inflation occurred first in germany but in the course of this year also in other member countries. the governing council of the ecb keeps a close watch on the development of perceived inflation not only because this is crucial to acceptance of the new currency but also because it may additionally have macroeconomic implications, such as matching rising wage demands. all in all, the euro cash changeover is an outstanding example of the eurosystem ’ s ability to cope with major challenges. iv at its last meeting, the ecb governing council discussed in depth the arguments for and against a cut in key interest rates. the rates were left unchanged, but we indicated that we would closely monitor the downside risks to economic growth in the euro area. after a rather mild recession in 2001, economic growth picked up remarkably only in the us. in all other major economies, slight growth was mainly driven by external factors. capacity adjustments - in particular in hi - tech businesses in major industrialised countries - are still taking place. therefore, investment prospects look clouded. the ongoing deflation in japan is due to persistent structural problems in the banking sector. recent announcements to reform the banking system have shed some light on possible solutions. as usual, however, it is harder to implement reforms than announce them. japan, however, is benefiting a little from fairly strong growth in east asian countries. recent data may point at least to an end of recession during the ongoing fiscal year. among the emerging markets, east asia and eastern europe have performed better than again - crisisridden latin america. the crises in argentina and subsequently in uruguay and brazil have proved not to be as contagious as earlier emerging market crises. financial markets are more aware of fundamental aspects nowadays. contagion is more limited. however, economic integration with the other side of the atlantic seems to be closer than ever. the devastating effects of september 11 were by no means confined to the united states. we realised that there have been major repercussions in the european economy, even though trade and financial flows reacted with a time lag and not as strongly. this psychological transmission channel is much faster than trade flows or even financial investments. the worsening of the business climate in the us is having an impact on german investment. in spite of high expectations early this year, the euro - area economy did not accelerate after the first quarter. among the reasons for this are oil prices, the considerable turbulences on financial markets and the looming threat of a military conflict. both factors

supervision at the institute for international economics - with my fellow doctoral students katrin assenmacher and susanne janeba - was indeed a time i fondly remember. as a thesis supervisor, manfred struck the right balance between freedom and direction, motivation and criticism, respect and provocation. almost every day during that time, we went to lunch together in the no - frills university canteen. this was the time to discuss progress in our academic endeavours. but manfred also had us apply our theoretical economic knowledge to practical topical issues and political questions. in fact, to him, such applications were not just brainteasers or amusing thought experiments. rather, economic thinking and research had to be both rigorous and of practical relevance. 1 / 7 bis central bankers'speeches drawing on both his impressive academic expertise and his excellent economic intuition, in the 1990s he repeatedly and prominently intervened in the public discussions surrounding the creation of the monetary union. all in all, i would characterise manfred as a “ doctoral father ” or as an advisor in the best sense of the word. i owe him my passion for monetary policy and my interest in the empirical facets of our profession. even after i left his institute for the imf, we never lost touch. over time, i gained a close and supporting companion during the subsequent steps of my career. in his straight - spoken way he remained an advisor throughout who, in a fatherly and friendly way, continued to challenge me, visiting me at the bundesbank with a multitude of charts and regression results, pointing out emerging issues or questioning traditional positions. i miss his clear voice in the debate, and i miss a friend. 3. central bank communication one issue we would have discussed for sure is how vital the communication has become for central banks. for a long time, central bankers did not attach any great importance to communicating monetary policy decisions. in the 1970s, when the first konstanz seminars took place, central banks still held the firm conviction that monetary policy makers must be tight - lipped and unpredictable. and the federal reserve, for example, did not begin communicating its interest rate target until 1994. forrest capie, the historian of the bank of england, provides a succinct example of how uncommunicative central bankers were at that time. he once recalled how the first press officer of the bank of england was instructed to “ keep the bank out of the press and the press out of the bank ". the doctrine that