recent experience and in comparison to most plausible recent estimates of the sustainable rate of unemployment. the evidence suggests, moreover, that the official unemployment rate of 5. 7 percent understates to some extent the true amount of slack in the labor market. notably, to a greater degree than in past cycles, discouraged job seekers have been withdrawing from the labor market rather than reporting themselves as unemployed. according to the household survey, the labor force participation rate has actually declined significantly since the official trough of the cycle, from 66. 7 percent of the working - age population in november 2001 to 65. 9 percent in march 2004. 4 from its peak last june, the unemployment rate has fallen by 0. 6 percentage point, from 6. 3 percent to 5. 7 percent. however, during the same period, the labor force participation rate also fell by 0. 6 percentage point, from 66. 5 percent to its current value of 65. 9 percent. the net result is that the employment - to - population ratio has barely changed since the middle of last year. thus even the household survey, its relatively more encouraging job - creation numbers notwithstanding, paints a picture of ongoing softness in the labor market. so long as the labor market is weak, the economic recovery will be incomplete. indeed, by reducing confidence and spending, a failure of the labor market to improve could conceivably threaten the sustainability of the expansion. one way to see the extent of the slack in the labor market, as measured even by the household survey, is to ask how much job creation would be needed to bring the unemployment rate down further. underlying the household survey's employment calculations is an estimate that the adult non - institutional population grew in march by 193, 000 people. if the population grows by the same absolute amount in april and the labor force participation rate remains unchanged at 65. 9 percent, the labor force will grow by about 127, 000 during the month. to keep the unemployment rate at 5. 7 percent in april, then, household employment ( as opposed to payroll employment ) would have to grow by 120, 000 jobs. to reduce the unemployment rate under these assumptions, of course, more than 120, 000 net new jobs would be needed. the standard calculation i just presented was based on the assumption that the rate of labor force participation does not change, an assumption that may not be valid during a cyclical recovery in the labor market. if people perceive a significant improvement in the job market, new job seekers may

price pressure, the 2 / 9 bis central bankers'speeches eurosystem could come under political pressure to make high levels of debt sustainable through low interest rates. this, however, would put price stability at risk. against this backdrop, it is essential that the eurosystem is independent. after all, history has shown that independent central banks are better able to safeguard price stability than dependent central banks. this is also one of the key findings enshrined in the economic literature of the 1970s and 1980s. to quote the words of otmar issing, former ecb chief economist : “ central bank independence is indispensable if monetary policy makers are to be expected to pursue the primary objective of a central bank to maintain price stability and to do everything in their power to achieve this. ” 1on the other hand, independence does not give a central bank carte blanche to do as it pleases ; it obligates the central bank to interpret its monetary policy mandate narrowly, meaning to maintain price stability. this is because central banks ’ independence in monetary policy matters is not a self - evident feature of a sovereign democracy given that other areas of economic policy are subject to parliamentary control. monetary policy has to avoid the markets ’ perception that the central bank is only willing to counter downward pressure on financial markets with an accommodative policy stance but refrains from tightening the reins in times of higher price stability risks due to the fear of triggering market turbulences. the so - called “ greenspan put ” illustrates the moral hazard that can come of such an asymmetrical approach. in extremis, monetary policy can even be held hostage by fiscal policy or the financial markets. at the same time, it is a matter of fact that the success of central banks in fulfilling their mandate also depends on factors they cannot control. sound public finances are only one precondition ; prudent measures to generate growth and to foster the stability of the european monetary union are other examples. 3 politics and the economic setting 3. 1 creating prosperity ladies and gentlemen contrary to what some believe – or might wish – it is not the responsibility of central banks to ensure sufficient growth and economic convergence : it is the responsibility of the member states. or to put it metaphorically : it ’ s not enough for a car to have a tank full of “ liquidity ” if you want to speed up. someone still has to rev up the engine. financing costs in the euro area are exceedingly low