While the risk of a pronounced slowdown of the US economy, with negative repercussions on the world economy, cannot be ruled out, such a scenario appears unlikely at present. However, a major challenge for the US authorities over the next few months is engineering a “soft landing” of the US economy. The Japanese economy now shows clearer signs that the protracted weakness of the last few years could come to an end. An economic consolidation and a resumption of capital flows to crisis-hit emerging market economies, especially in Asia, also contribute to this favourable outlook. Against this positive background, the challenge now is to ensure that the current recovery in the euro area becomes a period of prolonged non-inflationary and employment-generating growth. I will  1  BIS Review 116/1999  elaborate on the possible contribution of the ECB and the Eurosystem, but also on the limitations thereof, pointing to the necessary contributions of other policymakers. Looking back at the past ten months, I would like to recall that the introduction of the euro took place in an environment of price stability that only few observers would have predicted some years ago. This was the result of a process of economic convergence, in the course of which European inflation rates were reduced significantly. This development is very encouraging, since theoretical arguments and empirical evidence over several decades suggest that high and variable rates of inflation are detrimental to growth and employment in the long term.

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 is that of safeguarding price stability. Therefore, 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 independence and an ambiguous mandate can easily force central banks to focus on the short term, and thus to fail to adopt the forward-looking, medium-term orientation that is crucial for a successful monetary strategy. These aspects were taken into consideration by policymakers when drafting the Maastricht Treaty. The mandate to maintain price stability cannot be seen in isolation. The Treaty assigns other tasks to the Eurosystem. Article 105 requires that the Eurosystem “without prejudice to the objective of price stability … shall support the general economic policies in the Community, with a view to contributing to the achievement of the objectives of the Community.” These Community objectives include “sustainable and non-inflationary growth” and “a high level of employment”. But, given the qualification “without prejudice”, the Treaty also clearly states how the Eurosystem shall set its priorities. A contribution to the achievement of the other objectives of the European Community can only be made if the Eurosystem’s primary objective is not compromised. However, there is ultimately no incompatibility between maintaining price stability and pursuing these other objectives at Community level.