in the euro area and, as jorg has said, expectations there have remained very well anchored. but as in japan, people in europe are talking about a lost decade. cœure : there is a risk of a lost decade in europe, if the right reforms are not undertaken. but the challenges and answers are very different from those in japan. it is true that the crisis has been a step backwards [ a setback ] for the european economy, but the underlying problems, such as declining trend growth and unsustainable social promises, were there before. the crisis has only uncovered them and has shown the need for answers more clearly and more urgently. but the high level of unemployment is certainly worrying … asmussen : yes, the level of unemployment is unacceptable. but the question is what we can do about it. we have a strategy in europe that is based on stable prices, sound fiscal policies bis central bankers ’ speeches and growth and employment - enhancing structural reforms. it will take some time to see the positive effects, but i don ’ t see any viable alternative. cœure : the high level of unemployment, particularly youth unemployment, shows the urgency of taking forward - looking reforms at the national level and, collectively, at the euro area level. with the crisis, differences between countries are becoming clearer and larger. is it a challenge for friendship between european nations? asmussen : we must acknowledge the resurgence of national stereotypes. that is worrying. the cliche that the greek people are lazy, whereas all germans are hard - working, is simply false … reality is more differentiated. cœure : we see the risk of nationalism in european discussions as well, with the temptation to defend narrow national interests. but politicians can overcome this temptation and make progress. take the banking union, for example. it is the most important step to be taken in european integration since the inception of the euro, perhaps more important than the single currency itself. it will have far - reaching consequences for national economic models and national legislation. so there is room for optimism if we succeed in taking that quantum leap forward. isn ’ t that overly optimistic? what can germany and france do to overcome these challenges? asmussen : you have described the challenges rightly, but the answer to them can only be more integration. france and germany have a leading role to play, because they stand at the core of european integration. they jointly, but only jointly, fulfil the definition of a superpower : if

central bank policy. each inflation forecast is projected two years ahead, quarter by quarter. as in all countries, changes in the central bank interest rate are transmitted to the economy with a considerable lag. monetary policy therefore needs to be forward - looking and the inflation forecast based on the best available methodologies. if the scenario is that inflation will head beyond the bank ’ s target, the bank will raise its interest rates, while it will reduce them if inflation is tending below the target. let us first look at the macroeconomic forecast, which of course is a major consideration for future inflation. the main assumptions are that the central bank ’ s policy interest rate, currently 5. 3 %, will remain unchanged for the forecast period, which is a standard forecasting assumption, and that the exchange rate will be 3 % weaker than in the february forecast, with a reference value of 124. however the exchange rate index has continued to rise [ i. e. the krona weakens ] and currently stands at 128. another assumption is that fiscal policy will not deliver a stronger demand impulse than has already been decided. in other words, the fiscal stance will be relatively neutral, apart from a considerable increase in public sector investment this year and a contraction next year. this implies that the treasury balance will not be disrupted by discretionary measures on the expenditure and revenue side. public consumption is expected to be below the historical average. on the basis of current assumptions for the development of external conditions this year and in 2004, prices of marine products are now expected to fall by 4 % this year and to remain unchanged between 2003 and 2004. exports of marine products are expected to grow by 3 % this year due to increased quotas for the fishing year [ beginning september 1 ] and a larger blue whiting harvest this summer. the assumed increase in catch volume for 2004 is 5 %. aluminium prices are expected to rise by 4 % this year, based on futures prices and the pricing assumptions of the two aluminium companies, norðural and alcan iceland. import prices in foreign currency are expected to decrease by ½ %. fuel prices are based on futures. these have been on an upward trend in recent weeks and are now expected to rise by 9 % this year but fall by 14 % in 2004. the terms of trade for goods and services are expected to deteriorate by 1½ percentage points this year. in 2004 they are expected to improve by three - quarters of a percentage point. assumptions for short - term