economic efficiency and on price developments. it increases the strains on the monetary policy and, in a monetary union, there may be significant adverse spillover effects on other euro area countries. an institutional framework that guarantees sound government finances is an important contribution to macroeconomic stability and is conducive to sustained output growth and employment. it also helps to underpin the monetary policy. the implementation of the stability and growth pact provides sufficient scope in the medium term for a stabilising role for fiscal policy in monetary union. while, on the one hand, an unbalanced fiscal position creates difficulties for the economy concerned, if the government debt level is reduced to a reasonable level and fiscal deficits are close to zero or in surplus, this creates room for manoeuvre in economic downturns for fiscal policy to act as an automatic stabiliser. but this should then also apply if the ecomony grows rapidly or inflation is relatively high. windfalls occurring in such cases should then lead to lower deficits. of course, in making this remark i am not addressing one country in particular. fortunately, however, the dutch language gives me the opportunity to say : “ if the shoe fits, wear it ”. concluding remarks to summarise, national differences in growth and inflation observed in the euro area in the recent past do not appear to be unusual either in a longer - term perspective, nor compared with that which has been seen in the united states. looking into the future, it is of course difficult to predict how these differences may evolve. the experience of the united states suggests that they will not disappear completely. the further development of the single market is likely to lead to some sources of divergence becoming less significant, while others may become more important. divergences across countries will be monitored closely by the ecb but, given that monetary policy is geared towards maintaining price stability in the euro area as a whole, this means that other economic policies are required in circumstances where country or regional developments differ significantly, or over too long a period of time, from area - wide developments. in particular, this means that wage developments, backed by structural reform in labour and product markets, have a significant role to play while fiscal policy, within the framework of the stability and growth pact, must also make a significant contribution.

have predicted some years ago. in 1999 the average rate of consumer price increases in the euro area as a whole was among the lowest recorded since the second world war and, at 1. 1 %, remained fully consistent with price stability. at the same time, monetary union does not mean perfect identity of economic conditions in all parts of the euro area. the experience of all larger currency areas shows that some differences in regional price developments and also in regional output growth may exist. as differences in national or regional developments cannot be addressed by the eurosystem, they require, whenever necessary, country - specific responses. this means, in particular, responsible national wage settlements and appropriate national fiscal policies aimed at counteracting specific national problems. in addition, reforms addressing rigidities in labour and product markets and aiming at enhancing labour and capital mobility are the tools to ensure that market mechanisms will play an increasingly important role in limiting the scope for divergent developments in the euro area. the single monetary policy offers a great opportunity to maintain price stability in the euro area and to create the conditions needed for sustained economic growth. currently, the prospects for strong economic growth in the euro area are very favourable - indeed, more favourable than they have been for many years. economic activity in the euro area strengthened markedly in the second half of 1999 and this upswing is expected to continue through 2000 and beyond. available forecasts point to real gdp growth of slightly over 3 % in 2000 and 2001, reflecting both the favourable external environment and strong domestic demand. in line with this positive outlook, employment is expected to increase further and unemployment to come down in this context. at this juncture, it remains, indeed, important that the expected improvements in economic conditions and labour market prospects are not jeopardised by inappropriate wage settlements. in fact, wage moderation, combined with structural reforms in the labour markets, would help both to contain inflation in the euro area and to lead to further progress with employment creation. the contribution of monetary policy to strong and sustained economic growth is to ensure that price stability in the euro area will be maintained in the years to come. the governing council has, over recent months, raised ecb interest rates in three steps, in total by 1 percentage point, as a response to signals from both pillars of the eurosystem ’ s monetary policy strategy that upward risks to price stability were increasing. since the last meeting of the governing council, which was held on 16 march 2000, the main new data released relate to