mr duisenberg discusses prospects, challenges and opportunities for the euro area and gives a brief overview of developments in latin america speech by dr willem f duisenberg, president of the european central bank, at the conference “ resilience and resurgence in latin america ”, held in new york on 1 october 1999. * * * ladies and gentlemen, europe ’ s strong ties and close affinity with latin america stem from its people ’ s common origins, culture, and trade. i am particularly pleased, therefore, to be able to participate in this conference. during the past few months, the prospects for the global economy have gradually improved and the world economy appears to be heading towards a more balanced growth path. while uncertainties still remain as to the strength of the recovery, especially in regions which were most affected by the global slowdown in 1998, the risks of a worldwide recession have receded and inflationary pressures generally remain subdued. a more optimistic view of the global economy is warranted, as macroeconomic policies around the world have become more stability - oriented over the past decade. a general consensus has emerged on the need for monetary policy to focus on the achievement and maintenance of price stability. in many countries, a higher level of fiscal discipline has also favoured the pursuit of a stability - oriented monetary policy and has set the conditions for a more sustainable economic growth. while these are certainly important policy achievements, still, as emphasised by the imf in its latest world economic outlook, important challenges lie ahead and need to be addressed by policymakers around the world if a long - lasting and sustainable recovery is to be ensured. the growing international integration of capital markets offers great opportunities for a more efficient allocation of global resources. as recent experience has shown, however, it also carries risks of destabilisation, especially in countries where domestic financial systems are fragile or macroeconomic imbalances are still present. in such a situation, economic policy faces new and more complex challenges. it is important to stress, however, that the improved outlook for the global economy points to the possibility of addressing old problems and facing new challenges with a higher probability of success. this is particularly true for the euro area economy where the outlook for growth has recently improved, contributing to more optimistic prospects at the global level. the euro area comprises the economies of the eleven countries which, at the beginning of this year, introduced the euro, the new single european currency. in the euro area, a slowdown in output growth was observed around

the turn of the year 1998 - 99. today, most of the available information, from both coincident and leading indicators for the euro area, supports a picture of ongoing cyclical improvement. against this background, most forecasts point to a strengthening of economic activity in the remaining part of this year and in the course of next year. the european central bank ’ s ( ecb ’ s ) stability - oriented monetary policy for the euro area is contributing to these developments by aiming, in fulfilment of its mandate, to maintain price stability, thereby fostering a favourable environment for business activity. the ecb has defined price stability as a year - on - year increase in the harmonised index of consumer prices of below 2 % in the euro area, and has stated that price stability is to be maintained over the medium term. in the euro area, consumer prices increases have indicated some upward pressure recently, rising from 0. 9 % in june to 1. 2 % in august. the recent increases in oil prices and the lagged effects of the developments of the exchange rate in the first half of 1999 are the main factors behind the upward movement of prices. overall, however, the upward pressure has so far turned out to be moderate because the increase in import prices has been partially offset by a favourable development in domestic factors, such as the increased competition in the services sector and the success of deregulation in some markets. yet, in the immediate future further upward pressures on consumer prices can be expected as a result of the above - mentioned external factors. in the short - term, price developments should remain below 2 %. looking further ahead, however, upward risks to price stability should not be overlooked. monetary growth in terms of the three - month moving average of the annual growth rates of the broad aggregate m3 has been following a moderately rising trend since the start of this year, moving gradually away from the reference value of 4½ % set by the governing council of the ecb. the governing council is the main decision - making body of the ecb. its members are the six members of the ecb executive board and the eleven governors of the national central banks of the countries which have adopted the euro. monetary policy decisions are taken on a one person - one vote basis and from a euro area - wide perspective. the rising trend in m3 mainly reflects a continued, strong demand for its most liquid components, which to a large extent is due to the low opportunity costs of holding these monetary assets