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.

It is by maintaining price stability that the ECB will contribute to the achievement of growth and employment creation. Of course, this contribution is a necessary, but not the sole pre-condition. A central bank can set monetary conditions in a way that helps the economy to grow at its potential. Even if this condition is met, monetary policy is not enough to reduce significantly the high level of unemployment in Europe. This high level of unemployment reflects mainly structural rigidities within the European labour and product markets. This is confirmed by the fact that the European unemployment rate has remained high and broadly stable over business cycles in the past decade. Only comprehensive structural reform can therefore remove the underlying impediments to higher employment. In particular, further reforms of the tax and welfare systems are required in many EU countries in order to increase the incentives to create new jobs and to accept them. Wage moderation can also have a significant beneficial impact. National governments bear the main responsibility for structural reform designed to enhance market flexibility. I recognise that these reforms may imply difficult political decisions, especially since necessary changes are felt directly, whereas the benefits only become apparent over time. The success, however, of past structural reforms is already visible in those countries where appropriate measures have been implemented and wage growth has been moderate.