out of the experiences of the depression in the early 1930s and the major banking crisis in australia in the 1890s. since its establishment as a stand - alone central bank, there have been two key changes to the way the reserve bank approached its financial stability obligations. the first was in the early 1980s when, following the financial system inquiry undertaken by the campbell committee, the australian financial system was deregulated. previously banks had been heavily regulated so were limited in their ability to take risks. in the new deregulated environment, the bank built up a banking supervision framework. prudential standards were introduced and the focus was on the risk management frameworks of the banks. the second key change followed another financial system inquiry undertaken by the wallis committee. as a result of the inquiry, the banking supervision function was transferred to a new institution – the australian prudential regulation authority ( apra ). the reserve bank, however, retained a role focusing on ‘ overall financial system stability ’. how did we interpret this? i think it was set out well in the bank ’ s 1999 annual report, the first year of these new arrangements. the bank stated that its ‘ objective is to ensure that financial disturbances in any part of the financial system do not ultimately threaten the health of the economy. ’ it went on to set out the foundations for financial stability : low inflation ; a safe and robust payments system ; efficient and smoothly functioning financial markets ; and a sound framework of prudential supervision. 1 / 4 bis central bankers'speeches since then, we haven ’ t changed the way we interpret our mandate for financial stability. we are somewhat more explicit about recognising the potential human cost of financial instability in terms of financial distress and unemployment and are more attuned to the behavioural risks associated with risk cultures and financial innovations. but we have substantially increased our communication on financial stability issues. for example, in 1999, when we first started reporting formally on financial stability, we published 10 pages in the annual report, of which only around half were actually an assessment of financial stability. there were six charts – credit spreads in overseas bond markets, credit to gdp, credit growth, house prices, banks ’ impaired assets and risk - weighted capital ratios. in march 2004 when we first published the financial stability review, the assessment was around 40 pages, including over 40 charts, and it is now routinely between 50 and 60 pages with upwards of 60 charts. we also give a lot more speeches covering financial stability issues,

euro area, the governing council welcomes the reaffirmed commitments of the governments of euro area countries with fiscal imbalances to adhere to the objective of achieving balanced budgets by 2003 - 2004. the confirmation of the political will to continue along the path of fiscal consolidation is most appropriate. the governing council supports the actions taken by the european commission in the context of the stability and growth pact and the subsequent outcome of the ecofin council meeting last month. it is now necessary to remain vigilant in order to ensure strict adherence to the medium - term plans and rigorous implementation of the procedures of the stability and growth pact. in order to further improve the fundamentals of the euro area and to put the expected recovery on a broad and sustainable basis, euro area countries must strengthen their efforts to implement comprehensive structural reforms. over the past few years progress has been made with regard to enhancing the flexibility of euro area product and capital markets. euro area countries have also made some headway in terms of improving the way their labour markets operate. these reforms, together with moderate wage developments, have contributed to the strong employment growth and the considerable reduction in unemployment witnessed in many euro area countries in the last cyclical upswing. however, it is worth noting that despite the continued high unemployment in the euro area, firms continue to report difficulties in terms of recruiting suitably qualified workers. this suggests that further improvements in the functioning of euro area labour markets and their ability to match labour supply and demand are needed. evidence gathered in a recent eurosystem analysis, which will be published shortly, supports this view. in this context i would also like to stress that structural reforms in different markets should not be seen in isolation. the more efficiently euro area product and capital markets function, the greater the success of labour market reforms will be in creating employment opportunities. we are now at your disposal for questions.