the unemployment rate moving close to its pre - crisis low, with participation rates being higher than ever. at the same time, assessing the tightness in labour markets is not straightforward, for several reasons. first, these aggregate statistics hide substantial cross - country heterogeneity. second, and more fundamentally, the natural rate of unemployment is unobservable. furthermore, tightness in the labour market provides only a partial picture of slack in the economy, as slack can vary across different parts of the economy. it is therefore risky to infer it from just a few economic variables. and for each measure of slack the same issue applies as for slack in the labour market : it cannot be observed directly, because the potential ( or “ trend ” ) levels of economic variables are unobservable and time - varying. accordingly, there are various 1 / 3 bis central bankers'speeches estimates of the aggregate slack and these estimates differ from one another. 1 some of them are also subject to substantial ex post revisions. for all of these reasons, we need to be cautious when assessing economic slack and look at many economic indicators to achieve a robust assessment. the wage - inflation pass - through let us turn to the wage - inflation pass - through. given the recent growth of wages, it is crucial to understand how this will pass through to inflation. but coming to a robust assessment is not straightforward. both economic theory and the empirical evidence tell us that this pass - through depends on many different factors. one consideration is that the structure of the economy is not constant over time. over the past few decades, we have been witnessing gradual changes in the economic environment, many of which can be traced back to the ongoing it revolution. these changes have important implications for inflation and pass - through, too. one such change is the growth of e - commerce, or, as some call it, the “ amazon effect ”. many commentators argue that increased price transparency when shopping online has contributed to keeping inflation low in advanced economies. 2 whether the growth of e - commerce makes prices less responsive to wages is more debatable. research suggests that the algorithmic pricing technologies of online retailers make retail prices more sensitive to aggregate, economy - wide shocks – which would imply that pass - through should eventually occur. 3 however, while the optimistic view is that e - commerce, and the it revolution more generally, contributes to more competition and economic dynamism, there are also concerns about its more pernicious longer -

tensions in financial markets, the transmission mechanism of monetary policy is not significantly hampered in the euro area. still, more data and analysis are needed to firmly assess the outlook for credit in the period ahead. to sum up, inflation rates have decreased significantly and are now expected to remain well below 2 % over 2009 and 2010. recent economic data releases and survey information add further evidence to our assessment that both global and euro area demand are likely to be very weak in 2009. over the course of 2010, the economy is expected to gradually recover. at the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the governing council ’ s aim of keeping inflation at rates of below, but close to, 2 % over the medium term. a cross - check with the outcome of the monetary analysis confirms that inflationary pressure has been diminishing. after today ’ s decision we expect price stability to be maintained over the medium term, supporting the purchasing power of euro area households. the governing council will continue to ensure a firm anchoring of medium - term inflation expectations, which supports sustainable growth and employment and contributes to financial stability. accordingly, we will monitor very closely all developments over the period ahead. regarding the fiscal policy responses to the economic downturn, the euro area countries ’ updated stability programmes and recent addenda confirm the prospect of a sharp and broad - based deterioration in euro area public finances. a credible commitment to a path of consolidation in order to return to sound fiscal positions, respecting fully the provisions of the stability and growth pact, is necessary to maintain the public ’ s trust in the sustainability of public finances, which is important both for the economy to recover and for supporting longterm growth. in this respect, we support the commission ’ s intention to initiate excessive deficit procedures for several countries. this is crucial to preserve the credibility of the eu fiscal surveillance framework. it is important that clear deadlines are set for correction of the excessive deficits and that consolidation plans are based on firm and well - specified structural measures. as regards structural policies, it remains important to pursue economic policies in line with the principle of an open market economy with free competition. in this respect, it is essential that government support measures do not distort competition and delay necessary structural adjustment, and it is of the utmost importance to avoid protectionist measures. refraining from protectionism will be key to allowing the global economy to overcome the current crisis more rapidly. the successful completion of