towards reversing the trends in terms of competitiveness. the country is now demonstrating that there is a clear understanding of the need to pay close attention to firms ’ production costs, which is illustrated by the government ’ s so - called competiveness pact. it is also illustrated through a number of structural reforms that have started to be introduced to increase the flexibility of the economy and make job creation more resilient. from that standpoint the first move which is very significant is the so - called national pact between business and unions which will be vetted by law. this is a complete reversal of the previous trend. so in a sense, yes, the modele francais is adapting. but i also think the model is retaining some features which are strong cultural characteristics. it relies on positive demographic trends, high educational standards and the quality of infrastructure. so it is not true to say that the french economic model has been characterised exclusively by the excessive inflexibility of its welfare system. i would add finally that france has started taking measures to correct the excessive costs in the welfare system while not by changing radically the way it is constructed. instead, we will probably move more towards what the scandinavian countries have been able to do by introducing pension reforms to contain the costs of the system for corporates and containing healthcare expenditures. the nordic countries have proved that you can have an efficient welfare system without damaging competitiveness. euroweek : but countries like portugal are seeing their exports surging, underpinned by lower unit labour costs, while france ’ s exports continue to fall. does it concern you that the imf has openly suggested that france is in danger if being overtaken by southern europe? noyer : my understanding of what is behind the imf ’ s comment is the idea that these countries are addressing their competitiveness problems in a very strong manner, knowing that their problems were much more severe than those we had in france. their relative productivity was lower and they also had relatively inflexible labour markets, which they are now reforming, notably in spain and italy. so the imf has simply observed that france can ’ t afford to stand still when germany began to reform some years ago, and given that the southern european countries are also moving to address the problems of cost competitiveness and rigidities. this is clearly why the bis central bankers ’ speeches economic reforms announced in france are so important. i ’ m delighted that the government has made this such a high priority. euroweek :

term level. we will be watching inflation and inflation expectations carefully. inflation expectations have been stable, and i expect them to remain so. still, one risk is that, in line with past behavior, expectations could follow actual inflation down, imparting additional downward momentum to actual inflation. however, another risk is that expectations could increase, perhaps reflecting concerns about the federal reserve ’ s balance sheet or the federal budget deficit. for the moment, the public seems confident that the fed will keep inflation stable over time. we do not take that trust for granted : we monitor inflationary developments closely and stand ready to respond quickly and vigorously should the need arise. although the framework for deciding when and how fast to tighten monetary policy will not differ conceptually from the framework used in the past, our decision this time has some added complexities. in particular, our assets and the corresponding bank reserves are far larger than anything in our experience. we are developing the tools to manage our enlarged balance sheet in support of policy tightening when the time comes, and we will need to deploy them in ways that reinforce our ability to achieve our macroeconomic objectives. that won ’ t be easy since we ’ ve never had so many levers to manipulate before, but the fomc has been giving considerable thought to this issue, and i ’ m confident that we will find the right balance and sequence of actions to support our basic policy decisions. some implications of uncertainty as this last point illustrates, we are still in the midst of a very unusual period in u. s. economic history and therefore in the conduct of monetary policy. policy always operates in an environment of uncertainty. the events of the past three years have highlighted to me yet again our limited knowledge of the dynamics of the financial system, the economy, and the interactions between them. i can be reasonably certain of only one point : my economic forecast is highly likely to be wrong – but i don ’ t know how. one implication of this pervasive uncertainty is that any statement about the future path of monetary policy must be conditional – dependent on the economy following the expected path. although the fomc has stated that the federal funds rate is likely to remain exceptionally low for an extended period, this statement explicitly depends on an economic outlook similar to the one i have given today. we cannot provide a precise timetable for when short - term interest rates will begin to return to normal because that depends on the evolution of actual and projected activity and inflation. another implication of uncertainty is