seen a significant upturn in long - term interest rates in the euro area since the end of may. this development was certainly affected by the continued increase in bond yields in the united states over the same period. more recently, however, domestic factors have probably played a more important role in the determination of domestic bond yields than was previously the case. these factors include financial market perceptions of more evidence pointing to a further strengthening in economic activity in the euro area during the year, accompanied by a modest pick - up in inflation expectations from the low levels seen in recent months. the more positive market sentiment regarding the prospects for euro area output growth has also been reflected in a narrowing over recent weeks of the relatively wide differentials between us and euro area bond yields. exchange rate developments do not yet reflect these very same factors. as we have said on earlier occasions, the governing council believes that the euro is firmly based on internal price stability and therefore, has the clear potential to achieve a stronger external value. the governing council reaffirmed its view at today ’ s meeting that the monetary policy of the eurosystem will safeguard the euro ’ s internal purchasing power and will thereby support its international value. the prospects for a more broadly based and sustained recovery in the world economy have become stronger. the outlook has improved further, in particular in relation to expectations of continuously strong growth in the us economy and some tentative indications that the prolonged decline in activity in japan may have come to a halt. in addition, recent developments in economic and financial indicators for the emerging market economies suggest that a recovery is under way in south - east asia. moreover, to the extent that the kosovo conflict may have had a negative impact on economic sentiment in a number of countries, its end has eliminated a risk to the outlook for economic developments in the euro area. as recent developments in latin america indicate the outlook has improved only moderately. with reference to developments in economic activity in the euro area, some important data have been released since our last meeting. most notably, eurostat has now started to publish euro area national accounts data which are based more closely on data compiled in accordance with the new esa 95 methodology. according to these estimates, the quarter - on - quarter rate of real gdp growth increased to 0. 5 % in the first quarter of this year, compared with 0. 3 % in the previous quarter. at present there is insufficient experience with regard to the properties of the new esa 95 data, in particular their susceptibility to revision

by a better management of resource utilisation, as workers and employers could agree on measures that would preserve competitiveness and consolidate jobs. moreover, other measures facilitating workers reallocation, reducing both employment traps - due to generous unemployment subsidies and high marginal income taxes - and costs related to adjustments in the labour force are often useful to increase the resilience of the economy to unforeseen shocks. a more flexible economy will make it easier for the corporate sector to maintain competitiveness without large cuts in employment. finally, a more flexible cost structure will increase the expected rate of return from private investment in both physical capital and research and education of the labour force. hence, both the productivity and the quality of the labour force employed will increase, thereby setting the stage for virtuous dynamics that lead to higher output growth. conclusion all policymakers are called to play their role in making the euro area a more dynamic economy. by maintaining price stability, and by being credible in delivering it over the medium and long term, the ecb makes its own indispensable contribution to foster growth in the euro area. the rate of potential economic growth very much depends also on the other policy actors. it requires fiscal policy to be sound and sustainable, and it requires reforms ensuring that the structure of the economy is flexible and supple enough to augment the growth potential of europe and to allow economic agents to respond smoothly to economic shocks. in a very rapidly changing environment, where new technological advances, not only in the it area, are extremely powerful and seem to be comparable only with the start of the industrial revolution, where creativity and conceptual innovations are flourishing in all economic sectors, particularly in the global financial system, and where economic globalisation is rapidly transforming the very structure of the world economy, the euro area and its 306 million fellow citizens are called to adapt in order to take advantage of the opportunities offered by this new world and to respond to new challenges. a lot has been done in europe over the last 20 years : the combination of the bold single market endeavour starting in the mid eighties and of the single currency starting at the end of the nineties are perhaps the most striking historical set of structural reforms at the level of a continent in peace time. we have proved we were able to move and to restructure. we still have a lot to do as wim kok is wisely and strongly recommending. in this respect, permit me a last remark : at the moment i am speaking