic policies in the European Community. It shall operate in a manner that is consistent with the establishment of free and competitive markets. The Treaty states explicitly how the ESCB shall set its priorities. Price stability is the first goal of the monetary policy of the Eurosystem, and a contribution to the achievement of the other objectives of the European Community can only be made if this primary objective is not compromised. However, there is ultimately no incompatibility between maintaining price stability and pursuing these other objectives. By maintaining price stability, the ECB will also contribute to the achievement of other Community objectives.

 Of course, the ECB is concerned about the intolerably high level of unemployment in Europe, but we should realise that the role of monetary policy in reducing unemployment in Europe can only be very limited. Many empirical studies show that the high unemployment rate is mostly the consequence of structural rigidities within the European labour and product markets. The European unemployment rate has, indeed, been high and stable over the business cycles in the past decade. Only structural reforms, preferably of a comprehensive nature, can therefore tackle the underlying impediments to employment growth.

 The monetary policy of the Eurosystem is geared towards the euro area as a whole and, thus, cannot take into account purely national and regional developments. The cyclical positions of participating countries have not yet completely converged, although, with the single currency in place, some national differences may disappear over time. This requires national policies and labour and goods markets to be increasingly flexible in order to be able to respond effectively to economic shocks. Well-functioning labour and product markets are therefore needed to allow adjustments to wages and prices to be made if local economic conditions change.

 Budgetary policies play a major role in conditioning monetary policy. National fiscal authorities have to demonstrate their commitment to the maintenance of price stability in the euro area over the medium term. In this context, the Stability and Growth Pact is a crucial element. Its aim is to encourage the pursuit of disciplined and sustainable fiscal policies by the participating EU Member States and the prospective members. Sound public finances, with lower public debt and tax burdens, contribute to a lowering of long-term interest rates, reduce uncertainty and increase private capital formation. They not only facilitate the task of monetary policy with regard to the maintenance of price stability, but also strengthen the conditions for sustainable growth conducive to employment creation. Conversely, unsound fiscal policies tend to increase inflation expectations and force monetary policy to keep short-term rates higher than would otherwise be necessary.

 The single monetary policy has to be conducted independently of the short-term political considerations of national governments. In this context, the ECB cannot commit itself to move its interest rates in a certain way in response to specific actions or plans of other policy-makers. Monetary policy has to take into account the overall economic situation to assess the risks to price stability. Direct ex ante co-ordination with fiscal authorities might endanger meeting the primary objective and would set the wrong incentives for the conduct of sound macroeconomic policies. This does not, of course, exclude a constructive dialogue between the Eurosystem and government authorities which clearly respects the independence of the ECB.

 When dealing with one of the major world currencies and with the currency of one of the two main world economies, it is inconceivable that price stability might be maintained by setting an exchange rate target as an intermediate objective. However, external developments including the exchange rate are taken into account in accordance with our strategy, as they may have an impact on domestic economic developments and thereby on price stability. Referring to recent exchange rate developments in this context, it is appropriate for me to quote the President of the ECB, Dr. W. F. Duisenberg, who recently said that "the euro is a currency firmly based on internal price stability, and therefore has a clear potential for a stronger external value".

 The absence of exchange rate targets for the euro vis-а-vis other major currencies should not be misunderstood. For smaller, very open economies, fixed exchange rates may be a very reasonable choice. The Austrian example is one of the most prominent in this respect. By pegging the Austrian schilling to the Deutsche mark for over twenty years, it proved possible to import credibility and price stability. The increasingly close pegging of the Austrian currency to the currency of its main trading partner was, among other features of the Austrian policy mix, the driving force behind the economic convergence process in the run-up to Stage Three of Economic and Monetary Union (EMU). The credibility of the Austrian exchange rate target was also underpinned by an income policy aiming at relatively high real wage flexibility and a fiscal policy geared towards consolidation. All in all, the Austrian model, which set out to guarantee stability in nominal and real terms, has turned out to be very successful.

 The example given by past Austrian experience is, I believe, very valuable. It shows that the achievement of sustainable convergence with the euro area can be assisted by means of an exchange rate target. The new Exchange Rate Mechanism of the European Union, ERM II, may play a similar role for those current and prospective EU Member States which have not yet joined Stage Three of EMU.

 The achievement of price stability is also of high importance for the stability of the financial system. The financial system of the euro area showed a high degree of stability during last year's period of financial turbulence as well as during the rather dramatic structural shift connected to the changeover to the euro. At the ECB, we play our part in the evolution of the euro area financial system by providing it with stable monetary conditions. By creating an environment of price stability, we allow private sector agents to focus their attention on the questions that are most relevant to their activities and to take advantage of benefits of this stable environment, such as the lengthening of their planning horizons. There is a lot of empirical evidence that safeguarding price stability is the optimal contribution that a central bank can make to the maintenance of financial stability and that those two goals are actually complementary.

 I should like to conclude by saying that the main contribution of the single monetary policy to the welfare of the people in the euro area will be the maintenance of price stability in the medium term. The ECB is determined to tackle this task and is well-equipped to do so. Our conviction is that the economic performance of the euro area will benefit significantly from price stability. This will ultimately facilitate the achievement of those objectives, which underlie the general economic policies of the European Community and the individual governments at the national level. However, the economic problems in the euro area cannot be tackled by monetary policy alone. We have to be realistic about the goals which can be achieved by monetary policy. Neglecting the limitations of monetary policy and promising too much could, in the long term, be detrimental to the establishment of a stability culture in Europe, and could also lead to delays in implementing the economic reforms that are crucial to achieving high growth and employment.

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