##ed resources? another aspect of the speed limit to economic growth, at least in the short run, is the level of unutilised resources. an important component here is the extent of unutilised labour. experience shows that the stability of inflation has to do with the level of unemployment. if unemployment falls below a certain level, a stronger stimulation of production and employment ( by means of a more expansionary economic policy, for example ) simply leads to bottlenecks, shortages and rising inflation. instead of a permanently higher level of employment, the end result is a return to higher unemployment. this level of unemployment is not something that monetary policy can alter. it has to do with other factors, such as occupational and geographical mobility, the propensity to take the jobs that are available, and so on. contributions in this field can be made with other components of economic policy but not, as i said, with monetary policy. the problem we face is that unemployment ’ s critical level cannot be identified for certain and we do not know when shortages and rapid wage increases will actually arise. estimating these matters is difficult and the results cannot be taken for granted. it is therefore hard to tell how much scope there is for a temporary phase of economic growth above the long - term trend. the ability to look ahead and formulate monetary policy cautiously is particularly important when an economy is moving further and further along an upward phase. otherwise there is a risk of price and wage increases accelerating so that the brakes have to be applied more abruptly later on, leading to a situation that is worse than would otherwise have been the case. thus it is in this phase of rising activity that we can be said to influence the depth of the next slowdown. it was the overheating in the late - 1960s, the mid - 1970s and the end of the 1980s that set the stage for the subsequent deep troughs. and each recession was worse than its predecessor. looking back, it is easy to see that economic policy ought to have been tightened much earlier than was the case on those occasions. at the same time, it has tended to be difficult, not least in fiscal policy, to take such measures sufficiently early, particularly as that needs to be done before the problems are clear to everyone. that is also why pre - emptive interest rate hikes not infrequently encounter criticism from some quarters. but a central bank has a job to do and must perform its statutory functions. but neither,

g10 recommendations should be implemented in europe. the post - fsap period offers a unique window of opportunity finally, i will devote the last part of my remarks to some reflections on the strategy for financial integration going forward, now that the financial services action plan ( fsap ) is approaching its completion. i believe that there is now an excellent opportunity to devise and engage in a strategy that delivers the full potential of financial integration. but in order to reap this potential, it is essential that a consistent post - fsap strategy is adopted. i see several components in such strategy for public authorities and market participants. let me begin with the role of public authorities. first, it is crucial that authorities implement the fsap measures, which provide the legal infrastructure for a single financial market, in a coherent manner. in this respect, i would highlight the provisions of the new investment services directive, which will provide the single market for financial services with a core legislative framework. furthermore, the lamfalussy process of regulation and supervision, now being extended from the securities field to the banking and insurance sectors, will allow for more flexible and uniform technical regulations. this dynamic process should ultimately produce a genuine common financial legislation and regulation for market players, while respecting the principle of subsidiarity enshrined in the treaty. second, there may be scope for simplifying the current regulatory framework, thereby reducing the corresponding regulatory burden on financial institutions. the implementation of fsap measures and of the the so - called lamfalussy approach should not, in any respect, lead to an additional layer of complex regulation - this would run counter to the spirit of the single market as it would not provide the right incentives for market participants to extend their activities throughout the eu. in this context, i want to recall that a main objective of the lamfalussy process is to allow for more flexible and uniform technical regulations. if adopted ambitiously, such a process could lead to the development of a true eu rulebook to which institutions may refer directly for their cross - border business. third, promoting a robust supervisory and financial stability framework for integrated financial markets. as integration proceeds, financial institutions will increasingly engage in cross - border business. furthermore, this is likely to bring a change in the transmission channels for systemic risk, notably as a result of a possible increase in the risks of cross - border contagion. consequently, it is important that authorities - supervisors and central banks - seek