at the people ’ s bank of china are fully aware of the importance of such reforms and have been taking pertinent measures to strengthen the effectiveness of monetary policy instruments in fighting the battle against inflation. two questions are often asked concerning two perceived trade - offs that may be faced by central banks and economic authorities : first, the potential trade - off between fast, sustained growth and inflation, and, second, the potential trade - off between exchange rate stability and internal price stability. these issues have also been debated extensively and intensively in china in recent years. let me say that the european experience, as well as the evidence from other advanced as well as emerging market economies, clearly demonstrates that there is no stable trade - off between growth and inflation that can be effectively exploited by policymakers. containing inflationary pressures and preserving price stability over the medium term is the best contribution that monetary authorities can make to achieving the objective of sustainable growth. the pace of durable growth can only be strengthened through structural reforms that can increase the economy ’ s efficiency and productive potential. on this front, we europeans have made a lot of progress in recent years, but much more remains to be done. with regard to the concerns that have been expressed about the potentially adverse effects of currency appreciation on export performance and the pace of economic growth in china, let me point to the lessons of history. it provides rich evidence from many countries which excerpt from the statement of the chinese politburo issued at end - july 2008. adjusted their economy successfully to a stronger currency and became more prosperous as the domestic currency appreciated and internal price stability was secured. germany ’ s economic history over the past sixty years offers the best example. it demonstrates the benefits associated with the transition from a fixed exchange rate pegged to the us dollar, to a fixed but adjustable exchange rate, to the eventual adoption of a free float of the deutsche mark that allowed for greater monetary policy autonomy. this autonomy was essential for pursuing the primary objective of domestic price stability in germany in the face of external price shocks without hampering – and indeed even helping to strengthen – its overall competitiveness performance over the medium and longer run. but there are also other success stories of achieving price stability without sacrificing competitiveness among emerging market economies, which, notwithstanding significant appreciation of their real effective exchange rates, have experienced stronger non - inflationary growth that was instrumental in securing those countries ’ competitiveness and keeping up export growth. iv. concluding remarks the world economy is navigating

the growth of 11. 5 % recorded in 2007. to address these multiple challenges, policy instruments must be used in an effective and consistent way. effectiveness requires to choose the appropriate policy instrument that can materially contribute to the achievement of an objective in a sustained manner. consistency requires using the available instruments in a way that is mutually reinforcing. the effective and consistent use of policy instruments should produce outcomes that have a durable overall positive impact on economic performance. let me elaborate on these propositions by examining the appropriate policy responses to the global economic challenges we face in the euro area and in china, and by assessing their effects on the eu - china economic relationship. policy responses in the euro area in the euro area, although the slowdown of the economy is mainly the consequence of the impact of the significant past increases in oil and other commodity prices and of the direct and indirect effects of the ongoing financial turmoil, the growth performance of its economy over the medium and longer run will fundamentally depend on the implementation of further reforms that can raise trend productivity growth, by increasing investment in innovation and education, and raising the utilisation of labour, by enhancing the flexibility and adaptability of labour markets. such reforms will simultaneously contribute to the moderation of unit labour cost growth and to the more efficient response of both product and labour markets to the adverse shocks buffeting the european economies. as a result, the adjustment of the economy will be facilitated and its shock - absorption capacity strengthened. moreover, the international competitiveness of the euro area will increase and this will help to reduce some of the asymmetries characterising the china - eu relationship. the question that some will raise is whether such reforms should or can be implemented during a period of heightened uncertainty and reduced consumer confidence. my answer is that if they are properly designed, adequately explained and effectively introduced, such reforms can also help boost confidence in the performance and prospects of the euro area economy, particularly in some of its member states that have experienced a substantial cumulative erosion of competitiveness over the past years. fiscal policy in the euro area can play a stabilising role during the current slowdown automatically, because our tax systems incorporate stronger income - stabilising mechanisms than is the case in other advanced industrial economies. at the same time, budgetary policies for 2009 and beyond should reflect and fully respect existing policy commitments. the implementation of fiscal policies that aim at sound fiscal positions over the medium - term will contribute to containing inflationary pressures and will enhance the functioning of