rates hovering around 2 % over the past couple of months. these developments are broadly in line with previous expectations of inflation rates for the remainder of the year, but recent upward tendencies indicate that the short - term trend has been affected by oil price developments. however, subdued economic activity and the stronger euro should help to dampen inflationary pressures over time. at the same time, however, we need to assess other factors which may involve upward risks to price stability. among those, wage developments play a particular role. wage growth remained on an upward trend until early this year. although we have indications that this trend may have come to a halt in the second quarter of 2002, close monitoring is necessary. to sum up, inflationary pressures have declined. looking forward, recent trends in economic activity and the exchange rate of the euro imply downward pressure on inflation rates, but other factors, in particular monetary developments, wage trends and oil prices, need to be monitored for their possible upward impact on inflation. overall, therefore, we are of the opinion that the risks to price stability over the medium term are at present balanced. we thus consider the current level of the key ecb interest rates to be appropriate. at this juncture it is of utmost importance that all macroeconomic policies remain oriented to the medium term, with all players fulfilling their responsibilities. monetary policy will continue to provide a reliable anchor for the economy, especially in an environment characterised by high uncertainty and fragile confidence. this implies focusing on the maintenance of price stability over the medium term. let me make a remark in this context, linked to comments which arise with a certain regularity in public debate and which argue that monetary policy should follow a different orientation, an orientation in which price stability is not the overriding objective. i should like to recall in this connection the fundamental and yet simple principle that monetary policy should not be overburdened with objectives that it cannot fulfil. it is well established that monetary policy can only control price developments over the medium term and cannot have an impact on output beyond the short term. monetary policy can certainly not heal structural problems in the economy, such as those underlying the high level of unemployment. in line with these principles, the treaty establishing the european community has assigned the ecb the primary objective of maintaining price stability. in the end, strictly following this mandate, with the appropriate medium - term orientation, is the best contribution the ecb can make to supporting sustainable non - inflationary growth and a high level of

employment in the euro area. taking a broader perspective, i should like to take this opportunity to further emphasise the overall soundness of the institutional framework for monetary and economic policy laid down by the treaty. in fact, the treaty provides, in all fields, a clear and consistent allocation of policy objectives and responsibilities among the various policy - makers. in this respect, it is the task of fiscal policy to make its contribution to enhancing the growth potential of the euro area by maintaining sound fiscal positions and helping to reinforce the proper framework for the functioning of a market economy. it is also important that fiscal policy maintains a medium - term orientation throughout the economic cycle. the results of fiscal policy in several countries have been very disappointing in the last few years. the pace of reform has significantly fallen and there have even been setbacks in the efforts to consolidate in some cases. in fact, the main reason why several countries at present are in budgetary difficulties is because they have not used the past phase of higher growth to substantially improve their fiscal position, i. e. they have shown precisely a lack of medium - term orientation. it is crucial that fiscal policy fully respects the basic principles of the treaty and of the stability and growth pact, namely to avoid excessive deficits and to attain budgetary positions close to balance or in surplus in the medium term. if the pact is to work efficiently, all countries with remaining imbalances must commit themselves to implementing a clear consolidation strategy. such a strategy should specify a credible adjustment path with significant improvements in the cyclically - adjusted budget balance every year. this path should be followed strictly and completed within the shortest possible time frame. it must be based on realistic assumptions for the economic environment and include clearly specified measures. furthermore, accounting rules must be rigorously applied and strict procedures established to monitor the implementation of the consolidation strategies. in the end, the full adherence of all governments to the stability and growth pact can only be beneficial for the euro area. finally, it is important to stress, especially in a phase of uncertainty regarding economic activity, that decisive structural reforms will contribute to increasing the euro area ’ s resilience to economic shocks, enhance price and wage flexibility, and thereby reduce the costs associated with an economic downturn and increase the euro area ’ s growth potential. structural reforms in product, labour and financial markets are essential in order to foster non - inflationary growth in the euro area and create a climate of economic stability and dynamism. countries should therefore speed