have diminished somewhat over recent weeks. as regards exchange rates, we confirm our position, expressed when the euro rose sharply, that such moves are unwelcome and undesirable for economic growth. turning to prices, annual hicp inflation was 2. 3 % in december according to eurostat ’ s flash estimate, up from 2. 2 % in november. annual hicp inflation rates of above 2 % are likely to persist over the coming months, notwithstanding the recent oil price decline. looking further ahead, however, the available information indicates that, barring further adverse shocks, hicp inflation will fall below 2 % in the course of 2005. moreover, the latest indicators do not suggest that underlying domestic inflationary pressures are building up in the euro area. wage increases remain contained, against the background of ongoing moderate economic growth and weak labour markets. in the context of what is a broadly favourable outlook for price developments over the medium term, upside risks to price stability need to be taken into account. given past oil price rises, there is a continued need to avoid second - round effects in wage and price - setting throughout the economy. responsibility on the part of social partners remains very important. moreover, developments in indirect taxes and administered prices require close monitoring. turning to the monetary analysis, the latest data confirm our previous assessment. monetary and credit growth strengthened in the second half of 2004, largely as a consequence of the prevailing low level of interest rates. given the strength of monetary dynamics over the past few years, there remains significantly more liquidity in the euro area than is required to finance non - inflationary growth. overall, the monetary analysis points to upside risks to price stability over the medium to longer term. at the same time, the combination of high excess liquidity and strong credit growth could in some countries become a source of unsustainable price increases in property markets. to sum up, the economic analysis suggests that underlying domestic inflationary pressures are contained but upside risks to price stability over the medium term need to be monitored closely. in this context, it is crucial that there is no spillover from current short - term developments in consumer price inflation to long - term inflation expectations. cross - checking with the monetary analysis supports the case for continued vigilance with regard to the materialisation of risks to price stability over the medium term. with regard to both fiscal policies and structural reforms, the governments and institutions of the european union will have to confront many important challenges in the course of 2005

reversing this dynamic will require measures in various areas including, among other aspects, improvements in education, the quality of institutions, competition in product and service markets and investment in research, innovation and development, along with a reduction in temporary employment in the labour market. i would like to conclude by stressing the importance of making europe ’ s challenges our own. in short, on the economic front, this currently involves two goals : completing the banking union and shoring up the fiscal stabilisation capacity of the euro area countries. with the supervisory pillar in place, completing the banking union still calls – as the euro area heads of state and of government recently concluded – for a common backstop for the single resolution fund. and, above all, the creation of a european deposit guarantee scheme. 4 / 5 in the fiscal policy arena, fiscal stabilisation capacity in the euro area needs to be completed through two channels : improving the member countries ’ fiscal headroom and developing supranational cyclical insurance instruments. to conclude, i turn once more to the spanish royal academy, which defines “ challenge ” as an aim it is difficult to achieve and which is thereby an incentive and a test for whosoever faces it. economic policy - making requires constantly facing the challenges our society throws up. to quote jean monnet, “ nothing would be more dangerous than to regard difficulties as failures ”. 1 thank you. jean monnet, memoirs, william collins sons & co. ltd., great britain, 1978. 5 / 5