treaty, who have devised an institutional setting which is optimal for the maintenance of price stability and the achievement of high levels of economic growth and welfare in the euro area. i will come to that in a moment. the transition to stage three of emu in 1999 was a complete success from a technical point of view. a fully integrated euro area money market - an essential prerequisite for a monetary union - was reality from the very first day of the introduction of the euro. the overnight interest rate, a key indicator of the monetary policy stance, has been practically the same across the countries in the euro area since the start of stage three of emu in january 1999. this was certainly not obvious ex ante. it required a substantial amount of preparatory work, not only by the central banks in the euro area, but also by other economic agents, most notably the banking sector and the governments. the main yardstick for any evaluation of the success of the euro is, of course, the maintenance of price stability in the euro area. this is the ecb's primary objective under the treaty. the monetary policy strategy of the ecb was designed in such a way as to ensure the fulfilment of this objective. as a first element of the strategy, the governing council of the ecb defined price stability as " a year - onyear increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 % ". this definition serves to anchor inflation expectations and provides a framework against which the ecb can be held accountable. short - term fluctuations in the inflation rate are not under the control of the central banks. therefore, it was also announced that price stability is to be maintained over the medium term, imparting a medium - term orientation to the strategy as a whole. in order to attain the sodefined objective, the ecb is pursuing what is known as a two - pillar approach. the first pillar is a prominent role for money. the second is a broadly based assessment of the outlook for price developments and risks to price stability. giving money a prominent role in monetary policy analysis is something quite natural for a central bank geared towards price stability. inflation is ultimately a monetary phenomenon. the prominent role for money is signalled by the announcement of a reference value for the annual rate of growth of the broad monetary aggregate m3. in december 2000, the governing council of the ecb reconfirmed the reference value of 4 1 / 2

the immediate future, there are still other challenges. for the ecb, maintaining price stability is a permanent challenge. building up a positive track record in this respect will be essential for its medium - term credibility. of course, other policy - makers also face a number of challenges. in particular, it was decided at the lisbon meeting of the european council that all possible actions should be taken in order to make the european economy the most advanced knowledge - based economy of the world by 2010. the ecb shares the view that this should be the most important ultimate objective of policy - makers in europe. enlarging europe's growth potential is the main yardstick for evaluating the pros and cons of different policies. at the same time, the ecb is convinced - and i think for very good reasons - that the best contribution that monetary policy can make to sustaining non - inflationary long - term growth is to maintain price stability in the euro area. europe's main problems are not of a cyclical nature ; its main problem is, in fact, the high level of structural unemployment. in the first two years of monetary union, the euro area countries have found themselves in the best economic situation they have had since at least a decade, with robust output and employment growth, low inflation and no major economic imbalances. what is needed now is the enhancement of the growth potential of the economy over the medium term. the main task remaining on the governments'agendas is therefore to promote the structural reforms that are essential to increase the flexibility and competitiveness of the european economies, and to make them more permeable to the introduction of new technologies and business practices. the area of labour markets is particularly important if the unemployment rate is to be lowered in a lasting manner. a well functioning labour market should always ensure that general wage increases are compatible with the objective of price stability ( what i would define as " macro " - efficiency ) and bring about flexibility and an optimal allocation of resources ( what i would label " micro " - efficiency ). i will concede that all these matters are not, strictly speaking, related to the euro ; they would, very plausibly, have been on the agenda of european governments anyway. the euro, however, makes them more compelling, forcing european governments to speak to one another even more frequently and together to find creative solutions as soon as possible. efforts to bring about further integration in the product and capital markets by harmonising regulation across europe are also