over the past few years, we have started to see this happen : with their large populations and extensive resources, these countries are developing rapidly and catching up rapidly. as a result of these economies entering into the world market, there have already been periods during which they have fostered disinflation, i. e. very low or falling prices of manufactured goods, which have then been followed by periods where they have triggered inflation through energy and commodity price increases. this of course has a strong, as well as complex, influence on monetary policy. the same applies to the second challenge of scientific and technological progress : a significant increase in productivity triggered by the advent of new technologies means that costs and prices change in the economy, as does the assessment of inflation risks by the central bank. the third challenge is the ageing population. because price stability is particularly important for pensioners? that ’ s not what i mean. we have to ensure price stability in line with our definition of price stability in every situation. however, monetary policy must take into account the fact that the age structure of a population influences savings and investments, and thus is an important factor for real interest rates in any given economy. this has to be taken into account by monetary policy and this is why intensive research into these issues is being conducted at universities and central banks. the fourth and final challenge for central banks is the fragility of the financial system which has come to light during the present financial crisis. this calls for all appropriate lessons to be learned without any complacency. and the two ecb - specific challenges? the fifth challenge is that the single market with its single currency is not yet achieved. we are still significantly changing the structure of our own euro area economy. unlike elsewhere, a look into the euro area ’ s past provides hardly any indications for the future. and the sixth challenge for the ecb is enlargement. we are currently 15 members, soon to be 16, but the treaty stipulates that we must be ready to be 25 one day and we have to manage this historic enlargement process in the most professional and successful way possible. how is the ecb preparing itself for these challenges? excellent staff! both at the ecb and in all national central banks of the eurosystem – in germany at the deutsche bundesbank. there is the feeling that we are all working together on a task of historic proportions. the world in which we are living is changing very rapidly, requiring

countries of the euro area should make appropriate use of the important leeway that the pact currently gives several countries in terms of fiscal policy. however, those countries that have modest leeway or no leeway at all should respect the pact as it stands. they should not forget that these rules are very important for the cohesion of the euro area. these rules are also underpinned by strong financial and economic principles. governments have to take into account the fact that if their citizens consider that the fiscal policy of their government is not sustainable, confidence will drain away. and in such a case, when confidence is lacking, additional public expenditure will not have a positive effect on growth. does the euro area need greater coordination of monetary and fiscal policy, a european economic government of the kind that the french government would like? monetary policy is geared to ensuring price stability. according to our definition, that means keeping annual inflation below, but close to, 2 % over the medium term. we have to achieve price stability in accordance with our definition in all circumstances – even if, as i have said, there are severe economic shocks, and even if we are confronted with fiscal policies that appear not to be as sound as necessary. there is no “ ex ante ” coordination between monetary policy and fiscal policy. that in no way prevents the governments of the euro area from coordinating their activities and conducting peer surveillance as regards the policies they are responsible for, particularly the implementation of the stability and growth pact. governments have also committed themselves to very important structural reforms within the framework of the lisbon agenda. the national governments therefore have a lot to do, fully independently of the central bank. the european labour market is still highly fragmented... that is true. there are many reasons for this, such as the differing rules and regulations and also cultural differences. the labour market is an important factor in an economy ’ s costs and is therefore important for the relative competitiveness of the individual countries within the single market in the presence of a single currency. in any case, it is important to make the single market a reality in all markets, including the labour market. i think that in the euro area we are moving in the right direction in this respect, particularly as regards the younger generation, but a lot remains to be done. do you think that the euro will lead to greater political integration? that will be a decision to be taken by our master, the people of europe, our fellow citizens. at present, the democratically taken