try to assess its particular contribution to our improved inflation performance, we run into all the usual difficulties of isolating the impact of our inflation targeting regime from all of the other influences at work over this period. in making that assessment, we could place a high weight on the shifts in political priorities which dated from july 1984, on the sweeping reforms that have occurred generally in new zealand ’ s macro and micro policies, or on the shift in our trading partners ’ inflation performance. it could be argued that the shift in political attitudes towards inflation was, ultimately, the only change that really mattered. we could also argue, reasonably, that the major changes in new zealand ’ s monetary policy came with decisions to float the exchange rate and commit to market funding of the government ’ s fiscal deficits. to accept those arguments, however, would miss some important points. certainly, the political will to adopt a price stability target was an essential pre - requisite to any serious attack on well entrenched inflation. but as my counterpart at the bank of england, mervyn king, recently observed in reviewing the performance of their monetary policy committee, “ institutions matter. ” what our inflation targeting regime has done is to give the initial political commitment to price stability a degree of durability that transcends the particular politicians or central bankers in place in 1989 when the rbnz act was passed into law. the framework has shifted the incentives from an acceptance of inflation arising from all the familiar pressures towards a more robust resistance to any future re - emergence of inflationary tendencies. references bernanke, ben s ; laubach, thomas ; mishkin, frederick s ; posen, adam s. 1999. “ inflation targeting. lessons from the international experience ”. princeton university press. brash, donald. 1999. “ inflation targeting : an alternative way of achieving price stability ”. a speech delivered on the occasion of the 50th anniversary of central banking in the philippines. reserve bank of new zealand bulletin, vol 62 no 1. brook, anne - marie ; collins, sean and smith, christie. 1998. “ the 1991 - 97 business cycle in review ”. reserve bank of new zealand bulletin, vol 61 no 4. drew, aaron and orr, adrian. 1999. “ the reserve bank ’ s role in the recent business cycle : actions and evolution ”. reserve bank of new zealand bulletin, vol 62 no 1. hawke, gary. 1993. “ between governments and banks. a history of the reserve bank of

serve as a test of the new framework ’ s effectiveness and renewed progress towards achieving sound medium - term budgetary positions. let me emphasize, that it should be of the highest priority, especially if combined with a comprehensive economic reform strategy! with a view to the third pillar, eu policy makers are well aware of the importance of structural reforms and they did commit to action when the european council adopted the lisbon strategy five years ago. some encouraging structural reforms notwithstanding – let me mention here as examples the liberalisation of the electricity market and the progress in pension and labour market reforms – the lisbon strategy fell short of its initial goals. even if we consider the time lag between the implementation of reforms and their taking the intended effects, the increase in potential growth was disappointing. in addition it has obviously proven difficult to communicate the benefits of long - term growth effects of structural reforms to the general public. social and economic progress often entails significant changes in the life of individuals, with risks as well as benefits. these legitimate worries need to be taken seriously and addressed appropriately. as a new start for the lisbon strategy, in spring 2005 the european commission presented the “ community lisbon programme ” focusing on two principal tasks – delivering stronger, lasting growth and more and better jobs. the idea is to modernise our economy in order to secure the european 2 / 3 social model in the face of increasingly global markets, technological change, environmental pressures, and an ageing population – a difficult challenge! but we need to invest more in the young people, education, research and innovation. we also need to further open markets, to invest in modern infrastructure and to take the necessary steps to develop a skilled and entrepreneurial workforce. some of the policy actions will take time to show visible effects, others will deliver early benefits. in all cases they must be approached with a strong sense of urgency and collective responsibility of all the member states of the european union. due to the recent enlargement of the eu the necessity of ongoing structural reforms became more stringent also for the old member states. moreover, the new member states demonstrated in many areas that even unpopular reforms, like pension reforms, can be accomplished when tackled right. increased competition from within and the will to further the competitiveness of the eu as a whole are surely very nice side effects of the enlargement and an incentive to take the revival of the lisbon strategy seriously. although emu represents a highly successful achievement it cannot be considered as the end - point of the european integration process