of risk premiums. during the last weeks we saw a correction. at the moment i would say it has been a healthy correction. but i remain cautious : it is no time for complacency. die zeit : at the moment there's a lively debate in - and outside the ecb whether the second pillar, the monetary analysis, matters anymore. the first revision of the ecb strategy came 2003, five years after its implementation in 1998. will the next revision come 2008, five years after the last one? trichet : no. the two pillar strategy has been very effective. we are very attached to this methodology which permits the governing council to cross check the economic analysis and the monetary analysis with a view that the latter gives valuable information on risks from medium to long term. and we are permanently improving both analysis. die zeit : markets are worried about the sub - prime crisis in america. are you worried as well? trichet : the global economy remains very prosperous. on the particular sub - prime mortgages issue as well as on other us issues i entirely share the view of the federal reserve which has been fully vindicated. die zeit : the definition of price stability is below, but close to 2 percent. in the last eight years the ecb failed seven times to deliver an inflation rate below 2 percent. the average stands at 2, 05. with a symmetric target around 2 percent the ecb would be king. trichet : our definition is below but close to 2 percent in the medium term. it is exactly the same as in germany and in other countries before the euro. i am not satisfied with the overall average but one has seen that we had to cope with increases in the price of oil and commodities, in particular that have been very significant. what is extremely important is that the inflation expectations are solidly anchored at a level in line with our definition.

as revenue collection has strengthened, there has been enhanced scope both to reduce taxes and to continue building up essential spending programmes on a sustainable basis. in the monetary field, on which i want to say a little more, there has similarly been a commitment to a coherent and responsible framework steadily and consistently pursued. this is the inflation - targeting framework, which mandates the reserve bank to keep inflation low in order to deliver broad price stability across the economy as a whole. south africa is, of course, not alone in setting price stability as the priority for monetary policy. maintenance of low inflation is the universal aim that central banks around the world are set to pursue. but in pursuing this aim within the framework of an explicit low inflation target, south africa is very much in the forefront of international best practice. why this emphasis on low inflation and the commitment to price stability? at one level, the socioeconomic damage that flows from a failure to control inflation is all too evident. high and volatile rates of inflation disadvantage the poor, who are least able to protect themselves from the ravages of inflation, to the benefit of those more able to preserve their standards of living. inflation disadvantages in particular those living on fixed incomes, often the elderly reliant on pensions or savings. across the board, inflation will tend to discourage savings and undermine the ability of people to plan their future personal finances on a prudent, long - term basis. by eroding values in a corrosive and insidious fashion, inflation can undermine sociably responsible behaviour and threaten the stability of society as a whole. not for nothing has inflation been called a silent and invisible thief. in more specifically economic terms, too, inflation is the enemy of long - term sustainable economic growth, weakening the capacity of the economy to achieve the rate of growth of which it is capable. past history, in south africa and in many other countries, illustrates this all too vividly. if demand in the economy is allowed to grow faster than the output supply capacity of the economy, the result is inevitably rising inflation. this is because excess demand cannot induce the economy to deliver more output than it is capable of producing : it simply bids up the price of the output the economy can produce, generating inflation. if inflation is allowed to gather pace, the process of reining back excess demand, through higher interest rates, is inevitably more wasteful, in terms of an extended period of growth below capacity, than if timely action is taken by the