to react once price stability is already in jeopardy. the eurosystem will continue to pursue this forward - looking strategy in order to maintain an environment of stable prices, which is also conducive to sustained economic growth and job creation in the euro area. i share the analysis of your draft resolution that governments should take advantage of the favourable economic environment in order to step up the efforts directed towards consolidating budgets and reducing public debt and go beyond the objectives laid down in the stability programmes. at the same time, structural reforms in the labour, product and capital markets should be pursued vigorously. the comprehensive implementation of this policy agenda will contribute to subduing inflationary pressures and thereby support the ecb in accomplishing its tasks. in your draft resolution you also briefly address the potential implications of a “ new economy ”. thus, i should like to comment on the possible emergence of a new economy in the euro area. let me start by noting that various definitions of the new economy exist. in my view, the most useful definition is that which characterises the new economy as a phenomenon which increases the growth rate of productivity over an extended period of time. there is some evidence - although not uncontroversial itself - of the emergence of a new economy in the united states. by contrast, it is difficult as yet to find clear evidence of a new economy in the euro area. of course there is a need to monitor developments further, with the emphasis on identifying new economic trends and potential structural breaks in traditional economic relationships as early as possible. in any case, it is important to stress that for the euro area the achievement of more flexible markets is a prerequisite if the potential gains from new technologies are to be realised in the form of substantially higher productivity growth. we recognise that a crucial feature of the potential emergence of a new economy is increased uncertainty. this concerns, in particular, the evolution of the production potential and the reliability of indicators which are derived from it, such as estimates of the output gap. in this respect, the eurosystem ’ s monetary policy framework is well equipped to cope with such uncertainties. it provides the flexibility necessary to address changes in the economic structure with the aim of maintaining price stability over the medium term. by relying on two pillars, the ecb ’ s strategy explicitly acknowledges uncertainty regarding the structure of the economy and the transmission of monetary policy within it. in the context of this discussion, some observers have urged the ecb to keep interest

nor can i outline a timepath. it is evident, however, that some reductions of significance are likely. in the meantime, irish interest rate policy will be influenced by the requirements of the domestic economy. the central bank will retain the discretion to adjust rates for as long as possible. i might also draw the attention of members to the impact on savings. in a lower interest rate regime some deposit rates must inevitably come down. the returns on call deposits in particular are already at very low levels. it would be unwise to assume that interest rates will remain permanently low once the euro area is established. as with the us dollar, successful management of the euro will require periodic interest rate adjustments to secure the objective of price stability. in the context of emu, the relationship with sterling is of obvious concern to us. we now know that the uk will not join emu for some time ahead. it would be better for us, if it joined at the outset. i cannot predict future movements of sterling relative to the euro. i would, however, point to the treaty requirements that all member states should treat exchange rate policy as a matter of common interest. this applies as much to the uk as to anybody else. the bank of england will participate in the general council of the european system of central banks and will be subject to the obligations that this imposes. i would further suggest that the decision last year to give operational independence to the bank of england is significant in this context. it is working to an inflation target and this arrangement should reduce the likelihood of large - scale fluctuations of sterling vis - a - vis the euro. it is vitally important that the credibility of the euro is established immediately. to achieve this the new currency must be supported by a solid economic background and political consensus. there is considerable speculation about the merits of a hard or a soft currency. the critical factor is that the currency be stable in terms of european prices so that its international role will be secure and that, in time, it will challenge the dominance of the us dollar. the external value of the euro will be largely determined by the monetary policy implemented by the european central bank and by developments in the foreign exchange markets for the major industrial currencies. supervision may i now turn to a different aspect of our activities. the central bank ’ s approach to supervision reflects european legal requirements and is in line with best international practice. the basic objectives of supervision of banks and building societies are to protect depositors and investors and to