it clear that, while the primary objective of monetary policy is price stability, the eurosystem should, without prejudice to this objective, also take into account the broader economic goals of the european community. sometimes it is overlooked that monetary policy operates in tandem with other policies and there are strong complementarities between them. monetary policy has been successful in ensuring price stability and delivering low short and long - term interest rates. however, other elements such as a sound fiscal policy, a stable macroeconomic framework and sufficiently flexible labour and product markets are also necessary to achieve strong and sustainable growth. structural reform reflecting this, an important commitment of the irish presidency of the eu is to progress the structural reform agenda. as a member of the governing council, i welcome this initiative. why is structural reform an issue for a central bank? there are a number of reasons. increasing the efficiency with which markets operate raises potential growth. importantly, also, a more efficiently functioning economy will utilise the resources available to a greater extent and, in doing so, will be less prone to inflation. this extends the boundaries within which all economic policies, including monetary policy, can operate without generating inflation. in effect, the economy will have a higher growth “ speed limit ” i. e. it will be able to grow faster before inflation is likely to become a problem. the structural reform agenda, set out in the lisbon strategy of 2000, aims to improve the functioning and flexibility of euro area product and labour markets. this is to be achieved through raising employment rates, education and skills levels and promoting technological innovation. while, in terms of time, we are nearly halfway through the lisbon process, progress in meeting targets has been slow. while most eu countries have undertaken initiatives for labour market reforms in recent years, achieving the target employment rate of 70 per cent of the working age population is still far off. moreover, further reforms are needed to allow wages to reflect more strongly regional and sectoral productivity differences and also to improve education and training systems. the emphasis placed on these issues is to be welcomed and their achievement has the potential to contribute materially to boosting the long run sustainable growth rate of the euro area. stability and growth pact the link between monetary and fiscal policy is, i think, readily appreciated. the stability and growth pact, together with the maastricht deficit and debt objectives, constitutes the euro area ’ s fiscal framework. there are two main reasons why we need such a framework. first, given the divergent

the case. while exchange rate appreciation helps to dampen inflation and ultimately improve purchasing power, it also obviously impacts on the net trade position. so far, the positive effect of stronger global growth has outweighed the negative impact of exchange rate appreciation on euro area exports. more recently, however, there has been some evidence from sentiment indicators of a moderation in export orders, and industrial production fell in january. the euro has been trending upwards, both against the dollar and in overall terms, for just over two years now, and there have been sizeable movements in exchange rates over the past six months. in particular the appreciation of the euro accelerated considerably against the dollar and also asian currencies in late 2003 and the first half of january 2004. these movements were linked with imbalances at the level of the global economy, such as the us current account deficit. they also reflected the fixity of some asian currencies vis - a - vis the us dollar, which led them to depreciate in line with the us currency. the speed and strength of the appreciation of the euro over this period raised concerns and, while the gradual and smooth correction of global imbalances is an important medium - term issue for the global economy, it must be achieved in an appropriate manner. viewed in this way, excess volatility and disorderly movements in exchange rates are undesirable. the g - 7 statement issued in florida on 7 february recognised this risk. the statement emphasised that greater flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility to promote smooth and widespread adjustment in the international financial system, based on market mechanisms. while i recognise that there have also been other factors at work, i am encouraged by the fact that since the recent g - 7 meeting, we have seen greater stability in foreign exchange markets. the importance of an appropriate policy mix i will now briefly touch on the issue of the euro area policy mix. there is sometimes a misconception that the single monetary policy is in some way anti - growth. i can assure you that the single monetary policy is not anti - growth. not only has it had the positive effects i have described earlier - anchoring long - term inflation expectations, thus, facilitating low short and long - term interest rates - the ethos of the policy is not in any way opposed to growth. in fact the opposite is true. the aim is to support growth. the maastricht treaty makes