’ s monetary policy strategy. a close understanding of the framework of our analysis is indispensable in order to fully grasp the policy pursued by the ecb. the first element of the ecb ’ s monetary policy strategy is the published definition of price stability. price stability has been defined as “ a year - on - year increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 % ”. the ecb has also stated that price stability is to be maintained over the medium term. the definition is intended to securely anchor inflation expectations. moreover, it provides a clear yardstick against which the ecb ’ s monetary policy can be held accountable for the achievement of its primary objective. in order to take appropriate decisions with regard to this objective, the ecb monitors a broad set of indicators. first, a prominent role has been assigned to money as the so - called first pillar of the strategy. the assignment of such a prominent role to money is justified by the available econometric evidence. this evidence suggests the existence of a stable relationship in the euro area between the broad monetary aggregate m3, the price level and a small number of other euro area - wide macroeconomic variables. the important role assigned to money has been signalled by the announcement of a reference value of 4½ % for the annual growth rate of m3. the first pillar consists not only of a detailed analysis of deviations of m3 growth from the reference value for the information that they contain about the outlook for price stability, but it also embodies a thorough analysis of monetary developments, including careful monitoring of the components and counterparts of m3. in addition to a thorough analysis of monetary developments, a comprehensive assessment of a wide range of other economic and financial indicators constitutes a further basis for monetary policy. this assessment encompasses an analysis of, inter alia, cost and price indices, the exchange rate, real economic indicators, and financial markets indicators. in brief, the role of this second pillar is to provide information about the prevailing economic situation and on the nature and magnitude of risks to price stability, which are not made apparent from an analysis of the monetary aggregates in a complete or timely way. some commentators have regarded this strategy, based on the assessment of two sets of indicators, as unclear and overly complex. i have two responses to such criticism. first, new methods and new strategies are not always fully understood from the outset. the learning and familiarisation process can take some time. second

a good deal of deregulation and liberalisation of previously sheltered sectors has taken place, there is still plenty of scope for further measures to increase the level of competition and stimulate entrepreneurial initiative. let me now shift the focus from structural to more conjunctural issues and briefly discuss the current economic situation. the first message i should like to convey is that there is good reason to remain confident that strong growth will be sustained in the euro area. euro area real gdp has been growing at an annualised rate of around 3½ % for four consecutive quarters, including the second quarter of 2000. some monthly indicators, which extend into or cover the third quarter of this year, point to some moderation of these high growth rates. in particular, the pace of growth in industrial production appears to have declined somewhat and some survey data showed signs of moderation. at the same time, however, confidence remains high, underpinned by positive factors such as high employment growth. the extended period of high and rising oil prices has certainly increased the uncertainty surrounding the sustainability of recent growth trends in the world economy. however, by contrast with previous periods of strong and prolonged increases in oil prices, the world economy is now less dependent on oil and inflationary pressures are still being contained. this should help to ensure that the impact of high oil prices on growth remains moderate over the medium term. all in all, the outlook is for the continuation of robust growth in the foreseeable future. turning to monetary developments, m3 growth has been deviating from the reference value of 4½ % since the beginning of 1999. the three - month average of the annual growth rates of m3 covering the period from july to september stood at 5. 4 %. over recent months, however, a moderation in m3 dynamics has taken place, as is visible in shorter - term growth rates. for example, the seasonally adjusted and annualised growth rate of m3 stood at 3. 6 % in september. at the same time, the recent increase in the growth rate of loans to the private sector should not be overrated. this was considerably influenced by the financing of the payments for umts licences by telecommunication companies. this does not imply high risks to price stability in the medium term as long as the proceeds are used, as expected, to redeem government debt. in sum, recent developments seem to indicate that, following the series of interest rate increases by the ecb, monetary developments are currently settling down at a more moderate