##cive to creating an environment of stable prices in which economic activity can flourish. third, the treaty clearly recognises that assigning an important public policy to an independent institution has to be accompanied by transparent and accountable policy design and implementation. transparency and the accountability of the central bank serve the interests of democracy, help to bolster the legitimacy of the central bank and, by imposing discipline on policymakers, add to its credibility. i shall return to these issues in the course of my presentation. for the time being, let me just say that we attach crucial importance to both accountability and transparency in the pursuit of our mandate and that the ecb follows best practice in both regards, in many respects going well beyond the literal requirements of the treaty. finally, let me mention the relevant issue of fiscal policy. in stage three of economic and monetary union, budgetary policy ultimately remains the competence of the individual member states. this unprecedented combination of a single monetary policy coexisting with many, distinct fiscal policies has led some critics to even question the possibility of success of monetary union. this is, in my view, a wrong perception. what is crucial in the context of the single currency area is that participant countries come to a common view on basic principles. the treaty, supplemented by the stability and growth pact, reflects a broad agreement and provides for such basic principles in the field of fiscal policy. in particular, it requires that countries in the eu, and especially those that have adopted the euro, respect a common code of fiscal conduct that is expected to uphold discipline in the management of government finances. by promoting sound government finances and thereby imposing limits on the expansion of public debt, the treaty fortifies the conditions for price stability and for strong, sustainable economic growth in the euro area. this also adds to the credibility of monetary union and of monetary policy within it. the ecb ’ s monetary policy strategy the institutional setup provided by the treaty, therefore, ensures a very solid foundation for building and maintaining a high level of credibility for the ecb and for the successful conduct of monetary policy in the euro area. in the end, however, it will be the central bank ’ s own performance that will determine its credibility. this naturally leads to the following question : how should price stability be maintained? this question is addressed by the ecb ’ s monetary policy strategy, which was adopted by the governing council of the ecb and announced in october 1998. the strategy provides the framework for conducting monetary policy in the euro

occasionally been misunderstood as implying distinct, possibly conflicting “ targets ” for our monetary policy. from my description, however, it should be clear that price stability is the only “ target ”, or more precisely, the primary objective of our policy. the two pillars of the ecb ’ s monetary policy strategy provide a framework for organising the large body of economic information available to policymakers in a manner that helps the governing council of the ecb to take appropriate policy decisions in order to maintain price stability. they are not distinct targets in themselves. in my view, a diversified, multi - pillar framework of analysis offers great advantages. let me try briefly to explain what they are. monetary policy is always conducted in an uncertain environment. this reflects not only the inevitable uncertainty related to the inherent partial predictability of economic phenomena, which becomes manifest in the form of shocks that cannot be predicted in advance. it also reflects the inevitably imperfect measurement, interpretation and understanding of the available information on the economy. moreover, in the euro area, uncertainty is probably exacerbated by the regime shift associated with the introduction of the euro. this implies a substantial structural and institutional change. in such a situation, relying on a single indicator or on a single model of analysis entails considerable risk. in an uncertain world, putting all one ’ s eggs into a single basket is never a good idea. the two pillars of our strategy provide for a diversified approach by embodying and organising the main approaches to assessing the risks to price stability, namely, on the one hand, an approach which assigns a crucial role to money and, on the other, a wide range of analyses of the inflation process ( focusing primarily on the effects of the interplay between supply and demand and / or cost pressures ). these two main approaches are themselves a reflection of a substantial lack of agreement amongst economists on what paradigm or model best represents the functioning of a monetary economy. as yet, no single, unified and uncontroversial framework has been developed. the two - pillar structure of the strategy helps to ensure that information and analysis from one methodological perspective is always cross - checked against information and analysis from the other perspective. this provides effective insurance against the uncertainties and complexities of the economic environment and helps reduce the risks of policy errors, thereby enhancing the robustness of monetary policy decisions. quite naturally, there may be occasions on which the indications derived from the analysis under the two pillars are different or even conflicting. however, this potential tension