achieve this end. at the same time, we are wary of excessive complexity or of relaxation of the rules. in particular the so - called “ corrective arm ” of the pact must fully preserve the nominal anchor of 3 %. the stability and growth pact requires simple and transparent rules in order to facilitate effective monitoring ; to provide an effective deterrence against unsound policies ; and at the end of the day, to provide an anchor for long - term expectations, which results from the clarity, simplicity and credibility of the framework. in this respect, we stick to our assessment that the wording of the treaty and of the regulations of the stability and growth pact is appropriate in its current form and should not be changed. let me add one further word regarding the current discussions on the stability and growth pact. some proponents of reform - not all - argue that there is a need to focus more on growth, as if there was a contradiction between fiscal soundness and growth and job creation. on the contrary, economic theory and empirical observations support the idea that wise fiscal policies are fostering sustainable growth and job creation. there is no better example of this than here in ireland where, in the second half of the 1980s, a vigorous fiscal consolidation was accompanied by an acceleration of economic activity. indeed, the experience of ireland suggests that, when needed, a credible and well designed fiscal consolidation can support economic growth not only in a medium and long term perspective but also in the short - run. conclusion ladies and gentlemen, let me conclude with two remarks which could be summed up in two words : confidence and conviction. confidence first. we all know that the euro area has a considerable potential, which will progressively materialize in the period to come. the present gradual recovery is underway and conditions are there for it to be progressively more broadly based. in the present juncture confidence is of the essence. the degree of confidence in all economic constituencies, households, savers, entrepreneurs and investors is a key factor to foster growth and job creation. a central bank is an anchor of confidence. we, in the ecb and in the eurosystem, are doing all what is necessary to preserve and consolidate confidence : confidence in our currency, confidence in our capacity to deliver price stability, confidence in the stability of our monetary and financial environment. and then conviction. we, in the ecb and the eurosystem, are convinced that fully enhancing and expressing the growth potential of the euro area calls for reforms to be implemented

if these were to remain higher than currently expected by markets, this would dampen both foreign and domestic demand. in assessing the real risks stemming from the oil prices, one should nevertheless take into account that, when expressed in euro, the recent rise in oil prices has been significantly smaller than during previous oil shocks, for example, in 1973, 1979 and 2000 when oil price increases had a major impact on the world economy. in addition, in real terms, oil prices are significantly below the peaks they have reached in the past. moreover, when compared with the 1970s and 1980s, the oil intensity of production in the euro area and elsewhere has fallen significantly. in 2001, the energy intensity of the euro area, measured as energy consumption in tonnes of oil equivalent, in relation to real gdp, decreased by around 50 %, compared with its peak recovered in 1973. that being said, i will echo here the calls for oil producers to be as responsible as required by the situation in the present juncture of the global economy. turning to price developments, the recent oil price developments have had a visible direct impact on euro area inflation. the annual hicp inflation in august was 2. 3 %, unchanged from july. on the basis of current market expectations for oil prices, it appears unlikely that annual inflation rates will return to levels below 2 % in the remainder of this year, and in the very beginning of next year. looking ahead, however, there are no indications at present of stronger underlying inflationary pressures building up domestically. recent wage developments have been moderate, and this trend is expected to continue for some time to come in view of the continued high level of unemployment in the euro area. if this is the case, and provided that one - off shocks to prices from other sources such as those seen in 2004 are not repeated, annual inflation rates should drop below 2 % in 2005. however, there are several upward risks to the projections for inflation. concerns relate in particular to oil price developments, which may continue to have a visible impact on inflation. oil price rises also imply the risk of second - round effects emerging in wage and price - setting, a risk which intensifies when the economic upswing strengthens. a further upward risk relates to the future evolution of indirect taxes and administered prices, as very little specific information is currently available about these in 2005 and beyond. all in all, while the available indicators are consistent with price stability being maintained over the medium - term, a number of upside risks need