anchor for fiscal policy. after the adoption of inflation targets in 1991, short - term inflation expectations came down quickly. but longterm expectations adjusted much more slowly, for a couple of reasons. it took some time for the bank to earn its credibility. but more importantly, the federal government also needed to address its fiscal problems. indeed, the bank of canada found that it could not be as accommodative as it wanted to be in its monetary policy during the first half of the 1990s because of the difficult fiscal position at that time. but by the middle of the 1990s, the government committed to ending a series of budget deficits and to putting canada ’ s public debt - to - gdp ratio on a sustainable, downward track. with that commitment, canada finally had anchors for both its monetary and fiscal policies. this now allows us to gear monetary policy more directly to our domestic economic conditions. the other point i want to make is that with these two policy anchors in place, the floating exchange rate can work more effectively for the canadian economy. it performs a very important function by helping the economy adjust to changing conditions. movements in the exchange rate send appropriate signals to businesses and consumers, helping the economy to adjust to changing circumstances. to take a recent example, when there is increasing world demand for canadian goods and services, this tends to lead to a stronger canadian dollar. the stronger dollar, in turn, tends to restrain exports and to encourage imports. in doing so, the floating exchange rate helps to maintain a balance between total supply and demand in the economy and that helps keep inflation under control. this process also works in reverse. the point i want to emphasize here is that with these policy anchors in place, a floating exchange rate can be a tremendous asset for an economy by helping to keep total supply and demand in balance. conclusion in closing, let me say again that canada has been a pioneer both in having a floating exchange rate and in operating with inflation targets. as a consequence, we have a lot of experience that may be of use to others who are contemplating changes to their monetary policy framework. canada ’ s long experience with flexible exchange rates has been very favourable, and a floating exchange rate continues to be a key part of our monetary policy framework. but our experience has also taught us that a flexible exchange rate on its own is not enough. a country also needs a domestic anchor for its monetary policy. after trying a number of different approaches, we have now settled on a monetary policy

everything and thus about nothing ” ; “ every body [ was ] responsible and thus no one ”. and there was a need for more ‘ naming, shaming [ but also ] famin ” ’. in view of these problems, the european heads of state or government clarified their position earlier this year. first, as regards the lack of focus resulting from the plethora of objectives and targets, they made it clear that the focus of the strategy is now on growth and employment. growth and employment are indeed the key to our future prosperity and the sustainability of our social model. second, regarding the insufficiently clear commitment, the heads of state or government also clearly set out the responsibilities of the european and the national level. since the member states are responsible for most of the policy reforms required for achieving the lisbon objectives, they have now been called upon to take full national ownership of the strategy. countries have been asked to spell out how they will turn european commitments into real action at home in so - called national reform programmes, which are discussed with their national parliaments and social partners. let us hope that this increased national ownership will be instrumental in beefing up the commitment to reform. as for the third difficulty – namely the lack of incentives at the european level to stimulate reforms, it remains to be seen to what extent ‘ naming, shaming, and faming ’ will be strengthened. some people have argued that the commission should not assume the role of a schoolmaster faming good and naming bad pupils, and should instead play more a role of the coach. however, i would suggest that benchmarking member states ’ performance can indeed provide incentives for reform and thus shore 3 / 4 up the commitment to reform. obviously, it can also be useful for a coach to compare his team with other, better performing teams and to identify the best and most appropriate role models. is it wrong to look at how ireland implemented well focused structural reforms to achieve such a leap in gdp per capita? should we ignore how finland succeeded in raising its employment rate by 7 percentage points in 10 years? and outside the euro area but following exactly the same monetary policy, does not denmark present a remarkable example of a good functioning labour market in a social environment which has similarities with a number of european continental economies? the european union can also contribute in a direct way to the lisbon goals. most importantly, the benefits from the internal market in terms of growth and employment are still to be fully exploited. today, the greatest une