ultimately implying lower medium and long - term interest rates, fostering investment. • fifth, price stability provides markets with an indispensable nominal anchor for adjusting changes in wages consistently with productivity growth. • sixth, price stability prevents the considerable and arbitrary redistribution of wealth and income that arises in inflationary as well as in deflationary environments. in this regard, price stability is a vital element of fostering sustainable growth as well as of supporting employment and social cohesion, thus supporting the lisbon process in achieving its objectives. moreover, as price stability helps to guide economic agents in their decisions to move production factors towards more efficient uses it should help structural reforms to exploit their welfare - enhancing benefits. as an additional aspect, within an environment of stable prices, a decline in relative prices in some sectors resulting from structural reforms would become more visible, supporting acceptance of such reforms. price stability is thus the most important contribution of monetary policy to the lisbon process. “... the governing council believes that the potential upward impact on trend output growth from structural reforms and technological innovation could be large. however, while some progress has been made in the field of structural reform, significant further steps - especially in the labour and goods markets - need to be taken in order to achieve a permanent and significant increase in potential output growth in the euro area. against this background, the governing council will continue to monitor the evidence with regard to developments in productivity growth in the euro area, and the ecb ’ s monetary policy will take such evidence into account as appropriate. ”. see ecb press release from 6 december 2001. empirical estimations show that even rather low rates of inflation can lead to welfare losses that might be larger than usually thought. a study for the us, for example, indicates that a permanent increase in the inflation rate from 0 % to 4 % can lead to permanent output losses ranging from 0. 4 - 1. 1 %. 7 there are, however, several arguments that support basing a definition of price stability on positive but low inflation rates. the ecb has thus provided a quantitative definition of price stability, namely a year - on - year increase in the hicp for the euro area as a whole of below 2 % to be maintained over the medium term. looking back, over the last five years, despite significant exogenous shocks the ecb ’ s stability - oriented monetary policy following this definition has resulted over the medium term in low and stable inflation. and it has ensured that medium and

55 - 64 would have to substantially exceed its annual average of 1. 7 % between 1996 and 2002 to achieve the employment target for older workers of 50 % by 2010. making the lisbon agenda a success therefore requires particular efforts in the field of labour market reform to open up additional employment opportunities. at the same time, further structural reforms need to increase the prerequisites for innovation, research and development, particularly by providing educational attainment levels adequate for labour market needs. furthermore, a continuation of reforms in capital markets, a removal of barriers to competition particularly in the service sector as well as further liberalisation in electricity, postal services and transport as envisaged in the lisbon agenda is needed. i would like to conclude this part of my speech with three remarks : first, trust in the course of structural reform as fostered by the lisbon agenda and a better understanding of the economic benefits structural reforms entail are conducive to raising consumer confidence and private consumption. it is thus indispensible to maintain trust in this course, and to keep commitments also in periods with slower growth. second, numeric targets seem to me currently the central measure to benchmark progress with structural reforms. as numeric targets increase necessary pressure for underperforming countries, it should be considered to strengthen this instrument. third, as we all know, the implementation of changes in long - grown relationships is always a difficult task. when asked for their willingness for reform in general, a large part of the population would probably signal a high degree of approval. but as soon as a concrete measure would harm the personal status - quo, only a minority would agree. the main challenge for the lisbon agenda ’ s success is thus to persuade the people of the long - term benefits of structural reform and to remove the scepticism with respect to short - term costs. in this regard, also the ecb plays its part in its communication on the benefits of structural reforms. 3. the impact of structural reforms on the conduct of monetary policy let me now turn to the discussion of the implications that the implementation of the lisbon agenda may have for the conduct of monetary policy in the euro area. the ecb has always stressed the importance of a swift implementation of structural reform agendas across the euro area. this reflects above all the firm belief that structural reforms enhance the welfare of the european citizens. but structural reforms also tend to facilitate monetary policy and increase its effectiveness. a more flexible economic environment helps the labour and product markets