imbalances in demand. however, the situation in euro area labour markets is not uniformly bad. some countries, particularly those with more flexible labour markets, more moderate wage increases and less discouraging tax and social security policies, have managed to avoid the trend of ever - rising unemployment. for example, the netherlands, ireland, portugal, austria and luxembourg all currently show unemployment rates well below the euro area average. there are also examples of other countries with higher unemployment rates, such as spain, that have begun to take steps to reform their labour markets and are now beginning to see tangible results. we can also look at some of the non - participating member states, such as denmark and the united kingdom, to see that high unemployment can be reduced through structural reforms. the need for structural reform is widely recognised, for instance in the oecd jobs study and at the november 1997 luxembourg european council meeting, and some progress with new policy measures is already being made. first, there are ‘ active labour market measures ’ to provide education, training and work experience – particularly targeted at the long - term unemployed. second, there are reforms to ensure that tax and social security systems make people significantly better off in work than out of it. third, there are measures to ensure that low - productivity workers are not forced out of the labour market. these include reducing the burden of taxes and non - wage labour costs and making sure that minimum wage schemes and collectively bargained wage agreements take account of the need to preserve such jobs. i would also wish to add that, contrary to some suggestions, such policies do not amount to ‘ competitive devaluations ’, and structural reforms and wage moderation are no ‘ zero sum game ’. they can help generate net increases in average employment and should not be criticised as ‘ wage or social dumping ’. the second long - term economic issue i should like to address today is the need to prepare for the substantial financial consequences of the ageing of european populations. on the basis of current trends in birth rates and life expectancy, unfunded public pension and healthcare schemes generate very high implicit government liabilities in most euro area countries. indeed, in many cases these implicit liabilities appear to be of such magnitude that they dwarf even the large official government debt levels. unless action is taken quickly, these financial burdens will fall on future generations of taxpayers and may also threaten the soundness of government finances. therefore, to prepare for the ageing of the population, substantial

of maintaining price stability. erm ii is explicitly designed to foster convergence to the euro area of countries that have not yet adopted the euro. for all these reasons, stable exchange rates of the euro are best served by stability - oriented policies that are consistent with economic fundamentals. in particular, exchange rate targets or objectives would be neither a substitute for a credible and stability - oriented macroeconomic policy stance nor a surrogate for a flexible response on the part of domestic markets. nevertheless, exchange rates affect the maintenance of price stability as they influence import prices and activity, and thereby consumer prices, in the euro area. moreover, they reflect market expectations about future economic developments and policies. furthermore, due consideration has to be given to the exchange rate of the euro against the background of the importance of the euro area in the international monetary and financial system. therefore, the ecb monitors exchange rate movements on an ongoing basis within its broadly based assessment of the outlook for price developments. the euro exchange rate is an integral part of the broad range of variables used by the eurosystem to take its monetary policy decisions. the exchange rate is also monitored as it may be a channel for monetary policy transmission. clear exchange rate misalignments, although difficult to identify, would be a cause of concern for the eurosystem. if prolonged, they might affect inflation expectations and distort economic activity as well as hamper the efficient allocation of financial resources. although in the euro area these negative effects will be mitigated, as a result of the low degree of openness of the economy, they cannot be ignored altogether. according to the maastricht treaty, the ecofin council may formulate so - called general orientations for exchange rate policy. these orientations – and this is consistent with the above – shall be without prejudice to the primary objective of the eurosystem of maintaining price stability. therefore, the eu finance ministers, who are ultimately responsible for the exchange rate policy of the euro, agreed in december 1997 that they would only issue these general orientations for the euro exchange rate in exceptional circumstances, such as in the case of clear and persistent misalignments of the euro. successful and credible stability - oriented policies should help prevent the emergence of misalignments in the future. the ecb ’ s view on the dollar exchange rate let me now share with you our views on the exchange rate of the euro against the dollar. the weakening of the euro vis - a - vis the