the euro area was more modest, with the policy interest rate falling from 4. 75 % to 2 % over the same period. since mid - 2004 the fed has raised its policy rate by a cumulative 375 basis points, while the ecb started to raise rates only in late 2005 and since then has increased them by 50 basis points. against this background, i would like to address the following questions : how can these differences in the pattern of policy rates in the two currency areas be explained? do they reflect differences in the monetary policy strategies adopted by the two central banks or deeper differences in the structure and dynamism of the two economies? the observation that the policy rate has been much less volatile in the euro area than in the us can certainly not provide reliable information on the strategy of the two central banks, nor can it prove that the monetary policy of the ecb has been too gradual, or not sufficiently active. to answer these questions, it is crucial to assess policy moves against the prevailing state and structure of the respective economy. some early research undertaken by ecb watchers already addressed this topic. 1 some more recent work undertaken by ecb staff has provided further insights that i believe are worth discussing today. the common theme of this work is that the causes of the different behaviour of policy rates in the euro area and the us over the last years can mainly be found in the following two factors. first, shocks of a different nature and pattern have hit the two economies, generating an unfavourable trade - off between inflation and output in the euro area, while the us economy was supported by rather strong productivity improvements. second, the structure of the two economies is very different – mainly with respect to the degree of market flexibility – producing different effects in the two areas in response to similar shocks, with specific implications for monetary policy. this interpretation does not deny the presence of some differences in the policy framework adopted in the two currency areas. for instance, the ecb ’ s primary objective of price stability and its mediumterm orientation imply scepticism regarding the appropriateness and efficacy of fine - tuning policies. in addition, the importance of monetary analysis in providing early warnings of price instability in the future, the strength of the central bank ’ s reaction to inflation expectations and the response of the yield curve to policy changes would indeed normally translate into differences in the setting of the policy instrument. however, these factors seem to be of minor importance when dealing with the specific criticism that has been voiced

to react more strongly to economic downturns, without endangering price stability. second, as far as we can judge at this stage, the stance of policy was carefully calibrated to the economic situation and the given structure of the euro area. there is no convincing evidence available suggesting that the ecb might have been inappropriately passive or inactive. third, the critique that the ecb ’ s monetary policy in recent years has provided insufficient support to the economy cannot be confirmed. the euro area policy rate in recent years, if anything, may have been relatively low compared with some of the benchmarks that can be constructed on the basis of past data, and by this standard the ecb could be judged as having been accommodative rather than having done “ too little, too late ”. concluding remarks in concluding, let me first recall my own remarks from the very first of these watchers conferences held back in june 1999. on that occasion, i said : “ we are all journeying, in uncharted waters, towards a destination that is far from certain. ” almost seven years on, that journey is coming to an end for me – at least in my capacity as a member of the ecb ’ s executive board. since 1999, we have made considerable progress in mapping those uncharted waters, although much further exploration remains to be done. confounding the many sceptics at the outset of monetary union, the ecb has firmly established its credibility and reputation. longer - term inflation expectations have been firmly anchored and a robust and durable monetary policy framework has been created. the journey is not yet complete, but a successful start has been made. this watchers conference is a unique event. the center for financial studies in the persons of first axel weber and now volker wieland has not only been a perfect organiser, but has given permanent intellectual input. in the end, it was our decision to meet our watchers, our critics from all camps : academia, banks, markets and media. for me it has always been a great challenge. i have learnt a lot from these conferences – i would not have liked to miss this experience. i do hope that this event will continue to provide a platform for frank and open discussions of monetary policy issues and beyond.