in this respect, history tells us that loose monetary and fiscal policies lead to entrenched inflation processes, which in the end had adverse consequences for economic growth and employment. if we were to learn a lesson from the 1970s and the 1980s, it would be that there are high economic costs to be paid in fighting inflation once it has become entrenched. i should recall that it was this realisation which led to the worldwide conviction that monetary and economic policies should be stability - oriented. if i look back at the early years of stage three of economic and monetary union ( emu ), i can say that i am satisfied with what has been achieved by the monetary policy of the ecb. inflation expectations over this very challenging period indicate that there is public confidence in the fact that price stability in the euro area will be maintained. this confidence constitutes a major achievement which - through a variety of channels - contributes to raising the growth potential of the euro area. however, i must also confess that other macroeconomic policies have not lived up to expectations. in the area of fiscal policy, we have seen a process where commitments made have repeatedly been broken. from the start of stage three, some countries have not shown sufficient determination to meet one of the key objectives of the stability and growth pact, namely to achieve budgets in balance or surplus over the medium term. as the times of strong economic growth have not been properly used to bring the fiscal position of these countries onto a sustainable basis, it is not surprising that these countries have had problems during the last few years in keeping fiscal deficits below the threshold of 3 % of gdp laid down in the treaty. in this light, i view recent fiscal developments and the discussions surrounding the stability and growth pact with great concern. there is growing evidence that most countries will miss their budgetary targets for 2003 by a significant margin. while the deterioration of budgetary balances mainly reflects thelower than anticipated economic growth, it is worrying that not all countries with severe imbalances have so far introduced sufficient consolidation measures. the lack of fiscal discipline - and notably the lack of any clear medium - term - oriented consolidation strategies - is a factor weighing adversely on the euro area's long - term growth prospects. in order to strengthen confidence in the euro area, it is fundamental to maintain the credibility of the institutional and economic underpinnings of emu and to abide in all respects by the agreed rules of the game. it is essential that, in the budget

##feiting has consistently been that there is no undue cause for alarm about counterfeiting, but that the public should remain vigilant in checking banknotes using the feel - look - tilt test, thereby denying criminals any chance of succeeding in their attempts at counterfeiting. this remains my message. in addition, we are also trying to identify any need for the provision of additional information and training to the general public and, in particular, to professional cash handlers, i. e. cashiers of shops and banks, which are normally frontline targets for counterfeiters. at the same time, the ecb has been stepping up the institutional framework for combating counterfeits. in this context, i should like to refer to the close co - operation on anti - counterfeiting issues that has been established between the ecb, europol and the european commission. moreover, co - operation agreements are about to be concluded between the ecb and interpol, and between the ecb and national central banks of acceding countries. before concluding, let me make a final remark. as you know, this is my last testimony before your committee. i have had the privilege to preside over the ecb for the past five years, guiding it from its very inception through a number of crucial - and successful - stages, such as the introduction of the euro in 1999 and, three years later, the euro cash changeover. both events were, in my view, major steps towards a europe “ united ever more closely ”, and i am honoured to have served the european public and the cause of european integration during these times. madam chairman, honourable committee members, let me convey to all of you my sincere thanks for our very fruitful co - operation over the past few years. while we may not always have agreed on all issues, i believe that our relationship was marked by mutual confidence and a truly co - operative spirit. i have enjoyed working with you and wish you, as well as my successor, much success with the challenges that lie ahead.