prices to be lower in a year ’ s time has increased. if such a view leads to a decline in medium - to long - term inflation expectations, it could become difficult to overcome deflation. therefore, a change in inflation expectations is an important factor that requires careful monitoring. c. the cost of deflation the main reason for japan ’ s current deflationary situation is the widening of the negative output gap. deflation is disadvantageous for suppliers of goods and services but advantageous for consumers. this phenomenon seems like a zero - sum game on the surface, so, why is deflation said to have negative effects on the economy? price fluctuations, whether declines or otherwise, give rise to extra costs for society. for example, sales price revisions incur costs for deliberations and negotiations prior to settling on a price, and then for changing price tags. such extra costs must be borne by some entities within the economy. furthermore, price revisions for a large number of products at varying times and differing scales could hinder the efficient allocation of economic resources, while uncertainty regarding price fluctuations would also add risk premiums to transactional costs. in some cases, it might become difficult to conclude long - term contracts, thereby affecting plans for consumption and investment. in addition, if price fluctuations cause a change in the value of financial assets and liabilities that are fixed in nominal terms, or in the real value of transactions and wages, distortions would arise in income distribution. such distortions would give rise to a sense of unfairness among those in different functional roles, such as lenders and borrowers, or employers and employees. the possible loss of trust in social fairness and equality would affect work ethic and incentives. one of the costs unique to deflation is that real interest rates cannot decline to the level corresponding to that of economic activity, since nominal interest rates do not fall below zero. furthermore, a rise in the real value of debt and the resultant increase in the burden on the debtor may eventually lead to economic deterioration. in such a case, the real value of creditors ’ assets would increase, but, since debtors ’ propensity to consume out of income is generally higher than creditors ’, consumption in the overall economy would shrink. therefore, attention should be paid to the fact that there are costs unique to deflation. iii. measures taken by the bank the bank is gradually ending the measures that have been implemented to deal with the “ acute symptoms ” manifested in the rapid

monetary developments and hicp inflation in the euro area. with regard to monetary developments, the annual growth rate of m3 in february 2000 was 6. 2 %, implying a small increase in the three - month moving average of annual m3 growth, to 5. 9 % for the period from december 1999 to february 2000. the annual rate of change in the hicp in the euro area rose from 1. 9 % in january 2000 to 2. 0 % in february 2000, reflecting the anticipated upward pressure on consumer prices stemming from oil price and exchange rate developments. in its review of the economic and monetary situation, the governing council also considered the recent developments in the exchange rate of the euro. such developments need to be carefully assessed in the framework of the eurosystem ’ s monetary policy strategy. the governing council regards the present level of the euro as not reflecting the significant recent improvements in the outlook for the euro area economy. at today ’ s meeting the governing council decided to leave ecb interest rates unchanged. we shall, however, continue to be vigilant in order to be in a position, if needed, to counter inflationary pressure in a timely manner. there remain, however, also challenges for other economic policies in the euro area. as regards fiscal policies, the current upswing provides, for many countries, a good opportunity to comply more quickly with the objectives of the stability and growth pact. this will free up resources for private initiatives and will, over time, contribute to increasing the growth potential of the euro area. at this juncture, probably the greatest challenge for the euro area lies in speeding up structural reform in order to reduce the high level of structural unemployment. in this respect, the eurosystem strongly supports the conclusions of the european council in lisbon and calls for their timely implementation. furthering structural reform is the key to a lasting process of job creation and a sustained period of strong economic expansion. let me now give the floor to the vice - president to present some of the additional topics discussed today by the governing council. i should like to draw your attention to the following two items : first, the international financial architecture, an issue which was discussed in preparation for the forthcoming imf spring meetings in washington, d. c., and, second, the ecb ’ s information campaign for the introduction of the euro banknotes and coins. let me start with the governing council ’ s deliberations in relation to the current discussion on the international financial architecture, for which the