beneficiary expands dramatically as we move into the next decade and beyond. technological innovations can greatly improve the quality of medical care and can, in some instances, reduce the costs of existing treatments. but because technology expands the set of treatment possibilities, it also has the potential to add to overall spending - in some cases, by a great deal. other sources of uncertainty - for example, the extent to which longer life expectancies among the elderly will affect medical spending may also turn out to be important. as a result, the range of future possible outlays per recipient is extremely wide. the actuaries'projections of medicare costs are, perforce, highly provisional. these uncertainties - especially our inability to identify the upper bound of future demands for medical care - counsel significant prudence in policymaking. the critical reason to proceed cautiously is that new programs quickly develop constituencies willing to fiercely resist any curtailment of spending or tax benefits. as a consequence, our ability to rein in deficit - expanding initiatives, should they later prove to have been excessive or misguided, is quite limited. thus, policymakers need to err on the side of prudence when considering new budget initiatives. programs can always be expanded in the future should the resources for them become available, but they cannot be easily curtailed if resources later fall short of commitments. i fear that we may have already committed more physical resources to the baby - boom generation in its retirement years than our economy has the capacity to deliver. if existing promises need to be changed, those changes should be made sooner rather than later. we owe future retirees as much time as possible to adjust their plans for work, saving, and retirement spending. they need to ensure that their personal resources, along with what they expect to receive from the government, will be sufficient to meet their retirement goals. crafting a budget strategy that meets the nation's longer - run needs will become ever more difficult the more we delay. the one certainty is that the resolution of the nation's unprecedented demographic challenge will require hard choices and that the future performance of the economy will depend on those choices. no changes will be easy. all programs in our budget exist because a majority of the congress and the president considered them of value to our society. adjustments will thus involve making tradeoffs among valued alternatives. the congress must choose which alternatives are the most valued in the context of limited resources. in doing so, you will need to consider not only the distribution

increasing consumer welfare and job opportunities. turning now to labour markets, also here progress has been rather uneven across areas. a number of countries have lowered marginal tax rates in order to make their tax systems more employment friendly. some progress has generally also been made with the introduction of more flexibility in working contracts and practices. in many other areas, however, important reforms have not yet got off the ground. for instance, few changes have been made regarding employment protection policies in euro area countries, which remain among the strictest in the industrial countries. also, reforms aiming to simplify and limit unemployment benefit systems and thereby enhance employment growth have only slowly progressed in almost all euro area countries. the emergence of skill shortages and tight labour markets in several euro area countries shows that structural problems still remain and need to be solved. the euro area could use its potential much better, as is illustrated by its relatively low labour force participation. whereas, in the euro area, the labour force participation rate was 67 % in 1999, it amounted to 77 % in the us. all in all, we see that some traditional hurdles to market flexibility and competition are slowly being removed, but as regards the current state of affairs in the euro area there is certainly still plenty of scope and urgent need for improvement. structural reforms are of paramount importance not only for raising the growth potential of the economy but, most importantly, for increasing employment prospects in the euro area. reasons to be optimistic regarding the long - term prospects of the euro area let me now explain why i am rather optimistic regarding the future development of the euro area economy. the euro area is already highly integrated in economic terms owing to the creation of the single currency and single market and further progress in this respect is ongoing. this is a good starting point for dynamic economic development. my optimism is grounded in particular on the transformation we have witnessed over the past years, following the remarkable decision in favour of the single market. the successful establishment of the euro and the ecb, which together with the single market, have created a new economic entity, is evidence of the ability of europe to implement far - reaching reforms which are well - designed and underpinned by solid institutional structures. this creation of an entirely new economic entity is a substantial step forward. the euro will act as a catalyst for further reform in many areas. my optimism is further underpinned by the fact that the treaty sets out a durable anchor to guide economic decisions and to reduce economic uncertainty substantially by entrusting an independent