sustained economic growth and low interest rates. it is important that we see a commitment from policymakers to ensuring the swift achievement of this aim or to going beyond the aims envisaged in these programmes once economic growth has picked up. the role of longer - term structural reforms the most important area where there is national flexibility is in relation to structural policies. indeed it is arguable that many of the important challenges which face euro area countries can only be addressed through national policies in this area. as the march 1998 convergence report of the european monetary institute already identified, there is an urgent need for lasting policy adjustments arising from : • high and persistent unemployment which is largely of a structural nature ; • demographic trends which are expected to place a heavy burden on future public expenditure ; and • the high levels of public debt, which will weigh on the current budgets of many member states until debt levels are reduced. to start with the first long - term economic issue, i now turn my attention to the contribution that structural reforms to euro area labour markets can make to reducing the very high level of european unemployment. as i have done in my comparison of the euro with the dollar, let us again contrast the developments in europe with those of the united states. in 1970 unemployment in the united states, at around 4 %, was actually significantly higher than in most european economies. since then, although there has been a marked variation in the us unemployment rate during the course of each economic cycle, there has been no apparent longterm trend, as the unemployment rate stood at 4. 4 % in january 1999. in contrast, average european unemployment has been on a steadily rising path. the unemployment rates in the united states and europe appeared to have broadly converged by the early 1980s, and since that time the unemployment rate in the united states has been below the eu average. even though the euro area unemployment rate fell last year, the january 1999 figure of 10. 6 % was more than double the corresponding us rate. looking at the latest unemployment rates around the euro area – which range from 2. 8 % in luxembourg ( january 1999 ) and 3. 6 % in the netherlands ( december 1998 ) to 17. 8 % in spain ( january 1999 ) – suggests that policies must be developed at the national level. what is needed appears to be national structural reforms to make sustainable reductions in unemployment rather than a boost to euro area aggregate demand. moreover, making labour markets more flexible can also make it easier to cope with short - term

- traded funds ( etfs ) and japan real estate investment trusts ( j - reits ), investors will increase their risk - taking, thereby exerting positive effects on prices of risk assets, and an increase in lending is also expected. these improvements in finance will support economic activity. qqe aims at giving rise to such a virtuous cycle of finance, economic activity, and prices, which in turn raises inflation rates toward 2 percent accompanied by a positive turnaround in the economy. the downward effects on real interest rates let me assess the outcome of qqe. first, i will review to what extent real interest rates have declined, which is the starting point of the transmission mechanism. long - term interest rates, which had already been at historical low levels at the time of the introduction of qqe, have declined further with the bank ’ s massive purchases of jgbs. yields on 10 - year jgbs have declined by about 0. 3 percentage point. meanwhile, inflation bis central bankers ’ speeches expectations have increased. when asked “ to what degree do you think prices will rise, ” i believe that you would feel differently now versus two years ago, and that your answer also would be different. the word “ deflation ” – or defure in japanese – has not been heard so much except in the context of “ overcoming of deflation. ” firms ’ price - and wage - setting behavior has been changing and rises in base pay, which had not been seen for more than a decade, have taken place in two consecutive years starting from last year. given these changes, there is no doubt that inflation expectations have increased. that said, when trying to express such expectations in terms of numeric figures, a single figure cannot be easily found because expectations are what exist in people ’ s minds. the results of surveys conducted of various economic entities including households, firms, and economists, in addition to figures implied by inflation - indexed bonds that are traded in markets, are wide ranging. with this in mind, medium - to long - term inflation expectations of economists and market participants, for which the results can be obtained in a numerical form, have increased by about 0. 5 percentage point. based on these figures, the degree of decline in real interest rates seems to have been slightly less than 1 percentage point, as calculated by adding the degree of decline in nominal long - term yields mentioned earlier ( chart 2 ). there are various methods for estimating the degree of