membership in a monetary union has important implications for domestic economic policies. in the euro area monetary and exchange rate policies are no longer available to correct for country - specific imbalances and monetary authorities are primarily responsible for area - wide price stability. this is the key channel via which monetary policy contributes to long - run growth. other conditions which are z. darvas and g. szapary ( 2004 ), “ business cycles synchronization in the enlarged eu : comovement in the new and old members ”, mnb working paper, no. 1 / 2004, february r. a. mundell ( 1961 ), “ a theory of optimum currency areas ”, american economic review, vol. 51, 509 - 17 ; r. mckinnon ( 1963 ), “ optimum currency areas ”, american economic review, vol. 53, september, 717 - 725 ; p. kenen ( 1969 ), “ the theory of optimum currency areas : an eclectic view ”, in mundell, r. and a. k. swoboda ( eds. ), monetary problems of the international economy, university of chicago press, 41 - 60. f. frankel and a. rose ( 1998 ), “ the endogeneity of the optimum currency area criteria ”, economic journal, vol. 108, 1009 - 1025. p. asdrubali, b. e. sorensen, and o. yosha ( 1996 ), “ channels of interstate risk sharing : united states 1963 - 1990 ”, quarterly journal of economics, november, 1081 - 1110 ; a. k. rose and e. van wincoop ( 2001 ), “ national money as a barrier to trade : the real case for currency unions ”, american economic review ( papers and proceedings ), may, 386 - 390. equally necessary to ensure high and sustainable long - term growth and prosperity lie beyond the purview of monetary policy. they depend on sound fiscal policy and comprehensive structural reforms. these policies, in my opinion, are among the most powerful policy tools for addressing and preventing problems that may arise within a currency area. the need for structural reforms and sound fiscal policies – two mutually reinforcing strategies – is not limited to members of a monetary union, but it applies to all countries. flexible markets are a universal need in an open, science - and technology - driven, highly competitive and rapidly changing global economic

consumer spending should also be supported by an improvement in labour market conditions. these considerations underpin our confidence in a continuation of the economic recovery, an expectation which is mirrored by available forecasts and projections. it is also in line with financial market developments over the past few weeks. obviously, any forward - looking assessment is subject to risks and uncertainties. on the external side, the adverse terms - of - trade effects of recent rises in oil and other commodity prices pose risks at shorter horizons, while the persistence of global imbalances implies some uncertainties over the medium term. on the domestic side, uncertainties surrounding fiscal policy and structural reforms in some euro area countries seem to have contributed to preventing a more vigorous improvement in consumer confidence. a continued commitment to and greater clarity about the content and timing of these crucial reforms, supported by a better understanding of their necessity and benefits for all citizens, would help to resolve this uncertainty and thereby mitigate the associated risks for the euro area economy. turning to price developments, annual hicp inflation rates will exhibit some short - term volatility over the coming months, as we already indicated on the occasion of previous meetings of the governing council. according to eurostat ’ s flash estimate, annual hicp inflation was 2. 0 % in april, after 1. 7 % in march. while no detailed information is available as yet, the recent rise in annual inflation rates is likely to mainly reflect a strong base effect in the energy component resulting from the marked decline of oil prices a year ago. moreover, recent oil price increases have exerted additional upward pressure. as these factors will also play a role in the next few months, inflation rates of 2 % or somewhat above are possible over the short term. despite these recent, less positive developments, over longer horizons we expect inflation rates to remain in line with price stability. in particular, wage developments should remain moderate. the latest data on wage growth in the fourth quarter of 2003 lend support to this view. our outlook for price developments is in line with available forecasts and projections. however, at the current juncture, the increase in commodity prices in general, and oil prices in particular, may pose an upside risk to price stability. it will therefore remain important to pay close attention to inflation expectations. moving on to the monetary analysis, annual m3 growth has moderated only slowly since the summer of 2003. while there is evidence of continued portfolio shifts out of m3 into longer - term assets, the pace of this adjustment