Public finances are in far better shape than earlier in the decade.
Despite lackluster economic growth in the region, the average ratio of government deficit to GDP was reduced by more than 3 percentage points between 1993 and 1997. This will require continued prudent macroeconomic policies combined with reforms aimed at making labor and product markets more flexible. Effective policy coordination will also be needed, because fiscal and structural policies will continue to be designed and implemented at the national level. The ESCB's mandate clearly gives priority to price stability, which has been defined by the ECB as inflation of less than 2 percent in the euro area as a whole. The emphasis on price stability is reinforced by the high degree of independence given to the ESCB and other provisions that insulate decision makers from political pressures.