mechanism should be implemented in japan's labor market. let me elaborate on this point. the way people form their expectations could be affected by how labor market adjustments are made during periods of recession - - i. e., whether to have quantity adjustments in terms of headcount or price adjustments in terms of wages. for example, in the u. s. labor market, quantity adjustments are mainly made in the form of layoffs. japan's labor market mostly makes price adjustments and layoffs tend to be avoided ( chart 12 ). let me add a few things about wage adjustments in japan. in the face of the past shocks, including oil crises during early 1970s and 1980s, japan's labor unions had a practice of prioritizing the job security of regular workers and accepting management's proposal to set lower wages. under such coordination between labor and management, restraining wage increases of regular workers was effective in controlling inflation. afterwards, the base pay of regular workers significantly shifted downward following japan's financial crisis, and then became sticky at low levels. since then, non - regular workers have acted as a buffer against wage adjustments as they are outside the protection of labor unions. as illustrated, japanese - style employment and wage practices of prioritizing the job security of regular workers and restraining wage increases may have influenced long - term inflation expectations to shift downward. if that is the case, the solution is to implement dynamic u. s. - style employment practices and allow the compensation of regular workers to reflect risk premiums. i note that, in japan's labor market, job mobility and a social safety net are not necessarily sufficient. in this situation, the u. s. - style employment system is unlikely to be socially acceptable. in fact, it has been difficult to reach a consensus between labor and management, and thus progress in labor market reform has been moderate. i believe that a key to success in labor market reform is to implement dynamic u. s. - style employment practices while modifying them to fit japan's own circumstances. for example, it is important to gain the understanding of labor unions by establishing a social safety net that leads to economic growth. one option is to build a framework for employment and reemployment assistance in coordination with the government, labor, and management. second, a forward - looking wage negotiation system should be established. let me elaborate on this point. in japan's wage negotiations, the observed rate of increase in the consumer price index

baking instructions, if you like. 2 basic ingredients turning to the basic ingredients, you won ’ t be surprised that, as a central banker, my considerations start from monetary policy geared to price stability. the european treaties provide us with an ideal framework for this : the eurosystem is equipped 1 / 7 bis central bankers'speeches with wide - ranging independence and has a clear mandate with price stability as its primary objective. and that has paid off. with an inflation rate of 1. 7 % on an average of the past 20 years, price developments have broadly been in line with our definition of price stability. the promise of a stable currency has thus been kept. but the success of monetary policy also depends on conditions which it cannot create on its own. in particular, it is dependent on a stable financial system. after the “ great inflation ” of the 1970s, advanced economies experienced a long period of remarkable economic stability that came to be known as the “ great moderation ". academics were still debating the specific role of monetary policy in bringing about this period of economic calm when the global financial crisis ended it. important lessons have been drawn from the crisis. the regulation of banks, insurers and financial markets has been strengthened. and, along with the reform of traditional supervision, macroprudential policy has been established as a new policy field. it can be deployed against regional and sectoral pockets of exuberance in case they are suspected of posing a systemic risk. as the sovereign debt crisis has painfully reminded us, such risks can also arise from unsound public finances. in a monetary union, the risk of excessive debt is greater than in countries which have their own currency. saying that, i do not so much mean the lack of the option to service government debt simply by printing money. for a central bank committed to price stability, that is a complete nonstarter anyway – whether in a monetary union or not. something else is more important : in a monetary union, the incentive to run up debt is greater because the negative consequences are smaller. for instance, interest rates may not rise as much in response to fiscal profligacy. in order to prevent such behaviour, the member states agreed on joint fiscal rules. but rules can only be of help where there is a will to observe them. in retrospect, ever since the euro was introduced, there has not been a single year in which all countries have kept their new borrowing below the ceiling of 3 % of gdp.