report encourages us to make further progress on this front. our aim is to ensure that markets, elected representatives like yourselves, and the wider public better understand how we reach our decisions, the reasons behind these decisions, and how these decisions affect people ’ s daily lives. in other words, we need to be clear about what we call the “ three a ’ s ”. first, we must be clear about our aim. our new symmetric inflation target of two per cent over the medium term is simple, clear and easy to convey to the wider public. second, we must be clear about our assessment. we need to clearly explain how we process incoming economic and financial data, what we judge to be short - term movements, and what we 3 / 4 bis central bankers'speeches consider influential factors relevant for our medium - term horizon. third, we must be clear about our actions. our audience should be able to understand what we are trying to achieve with our measures, as well as why they are effective, efficient and remain proportionate to our aim. clearly communicating these three a ’ s to different audiences often means being more simple and straightforward. but being more simple does not mean being simplistic. it means being more inclusive when we talk. following on from our strategy review, we are using clearer, more narrative - driven language, together with visuals people can relate to. finally, in all our communication, we need to be open about what we can and cannot do as a central bank. for example, our monetary policy cannot fill pipelines with gas, clear backlogs at ports or train more lorry drivers. conclusion let me conclude. we are very aware that many people across the euro area are concerned about the rising cost of living at the moment – as you also highlight in the report. and the burden is primarily borne by those with lower incomes, who must face the day - to - day hardship of having to cope with higher prices. we remain committed to delivering on our price stability mandate – as we have done over the past 20 years. our target is an inflation rate of 2 per cent over the medium term. to achieve this, we will take action at the right time. but it is also our task to openly engage with people ’ s concerns with regards to monetary policy. as i said when i first spoke to you here two years ago, the ongoing dialogue between the ecb and the european parliament is the key channel for this. independence and accountability are two sides of the

s monetary analysis. concerns relate to continued strong monetary and credit growth, which reflects the sustained stimulative effect of the historically very low level of interest rates in the euro area. since monetary dynamics are driven mainly by developments in the most liquid components of m3, the stock of excess liquidity which has built up over the past few years may increasingly entail upside risks to price stability in the medium to longer term as economic activity gains momentum. finally, the strong monetary and credit growth and, in particular, the marked growth in loans for house purchase require careful monitoring in view of the strength of house price dynamics in some regions of the euro area. the stability and growth pact i should like now to address a number of economic policy issues, starting with the eu fiscal framework. in 2004 the debate concerning a reform of the stability and growth pact intensified, subsequent to the judgement of the european court of justice annulling the conclusions of the ecofin council of november 2003 and following the commission ’ s proposals to strengthen economic governance and clarify the implementation of the excessive deficit procedure. throughout that debate, the ecb clearly and consistently stated its position, namely that improvements in the implementation of the pact, particularly the strengthening of its “ preventive arm ”, were possible and, indeed, welcome. at the same time, the ecb warned against any weakening of the pact ’ s “ corrective arm ” and of the provisions governing the excessive deficit procedure, as these could be detrimental to the credibility of the fiscal framework. in march 2005 the european council unanimously approved a number of changes to the pact. there are some aspects of the reform which can potentially help to strengthen the “ preventive arm ” of the pact, provided they are implemented effectively. the agreed amendments, however, also allow – against the advice of the ecb – for greater flexibility as regards the “ corrective arm ” of the pact. specifically, the reform of the excessive deficit procedure implies a shift towards a more judgemental approach to the enforcement of fiscal discipline, for example by allowing the commission and the council to take into account “ other relevant factors ” or by making the time frame for correcting excessive deficits more conditional. i should recall that the ecb has stressed the vital importance of implementing the new framework in a manner conducive to prudent fiscal policies. it is essential that decisions and actions to be taken in the context of the reformed pact do not undermine confidence in the european fiscal framework and in the sustainability of public