combine with governments'thrift and the workings of law and regulations to determine the real basis for economic welfare. credibly reassuring market participants and the public at large about price stability over the medium run, and acting in a determined manner to fulfil this promise, is the best contribution that a prudent monetary authority can make to social welfare. any attempt on our part to correct this balance of real forces in the short run at the expense of the stability of the currency would only be futile and self - defeating. the treaty establishing the european community recognises this fundamental dichotomy. consequently, it forged a thoughtful and harmonious institutional construction, in which overlaps of competence are carefully avoided. for our part, we welcome the construction designed by the treaty and respect the separation of policy responsibility on which it rests. the ecb's mandate to maintain price stability is perfected by the independence it was assigned. the current situation our strategy has been in operation successfully since 1 january 1999. when confronted with risks to price stability, the governing council has never hesitated to take resolute action in a timely manner. from november 1999 to october 2000, the ecb's interest rates were raised by a total of 225 basis points each in response to upward risks to price stability. these decisions preserved successfully positive outlook for the maintenance of price stability in the euro area. where do we stand now, six months after our last interest rate change? starting with the analysis conducted within the framework of the first pillar of the ecb's monetary policy strategy, in the second half of 2000 and in early 2001 we have been witnessing a downward trend in the dynamics of both money and credit. over the period january – march 2001, the three - month average of the annual rate of growth of m3 was 4. 8 %. this is 1. 1 percentage points lower than over the corresponding period 12 months earlier and close to the reference value of 4½ %. the ecb focuses on the three - month average of annual m3 growth rates since monetary data can sometimes be distorted. in march 2001, annual m3 growth was 5. 0 %. while this was 0. 3 percentage points higher than in february, the march figures should not be read as a change in the underlying trend. in fact, if calendar effects were filtered out, in march 2001 m3 growth would have been lower. in addition, in interpreting the latest developments we need to be aware that there is some evidence that over recent months purchases

area has increased significantly in recent years. in 2004 it is estimated at 54 % of gdp, up from 46. 5 % in 1998 and 43 % in 1995. the rise in household debt has not, however, been accompanied by higher interest payments as a ratio of disposable income in the euro area as a whole. this ratio amounted to 4. 6 % in 2003, similar to the 4. 8 % observed in 1998. however, the strong rise in house prices and the substantial increase in household indebtedness have raised some concerns. given the differentiated path of house price increases across countries, this concern is obviously more relevant and stronger in some countries than in others. the concern relates in particular to the likelihood that some households may be underestimating the risks they face. these risks are associated first, with the higher sensitivity of households to changes in interest rates. in this regard, we have seen a tendency in some euro area countries to increasingly focus on borrowing at conditions which are linked to short - term interest rates. for many households this seems to be an attractive option as it implies a rather low interest rate burden notably at the beginning of the contract. what is often overlooked, however, is the fact that the currently low interest rates could well change over time. a second risk relates to future house price changes. some valuation measures for property prices, such as the price - to - rent ratio, are now 10 - 15 % higher than their average levels during the period 1995 - 2003 in the euro area as a whole. these valuation measures have even reached levels as high as 17 %. against this background, concerns have been expressed that substantial house price increases in some countries entail risks of a reversal of this trend that may currently be underestimated. it is not the first time we have been confronted with pronounced movements in asset prices in the euro area. indeed, current movements in house prices are small when compared to some swings in stock market prices over the last six years. we have witnessed rather substantial share price fluctuations resulting from the new economy euphoria and the subsequent disillusionment. and we have, of course, tried to assess the impact of the dramatic stock market decline from the peaks in 2000 on macroeconomic conditions and financial stability. in this regard, it mattered that, partly linked to the introduction of the euro, the outstanding amount of shares substantially increased in the euro area. for non - financial corporations in the euro area, the annual net issuance of shares