axel a weber : stability and growth closing remarks by professor axel a weber, president of the deutsche bundesbank, at the european banking congress, frankfurt, 19 november 2004. * 1. * * introduction ladies and gentlemen although i have been entrusted with delivering today ’ s closing remarks, i am unwilling to say goodbye to lisbon. the lisbon agenda started off as a visionary project in march 2000, which was at the very peak of the hype surrounding the new economy, the pinnacle of irrational exuberance in the stock market - if i may refer thus to alan greenspan -, and the high point of overconfidence. at times like those, visions tend to become oversized - which is fine for visions. european monetary union started off once as a seemingly oversized vision, too. the original plan was aired as early as 1970. from then on, it took more than 30 years before you could feel the change in your pocket. now that we are almost six years into the euro era, we can safely conclude that the euro was a vision worth pursuing. the vision of a stable single european currency has come true. the lisbon project basically aims at boosting the eu member states ’ potential for dynamic growth. progress towards the lisbon goal hinges crucially on the efforts of national governments. for keeping up spirits during the nitty - gritty of making this vision become reality, european leaders need, as the kok report rightly states, “ to instil ( the ) hope that tomorrow will be better than today ”. this visionary stance contrasts sharply with the present reality, where there is a prevalent, rather vague sense of europe being an underachiever. 2. institutional foundations of stability the two big european visionary projects - emu and the lisbon agenda - are interrelated. first, reinvigorating the growth dynamics in europe is crucial for fully exploiting the potential of a stable single currency. second, sustainable economic growth requires more than lisbon - style reforms ; price stability is of the essence for sustainable economic growth. stability and growth go hand in hand. stability must be safeguarded by a cleverly designed institutional framework that generates proper incentives. i very much welcome the fact that this year ’ s nobel prize for economics rewards theoretical research on the importance of a sound institutional setting. it should come as a useful and timely wake up - call for those who are, in effect, contemplating watering down the institutional foundations of the euro ’ s stability. reforming the stability and growth pact under

contrary, it would undermine the long - term sustainability of fiscal positions and thereby weigh heavily on future growth. public finances in europe are already characterised by a large sustainability gap. future pension obligations in most countries are several times higher than the explicit debt burden revealed in the national accounts. by a very rough calculation, it would, for example, take germany three and a half years ’ output to honour its combined explicit and implicit debt. if future generations are to handle this sizeable burden - in germany as well as elsewhere - there is, first, no way of getting around a tough course of fiscal consolidation, which has to be augmented, second, by coherent policies to lift growth potential - as agreed on in the lisbon agenda. i appreciate the fact that, last year, germany directed its attention to structural reforms in the spirit of the lisbon agenda - even if this was driven more by the “ push ” of persistent economic stagnation than by the “ pull ” of the lisbon vision. under the federal government ’ s “ agenda 2010 ”, labour market flexibility has been improved in terms of the institutional framework, collective wage bargaining agreements and working hours. reforms in the social security systems have been enacted and will help to contain the implicit debt burden. among the remaining tasks, priority status should be given to untying the link between labour costs and social security and to raising the statutory retirement age. 5. concluding remark stability and growth go hand in hand. the lisbon agenda and the stability and growth pact complement each other in lifting the eu ’ s growth potential. both are needed and we should not say goodbye to either of them.