presented to the eu council, which takes the final decision on which countries fulfil the conditions for adopting the euro. the council also decides the final conversion rate to the euro. it is then that the technical preparations for euro adoption can start. the entry of new countries into the euro area is determined by the conditions laid down by the treaty. they are applied in an equal fashion to all candidates. while each country prepares for euro area entry at a pace in line with its own economic conditions, all eu member states, apart from denmark and the united kingdom, are committed to strive to fulfil the convergence criteria as soon as possible and adopt the euro thereafter. 5. future challenges let me now turn to some future challenges which i consider will be of increasing importance in the coming years. it is clear that a lot of progress has been made within the eu on finding a successful institutional framework for macroeconomic stability and sustainability. it is, however, true that a number of countries – including poland – are still struggling, in particular with finding a sustainable path for public finances. these challenges are even more acute if we take into account the challenge of an ageing population which will very soon start to weigh on public finances. this consequently remains the key priority in many countries. to take another perspective, we can also see that the pressures from globalisation and technological change force us to think hard about the long - term competitiveness of our economies. while we have had a lively debate in recent years about the reasons for the relatively low level of productivity growth in the euro area, the remedies are still not easy to formulate. for many of the new eu member states, this question is of particular relevance, especially in light of the fact that gains realised from a low starting position – stemming from the upgrading of technology and product quality through privatisation, restructuring and fdi inflows – may not be easy to sustain over time. more sophisticated measures may consequently be needed to bring about a new wave of restructuring and technological progress in order to keep up with competitor economies. in this endeavour, issues such as good corporate governance, efficient competition, research and development and education policies will be increasingly important. an important element for the internal market in the eu and the lisbon agenda is a wellfunctioning labour market. in recent years we have witnessed an increase in cross - border labour migration in europe, especially since the enlargement of the eu in 2004. most worker migration has so far been of

growth, and the low level of interest rates. moreover, the recent unwinding of uncertainties associated with geopolitical tensions should contribute to an economic recovery. such an assessment also seems to be reflected in recent financial market reactions. since the end of the war in iraq, financial market volatility has declined significantly, with a notable increase in stock prices. nevertheless, there continue to be downside risks. first, there are the risks originating from the past accumulation of macroeconomic imbalances outside the euro area, and lately concerns have arisen with regard to the sars virus. moreover, there is also some uncertainty over the extent of the adjustment still needed in the euro area corporate sector in order to enhance productivity and profitability, which could have an impact on employment growth and thus private consumption. as regards price developments, the annual rate of hicp inflation generally fluctuated at around 2. 3 - 2. 4 % between the autumn of last year and march 2003. broadly speaking, declining inflation rates in services and non - energy industrial goods have been offset by rising rates in energy and processed food prices. conversely, in april energy prices are expected to reflect the decline in oil prices following the developments in iraq. this expectation is in line with eurostat ’ s flash estimate for the inflation rate in april, which was 2. 1 %, i. e. 0. 3 percentage point lower than in march. looking ahead, current indications do not point to further strong declines in the inflation rate in the immediate future, but lower oil prices, an environment of moderate economic growth and, of course, the effects of the significantly higher exchange rate of the euro should all contribute to reducing inflationary pressure beyond the short term. the outlook for inflation will also depend to a significant extent on wage developments. the available indicators suggest that labour cost growth has shown signs of stabilising in the course of 2002. moderate wage trends are indeed crucial both to maintain price stability and to foster employment growth. in the context of our monetary analysis, focusing on the medium to long term, the broad monetary aggregate m3 has now been growing strongly over a protracted period. moreover, the data for more recent months do not suggest that a process of correction has started. as a consequence, the euro area economy continued to accumulate liquidity significantly above the amount needed to sustain non - inflationary growth. the strong monetary expansion contrasted with the more moderate growth in loans to the private sector. this is consistent with our assessment that