the economy as a whole. this benefits all citizens on a daily basis, and even more so those who are not in a position to protect themselves against inflation. finally, inflation brings about an arbitrary redistribution of income and wealth. the more vulnerable groups in society typically suffer the most from inflation. they have a relatively higher share of their savings invested in cash and savings accounts, the real value of which is easily eroded by inflation. their limited access to financial markets leave them with little room to evade the “ inflation tax ”. in this respect, pensioners who have to live on their pension entitlements and savings accumulated during their working life constitute a group that is particularly vulnerable to inflation. price stability ensures that the real value of both pension entitlements and savings is maintained. the counterfactual is conducted in christiano, et al ( 2007 ), op. cit. see in particular the following speeches ( published on the ecb website ) : j. - c. trichet, “ monetary policy and credible alertness ” ( jackson hole, 27 august 2005 ) and “ activism and alertness in monetary policy ” ( madrid, 8 june 2006 ). today, the level of inflation in the euro area is below the threshold of our definition of price stability, of “ less than 2 %, close to 2 % ”, while medium and long - term inflationary expectations in the euro area are solidly anchored. against this background, the social benefits of price stability are often taken for granted. i should therefore like to stress here that the undesirable social and economic consequences of inflation, namely inefficient allocation of resources, high levels of interest rates, the regressive inflation tax, arbitrary redistribution of income and wealth to the detriment of the most vulnerable, and, last but not least, economic instability, lower growth and lower job creation, are the benchmarks against which one has to assess the social benefits of price stability. this is why a credible commitment to maintaining price stability is so important for the living standards of european citizens. and why our fellow citizens, according to all surveys, are so profoundly attached to price stability. i thank you for your attention.

force could therefore become a strong constraint on the growth potential of the euro area. • as for labour utilisation, over the past ten years, and despite subdued growth in the population of working age, there has been a strong acceleration in the number of total hours worked in the euro area. this stands in contrast to developments in the united states, where a small deceleration has taken place. 5 much of the euro area acceleration can be explained by enhanced labour utilisation over this period, and the main drivers of this to date can clearly be identified as improvements in participation and employment rates. however, despite this visible progress, there is room for further improvement with regard to the way in which labour markets work in europe. first, the employment rate in the euro area remains low by international standards. 6 second, the unemployment rate is still too high on average in the euro area and especially in certain countries. • as for labour productivity growth, from a longer - term perspective, developments in the euro area have been characterised by a sustained decline. this is in contrast with strong gains in labour productivity in the united states over the past ten years. 7 this acceleration in us labour productivity was triggered by advances in information and communication technology ( ict ) during the 1990s. a very favourable regulatory environment, continued investment in research and development ( r & d ), the ability to redesign management and organisational systems, and the relative ease of reallocating and retraining ( as well as shedding ) of workers, allowed us firms to benefit from ict investment and to achieve significant gains in productivity. developments in the euro area in the last few years suggest that the decline in labour productivity growth may have come to a halt, although at a very low level, estimates from international institutions project euro area potential output growth to be between 1. 8 % and 2. 0 % in 2009 ( european commission 1. 8 %, oecd 1. 9 % and imf 2. 0 % ). this analysis relies on the commonly used growth accounting framework that links real gdp ( y ) to the product of labour productivity ( l ), labour utilisation ( lu ) and working - age population ( wa ), i. e. y = lp x lu x wa. euro area working - age population growth was 0. 5 % over the period 1987 - 97 and 0. 4 % over the period 19982007. over these same two periods us working - age population growth was 1. 1 %