always been a major source of social iniquity. in addition, it prevents the economy from functioning properly, by falsifying the signals which are given by prices. the speculative boom in the real estate markets in some of our countries at the end of the 1980s caused serious damage - and we are still paying the price. 2. once inflation has been brought under control, and once this control has been confirmed, monetary policy can guide short - term interest rates to a level which contributes to balanced growth. quite a number of eu countries are in such a situation already, with short - term interest rates at around 3 %. in others, where inflation has been brought under control more recently, rates have not yet reached this level but are approaching it gradually. the confirmation that inflation has been brought under control does, unfortunately, take time. finally, in one major country which has seen rapid growth for several years now and in which unemployment has fallen remarkably, short - term interest rates have been raised - applying the principle of preventive medicine. 3. now, what can we say about long - term interest rates, which also have an important role to play in stimulating growth - perhaps an even more important one than short - term rates? monetary policy does have an influence on the level of these rates, but its influence is not exclusive and we cannot even predict the direction of its influence with certainty. at this particular point in time, in the first group of countries to which i referred a moment ago, nominal long - term interest rates are at a historically low level - they are well below 6 % - but real long - term interest rates can be regarded, perhaps, as still being too high to put continental europe on the road to more vigorous growth. i am doubtful whether a further easing of monetary policy in this group of countries would be able to help move the yield curve in the desired direction. it could actually have the opposite effect - if investors perceived it as heralding a weak euro. in any event, given the current level of short - term interest rates, monetary policy ’ s margin for manoeuvre is extremely limited. it is possible that the level of real long - term interest rates in europe reflects, partially at least, that of real interest rates worldwide. europe has no influence over that effect. europe can, however, have an influence on the effect which comes from the constant increase in public sector indebtedness in our countries. as a reminder, between the end of 1991 and

mr. lamfalussy reflects on the possibilities and constraints of monetary policy against the background of price stability in europe address by the president of the european monetary institute, baron alexandre lamfalussy, on the occasion of the change of the presidency of the european monetary institute in frankfurt am main on 30 / 6 / 97. the moment has come for me to say a heartfelt “ thank you ” to you all! i should like to express my gratitude, first of all, to the governors of the central banks of the european union, who, in the autumn of 1993, chose me as their candidate for the presidency of the european monetary institute, thereby setting in train a process which has allowed me to play a part in a ground - breaking enterprise of exceptional scope and responsibility. i should like to thank them, secondly, in their capacity as members of the emi council, for their cooperation in this undertaking and for their wisdom, prudence, willingness to compromise but also their will to achieve results. they have invariably acted with the utmost professionalism. i should like to add that we should not have been able to achieve what has been done without the conviction - which each of us shares - that the first duty of a central bank is to maintain price stability. this fundamental principle has never been a matter of dispute. my thanks go next to the political authorities. first, to the heads of state or of government, who did me the honour of putting their faith in me in appointing me president of the emi. second, to the finance ministers, who resigned themselves gracefully to the existence of an institution which would be independent of the executive and who played their part, with consummate political skill, in establishing the good working atmosphere between the ecofin and the emi, in the mutual respect of our respective competencies. i hope that this will be an enduring legacy. thanks go, too, to the european commission, with which we have been able after a little trial and error, and with both sides demonstrating good will and a certain ability to listen - to draw up the rules of the game for the indispensable cooperation which is needed to enable the project of economic and monetary union to go ahead. the european parliament - and several national parliaments - have given me the opportunity to report on the work of the emi, in an atmosphere of constructive dialogue. their questions and concerns, as well as those of the media and of the large number of associations from both the banking and financial sphere as well