up to 8 %, according to the bank of england. this would naturally affect the euro area economy. i hope we will avoid such a scenario. do the tensions over the populist italian government ’ s budget risk sparking a new crisis in the euro area? following the agreement in december between the italian government and the european commission on the italian budget, the country ’ s borrowing costs fell. this confirms that, when a country follows the common rules, its efforts go down well with the markets. italy ’ s main challenge at the moment is its weak growth ; this has been the case for several years now. rome must urgently implement structural reforms in order to increase its growth potential 1 / 3 bis central bankers'speeches by resolving its productivity issues, regaining competitiveness and targeting internal weaknesses. how much have the political uncertainties already cost the euro area in terms of growth? it is very hard to measure this precisely, as it is very difficult to incorporate certain variables, like confidence and business sentiment, into macroeconomic models. nonetheless, for the past six to nine months protectionism has been the main risk at the international level, and one of the major sources of market volatility. it is essential that the united states and china, as well as the eu, find common ground so that these tensions don ’ t devolve into a trade war that would be harmful to everyone. why is inflation still struggling to recover in the euro area? the situation in the job market has improved considerably in the euro area. nine million jobs have been created since the crisis and the unemployment rate has fallen below 8 %. compensation per employee is also recovering. what matters is knowing when this increase will translate into a pickup in underlying inflation, which excludes the most volatile product prices, like energy prices. we are confident that it will pick up within a few months or quarters. even if energy prices were to fall a little in the coming months, we are confident that inflation will, over the medium term, converge towards our aim of below, but close to, 2 %. for several months now, political leaders ’ criticisms of central bank independence have been growing, in europe and, above all, in the united states. does that worry you? in recent decades, the independence of central banks has proven extremely effective in maintaining price stability. political and economic agendas are very different. when monetary institutions act under the influence of political leaders, they run the risk of making serious mistakes that harm economic activity.

willem f duisenberg : testimony before the committee on economic and monetary affairs of the european parliament introductory statement by dr willem f duisenberg, president of the european central bank, brussels, 17 february 2003. * * * it is my pleasure to appear before your committee today. as usual, i will begin my introductory remarks by reporting to you on the ecb's assessment of economic and monetary developments, before turning to the ecb recommendation on the adjustment of voting modalities in the governing council, which the ecb adopted following the entry into force of the treaty of nice and on which the european parliament and the european commission have been invited to give their opinion. 1. economic and monetary developments in its first meeting of december 2002, the governing council of the ecb decided to lower the key ecb rates by 50 basis points. the basis for this decision was the assessment that the prospect for inflation to fall below 2 % in the course of 2003, against the background of subdued economic growth, and for it to remain in line with price stability thereafter, had strengthened. with this move, the key ecb interest rates reached a very low level by historical standards. before turning to our assessment of the current economic outlook for the euro area, i would like to report that on 5 december 2002 we also reviewed the reference value for monetary growth, which plays an important role under the first pillar of the ecb's monetary policy strategy. the governing council decided to leave the current value unchanged at an annual growth rate of 4½ % for the broad aggregate m3, as the evidence continues to support the assumptions which have formed the basis of the derivation of the reference value since 1999, namely a trend potential output growth of 2 - 2½ % per annum and a trend decline in m3 income velocity of ½ - 1 % per annum in the euro area. when comparing current developments with the reference value, it is important to bear in mind that the assessment of monetary developments is essential for long - term trends in inflation and that the reference value is therefore to be seen as a medium - term concept. short - term movements of m3 do not necessarily have implications for future price developments. moreover, deviations of m3 from the reference value must be analysed in conjunction with other real and financial indicators in order to understand their implications for price stability. turning to our current assessment on the outlook for price stability in the euro area, and starting with the first pillar, m3 growth remained high in the last quarter of