the benefits of bold reforms. germany, which has on occasion been called “ the sick man of europe ”, has once again been hailed as the world ’ s top exporter - and this despite the appreciation of the euro. what lessons can the other countries in the euro area draw from this? as regards exchange rates, let me be clear : following the meeting of the governing council on 13 january, i confirmed our opinion, which we expressed when the euro rose sharply, namely that such moves are unwelcome and undesirable for economic growth. furthermore, two major factors may explain the differences between member countries ’ external accounts : the dynamism of domestic demand and cost competitiveness. on the one hand it is clear that germany ’ s domestic demand has been less dynamic than that of the other countries, including france. consequently, its imports have also been less dynamic. on the other hand, as regards cost competitiveness, germany has fared better than the others in the past six years as it has had to close the gap in terms of competitiveness that stemmed from its reunification. its export results attest to this. the building of europe is a great and inspiring endeavour. the euro has provided outstanding protection against external risks. think what the monetary situation within europe would be like today if the former national currencies had had to face the external shocks that we have seen! this leads us to monitor competitiveness indicators within the euro area much more closely than before. the fact remains that domestic demand is still weak in the euro area, where households are concerned about reforms and rising unemployment. confidence among households and businesses is essential if domestic demand is to be more dynamic. that of households depends on their confidence in price stability. some still have concerns which inhibit consumption. we say to them that they can and they should be confident : we are here precisely to ensure price stability at the level of the euro area as a whole. wouldn ’ t a reduction in interest rates send a positive signal, if only a psychological one, to households and investors? as we said in mid - january, our analysis indicates that current short - term interest rates are in line with our mission to maintain price stability. we remain vigilant, since vigilance is the guarantee of our credibility in the medium and long term. and our credibility is essential, not only in order to be true to our mandate, but also to provide europe with the most favourable financial environment for growth and job creation. two,

five, ten and thirty - year interest rates are at their lowest levels since the second world war. in particular, this stems from an exceptional level of confidence that investors and savers have placed in europe ’ s monetary team : my colleagues on the governing council, and among them the french governor, christian noyer. the stability and growth pact is the subject of growing debate. are you satisfied with the consensus that is emerging to strengthen the prevention of excessive deficit while relaxing the application of sanctions? one has to fully realize the separate responsibilities that exist. the proposals fall within the competence of the european commission and the decision lies in the hands of the representatives of the governments of the member states, namely the council of the european union. our responsability is to remind all parties of the conditions which enable economic and monetary union to function coherently. since the introduction of the euro, the main criticism by many economists across the atlantic has been that, in launching a single currency before achieving a political federation and a federal budget, we have put the cart before the horse. we took indeed a bold step. but our response to these criticisms was the stability and growth pact. the preventative arm of the pact can be improved on and we welcome certain proposals that have been made in this regard. in our view, however, the corrective arm of the pact must be upheld. the deutsche borse has made ambitious moves towards consolidating the european stock exchanges. are you in favour of closer integration of the financial markets? european financial integration is extremely important for the smooth operation of a single market with a single currency. for manufacturing goods, the single market works well, but for services in general it is much less effective. financial services are no exception to this. the european commission intends to take steps in this regard since it is clear that this offers further potential for growth. that said, we are in market economies and it is not our place to judge past, present and future restructuring, which are the outcome of decisions taken freely by free agents. we simply wish the single market to operate in the best way possible. do these deficiencies point towards the need for a european financial authority? like the federal reserve system, the governing council of the ecb approves of having a link between the central bank and the prudential supervisory authority for banks. the treaty provides for a decentralised system entrusted to national authorities. the ecb is strongly in favour of fostering dialogue and cooperation to the maximum