and crises delaying the economic upturn most analysts predict to be on its way? have economic policy, the financial infrastructure and the behaviour of market operators been adapted to the globalised, technologically well developed financial markets to the extent that the contagion effects on the real economy of financial disturbances has declined significantly during the past decade? these are questions i wish to discuss now, however more with the aim of provoking some interesting ideas rather than providing any ready - made answers. are the markets more robust? let me begin with the question of whether the markets have really become more robust, in the sense that they are now less sensitive to disturbances. there are some arguments in favour of this theory. one of these is directly linked to monetary policy and inflation. this is namely that an increasing number of countries have abandoned the ambition of maintaining a fixed exchange rate and chosen instead to focus their monetary policy directly on an inflation target. openness and transparency have increased as a result of this, which in itself has probably improved the functioning of the markets. inflation rates and inflation expectations have fallen and become more stable, which has led to significantly lower nominal rates. uncertainty with regard to the future has thereby declined and the conditions for making the right investment and savings decisions have improved. all of this should have increased the stability of the markets. however, there are other arguments. greater awareness of the need for maintaining central government finances under control has increased budgetary discipline and led to reductions in central government debts in most countries. it could possibly be claimed that the stricter budgetary discipline is a rather last - minute conversion, as countries with large deficits are often forced to borrow on the international markets and there submit to the requirements made, in only to keep down the loan costs. large, growing budget deficits also reduce the possibilities for parties other than the central government to assess the future and increase their costs. borrowers are forced to pay high and varying risk premiums to borrow on the bond markets, as financial investors want to be paid for the uncertainty regarding the inflation rate or exchange rate. in addition, there is always a risk that if the debt becomes too large the central government will be forced to implement large savings that will in themselves lead to increased unemployment and poor profitability for domestically oriented companies. large international efforts have been made and are being made to create new regulations and standards that will reduce the risk of financial instability in a deregulated environment. the basel committee's new capital adequacy rules

essentially monetary origins of inflation over the longer term. the second pillar of the monetary policy strategy is a broadly based assessment of the outlook for price developments and the risks to price stability in the euro area as a whole. the governing council recognises that it is important, in parallel with the assessment of monetary growth, to look at a wide range of financial and other economic indicators, including economic forecasts. this systematic analysis of all other relevant information about economic and financial conditions will ensure that the governing council is as well - informed as possible when taking monetary policy decisions. monetary developments can reveal useful information about future price developments and thereby offer an important compass for the conduct of monetary policy. therefore, it is absolutely essential for any central bank entrusted with the task of keeping prices stable to analyse and monitor the developments of monetary aggregates closely. consequently, the governing council of the ecb has announced a quantitative reference value for broad monetary growth as measured by m3, which should, under normal circumstances, give some indication of future inflationary pressure. the choice of m3 as an aggregate is supported by empirical evidence regarding the long - run stability and leading indicator properties of this aggregate. moreover, conceptual arguments pointed to the considerable importance of including in the monetary aggregate those assets which have a high degree of substitutability with narrower definitions of money. therefore, in addition to currency in circulation and deposits, repos, units or shares of money market funds and money market paper as well as short - term debt securities, all of which are close substitutes for more traditional bank deposits, have also been included in this definition. the first reference value for m3 growth has been set at an annual rate of 4½ %. this reference value is consistent with the maintenance of price stability over the medium term, while allowing for sustainable output growth and the trend decline in the velocity of circulation of m3. in setting the reference value for monetary growth, the governing council has taken account of various factors and emphasised its medium - term orientation. first, the governing council is committed to maintaining price stability according to the definition enshrined in the treaty on european union. this requires increases in the hicp for the euro area of “ below 2 % ”. second, the governing council takes the view that a figure in the range of 2 % to 2½ % per annum for the trend growth in real gdp in the euro area appears to be reasonable. third, the uncertainties concerning short - term developments in velocity linked to the start of