the national central banks has also proved problematical during the current negotiations on the eu constitution. the bundesbank ’ s role as guardian of the currency requires it not only to point out the danger of weakening the foundations of a stable euro through the backdoor in the european convention ’ s draft constitution but also to insist on a remedy. specific proposals for the drafting of this, which take account of our concerns, were passed on to the irish presidency by the ecb in mid - april. now it is up to the politicians. they must not jeopardise the institutional foundations of a stable common currency. 2. continuity... ladies and gentlemen with the introduction of monetary union, monetary policy autonomy was deliberately abandoned in favour of european unity. however, the escb has been devised in such a way that the national central banks continue to provide extensive central bank services for the european economies granting loans within the framework of monetary policy, supplying the economy with cash and providing payment channels. in addition, the bundesbank is highly respected within the eurosystem. it contributes expertise and experience to the escb and plays an active role in forging a stable and strong monetary union. 2. 1... at the deutsche bundesbank as an institution the bundesbank ’ s strategic reorientation towards “ europe ” began long before the introduction of monetary union in 1999. it was followed by an organisational reorientation once the legislature had concentrated the running of the bundesbank in the hands of the new executive board in may 2002. the executive board did not waste any time in deciding on the future organisational structure as well as on the staffing requirements and timetable for implementing the plan. the reorganisation was rounded off by devising strategies for cash handling and the branch network. on this point i would like to carry on with the work of my predecessor and proceed with the structural reform as laid down. the planned changes are necessary, they are feasible and they are within the limits of what those directly concerned may be expected to bear. after we have achieved our goal in 2007, we will have to consider whether further changes are necessary. with this reorganisation the bundesbank has no need to fear either a comparison with other public institutions or with other central banks in the eurosystem. owing to differences in the definition of their respective national tasks, however, comparing the national central banks in the eurosystem has to be done with care. the downsizing and reorientation of the

bundesbank that have been advocated so frequently in the past few weeks are already in full swing ; the bundesbank is by no means behind the curve in this respect. throughout the world questions concerning financial system stability are becoming more important for central banks. a stable and efficient financial system is absolutely essential if the central banks are to fulfil their stability mandate. in the past few years the bundesbank has expanded its analytical and research capacity for identifying potential risks to financial stability and will extend this field further in future. we will include the results both of the analysis of current risks to the financial system and the research into the underlying relationships in the international debate on financial system stability and developments in the international financial architecture at the g - 10 meetings. 2. 2... in monetary policy the primary objective of a central bank is and will remain safeguarding monetary stability. since the start of monetary union just over five years ago the eurosystem has built up a good reputation and has gained the confidence of experts and the public alike. the euro is a stable and internationally respected currency. according to the provisional estimate by eurostat for the harmonised index of consumer prices, the price level in the euro area was 2. 0 % higher in april year on year compared with 1. 7 % in march. this is consistent with the ecb ’ s target of keeping price inflation to less than but close to 2 % in the medium term. to achieve its monetary policy targets the governing council of the ecb applies its proven monetary policy strategy, which was slightly revised last year. the overall evaluation of the risks to price stability consists of two pillars which ensure that the primary purpose of the monetary analysis is to countercheck that the short - term and medium - term assessments arising from the economic analysis will also be applicable in the long term. the economic analysis suggests that the gradual recovery which began in the euro area this spring will continue. while export demand continues to have an expansionary impact, domestic demand remains subdued, especially in the case of private consumption. the monetary analysis indicates that there is a persistently large liquidity overhang in the euro area. this is mainly the result of previous portfolio shifts. in view of the lack of consumer confidence, i do not see any danger of this excess liquidity leading in the near future to increased price pressure as a result of a sudden surge in demand. the very low level of key interest rates, the ample liquidity supply and the favourable financing conditions are