central banks to be more accountable to the public. an independent central banks is not a state within a state and, in a democracy, it needs to explain its monetary policy. by explaining its decisions in an understandable way, it strengthens public confidence in its ability to fulfil its task of ensuring price stability. this trust is the most valuable asset that a central bank has. second, communication can also make monetary policy. if people are economically active – whether as an entrepreneur, employee, consumer or however – they act in a forward - looking way. they form expectations and can influence central banks via communication. or, as american economist michael woodford put it : “ because the key decision - makers in an economy are forward - looking, central banks affect the economy as much through their influence on expectations as through any direct, mechanical effects of central bank trading in the market for overnight cash. ” 1 in this context, the impact of monetary policy relies even less on short - term money market rates and much more on expectations regarding the future course of key interest rates and, above all, long - term interest rates. the entrepreneurs and banks among you will be able to confirm that decisions regarding savings and investments do not depend on three - month money market rates, but on five - year or ten - year interest rates. however, monetary policy normally only affects them indirectly. 2 / 9 bis central bankers'speeches so, communication serves to steer expectations, and the better expectations are steered in line with the monetary policy mandate, the better the central bank will stabilise aggregate demand and therefore price developments, too. 2 but how do central banks steer monetary policy expectations today? announcing an inflation target plays a key role, as this leads to stability gains. 3 it helps to anchor economic agents ’ inflation expectations, which pays off in the form lower inflation volatility, amongst other things. in this respect, it is no coincidence that the expansion of central banks ’ communication was accompanied by the emergence of an inflation targeting strategy. even before the introduction of the euro, the ecb governing council had already published and then refined a quantitative definition of price stability. however, the communication activities of the ecb and the national central banks in the euro area went above and beyond that from the start. alongside the arguments of accountability and steering expectations, the fact that the ecb, as a new institution, did not yet have a reputation in monetary policy also played a role. understandable communication was used as a way

investment conditions. the government ’ s plan for a reform of business taxation now aims to give relief to enterprises and thus create conditions that are more favourable to growth via the supply side. this reorientation is being accompanied by a further two - stage reduction in income tax in 2003 and 2005 which also covers the top rates. in 2005, the top rate of income tax would then be 45 % compared with 51 % at present. the cdu / csu parliamentary group in the bundestag would like to put through a reduction in the top rate of tax to 35 % by 2003. the government ’ s planned tax reform will result in a substantial tax relief for enterprises in net terms as well, especially as a result of the sharp reduction in the corporate tax rate to a uniform level of 25 %. at present, the corporate tax rates are 40 % on retained profits and 30 % on distributed profits. the tax cut will strengthen germany ’ s attraction as an industrial location. the planned tax exemption of corporations ’ profits from the sale of equity stakes will facilitate corporate restructuring. germany is likely to become more attractive as a location for holding companies. in all, the tax plans are an important and welcome beginning which should be followed by further steps. from the point of view of the tax system and in terms of a consistent and equal taxation of all types of income, the plans do have some shortcomings. above all, problems are raised by the marked preferential tax treatment of profits retained in enterprises, which cannot be justified on macroeconomic grounds. this preferential treatment might also result in allocation distortions. ultimately, a substantial reduction of all rates and a comprehensive widening of the tax assessment basis would be needed. whereas approaches to a solution are becoming evident in fiscal policy, this cannot be said for the severe structural problem of the statutory system of old - age provision. here, the ageing of the population has led to an implicit public sector debt building up on a major scale. with the existing system of old - age provision this debt can only be repaid by further increases in employees ’ and employers ’ contributions. official projections assume that this would result in the contribution rate having to rise to 24 % by 2030. in addition, there would also be growing burdens in health and nursing care insurance. the associated obstacles to growth and higher costs would be a severe strain on the development of the economy. the reform measures proposed so far are not enough to prevent such a questionable development. above all, what