remain below 2 %. i do not consider deflation to be a serious risk for price stability at present. so far, despite the worsening of the global environment, euro area - wide activity has continued to expand at a fairly stable rate. at around 3 %, annual real gdp growth was broadly unchanged in the first half of 1998 from the solid growth seen in the second half of 1997. industrial production growth has slowed somewhat since the spring. more recent evidence, particularly that of the area - wide survey data, may also suggest a moderation in the pace of growth and further developments in these indicators will continue to be monitored closely. area - wide growth should, however, be supported by a number of domestic factors. one factor supporting continued growth, particularly in private consumption, is the gradual improvement in labour market conditions. moreover, the lowest short - term interest rates in the euro area currently stand at 3. 3 %, and several countries have cut interest rates towards this level recently as part of the process towards interest rate convergence. the process of convergence towards this level has been gradual, but should imply a reduction in the average short - term interest rate in the euro area of about 0. 5 percentage point since july. long - term rates also stand at low levels. and there has been a marked degree of exchange rate stability among countries participating in the euro. this is undoubtedly a welcome development from the standpoint of encouraging trade and investment. thus, our assessment is similar to that of other international organisations, that – unless the international environment deteriorates further, which is not currently expected – growth will be somewhat weaker in 1999. growth should, however, remain high enough to support continued employment creation and, assuming a recovery in the international environment, there should be a pick - up in growth in 2000. at the meetings in december the ecb governing council will again assess the outlook for economic and price developments. – 5 – although the economic outlook may be less favourable than expected – let us say – half a year ago, i believe that the conditions for a successful launch of the euro are in place. you can be sure that the escb will do its utmost to make the euro a stable currency.

employment all move in the same direction, monetary policy can play some role in stabilising output and employment growth without endangering price stability. however, the contribution from monetary policy can generally be only limited. given the structural nature of the unemployment problems the solution is to be found, above all, in structural reforms aimed at well - functioning labour and product markets. an independent central bank does not only need a clear mandate. it has also to be an open and transparent institution, for at least three reasons. first, transparency enhances the effectiveness of monetary policy by creating the correct expectations on the part of economic agents. a predictable monetary policy contributes to achieving stable prices without significant adjustment costs and with the lowest interest rate possible. the second reason is that in a democratic society – 2 – the central bank has to account for its policies. finally, transparency towards the outside world can also structure and discipline the internal debate inside the central bank. let me now turn to the ways and means of achieving transparency. as a first element the escb has defined a quantitative objective for price stability. it reads as follows : price stability is a yearon - year increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 %. although i do not consider deflation to be likely in the current environment, i may add that a situation of falling prices would not be consistent with price stability. the governing council has made it clear that “ price stability is to be maintained over the medium term ”. the escb cannot be held accountable for short - run deviations from price stability, for example due to shocks in import prices or specific fiscal measures. a monetary policy reaction to short - run fluctuations in the price level would provide the wrong signals to the market and cause unnecessary interest rate volatility. in summary, the escb will react in an appropriate, measured and, when necessary, gradualist manner to economic disturbances that threaten price stability in the medium term, rather than in an abrupt way, in order to avoid unnecessary disruptions of the process of economic growth. that said, the escb will, whenever necessary, openly discuss and explain the sources of possible deviations from the quantitative definition of price stability. in addition, let me remind you that by focusing on the hicp for the euro area, the escb makes it clear that it will base its decisions on monetary, economic and financial developments in the euro area as a whole. the single monetary policy has to take