operate efficiently without endangering sound fiscal positions in the longer term. moreover, governments are encouraged to push ahead with reforms relating to the size and structure of public expenditure and revenue, which will also create room for tax cuts and absorb the fiscal costs of population ageing. in the field of structural reforms allow me to refer briefly to the adoption of the broad economic policy guidelines. if implemented in a determined manner, structural reforms will contribute to expanding the euro area's potential for non - inflationary growth and to reducing its high level of unemployment. we are now at your disposal for questions.

is under way. information from several surveys and leading indicators for the second quarter of this year point to somewhat higher real gdp growth rates than in the first quarter. looking ahead, an ongoing strengthening in both domestic and foreign demand continues to be the most likely scenario. the conditions for further recovery in the euro area remain in place. there are no major imbalances in the euro area and financing conditions are very favourable. at the same time, there is continued economic growth outside the euro area. however, in view of recent financial market developments, the uncertainty surrounding the strength of the economic upturn – both outside and inside the euro area – has not diminished over recent weeks. turning to price developments, eurostat's flash estimate indicates that annual hicp inflation fell from 2. 0 % in may to 1. 7 % in june. however, it is too early to interpret this fall as a sign of receding upward pressure on prices, given that hicp inflation excluding the more volatile items of energy and unprocessed food prices has remained high throughout the first half of this year, reflecting in particular trends in services prices. moreover, it is to be expected that overall hicp inflation rates will fluctuate around 2 % in the coming months. the strengthening of the euro exchange rate should have a moderating effect on inflation. however, it is difficult to quantify the size and establish the timing of this effect. for price stability to be maintained on a sustainable basis it is crucial that the high wage increases resulting from recent negotiations in some regions do not spread across the euro area, not least because this would have negative consequences for competitiveness, employment growth and consumption. overall, the strengthening of the euro exchange rate is a new factor suggesting a potential for lower inflation rates. however, other factors – in particular monetary developments and wage trends – do not indicate a moderation in price pressures. monetary policy therefore needs to remain vigilant as regards the key factors determining the outlook for price stability over the medium term. regarding fiscal policies in the euro area, we have seen some worrying developments in the past few months. against this background we call upon all member countries to honour the commitments made to achieve budgets that are close to balance or in surplus by 2003 - 04, in compliance with the framework of the stability and growth pact. this is necessary in order to maintain and further strengthen confidence in the policy framework of the euro area and to establish fiscal positions in all countries that allow automatic stabilisers to