. what we aim to capture by trend growth is the rate of growth, which is sustainable in the medium term, which, according to our analysis, has been estimated as falling in the range of 2 - 2½ %. let me also emphasise the fact that estimates of potential output ( and thus of the output gap ) are surrounded by considerable uncertainty. therefore, these indicators should be treated with great caution. we are currently observing a strong cyclical expansion supported by strong productivity growth. however, we need more compelling evidence before it can be concluded that this upturn will be followed by higher growth potential, which is above trend growth, as it has been estimated so far. it is too early to tell, but we are monitoring and analysing developments closely. we will take our findings into account when reviewing the reference value and taking monetary policy decisions. nevertheless, i should like to stress that it is hard to imagine that the current growth in m3 could be justified by an upward revision of potential growth. i should also like to point out that the analysis of monetary and credit developments conducted under the first pillar of our strategy is more complex than simply comparing actual m3 growth with the reference value. the challenge to turn the current expansion into a prolonged period of non - inflationary growth clearly requires further efforts in all policy areas. reforms in the labour market will be a major factor contributing to sustained non - inflationary growth in the euro area. the current level of unemployment in the euro area, despite some decline, is still too high. in this respect, both appropriate wage settlements and structural reforms will be important contributions to continued employment growth and to maintaining low inflation. with a view to fiscal policies in the euro area, it is important that the opportunity of the current economic environment is seized to improve the soundness of public finances. member states should take advantage of the current cyclical position in order to achieve and maintain budgetary positions, which meet the requirements of the stability and growth pact. more ambitious fiscal positions than those targeted in member states ’ updated stability programmes should be achieved, particularly in countries with high debt ratios and especially if economic growth develops more favourably than expected. in addition, we welcome initiatives to implement tax cuts in a number of countries, provided that these measures are consistent with the progress to be achieved in the area of fiscal consolidation. at the same time, more emphasis should be placed on structural reforms on the expenditure side of budgets leading to stricter expenditure restraint. at the current juncture,

year growth in p1 accelerated from 12. 3 % in december l995 to 18. 5 % in october 1996. the rate of interest paid on housing savings plans has remained unchanged at 5. 25 % since february 1994, whereas comparable market rates have fallen sharply. this gave a strong boost to the reallocation of investment flows. year - on - year growth in housing savings plans accelerated significantly, rising from 14. 1 % at the end of 1995 to almost 26 % in october 1996. in addition, twelve - month growth in the p2 aggregate covering investment in bonds and life insurance products remained buoyant. it stood at 12. 3 % in june 1996, with new investment accounting for 9 %. at the same time, formation of liquidity was dynamic. the narrow money aggregates m1 and m2, which cover transaction balances and liquid savings, showed annual growth trends in october 1996 of around 5. 8 % and 7. 5 %, respectively. in particular, the growth of m2 - m1, covering passbook savings deposits, accelerated from 7. 6 % in december 1995 to 9. 6 % in october 1996. in such a context, it is important to monitor closely the investments which, within the p investment aggregates, constitute fairly close substitutes for monetary assets in the strictest sense. m3 + p1 posted significant annual growth of around 4 %. on the financing side, total domestic debt showed a yearly growth trend of around 3. 3 %. total domestic debt incorporates the debt financing obtained by resident non - financial agents in the corporate, personal and public sectors, be it in the form of borrowing from credit institutions or debt issues on domestic or international markets, and is thus a valuable yardstick for analyzing the financing provided to the economy. even though government debt continues to be the most dynamic component of total domestic debt, its twelve - month growth slowed sharply from 13. 4 % in december 1995 to o. 9 % in september 1996. outstanding lending by credit institutions to the private sector is practically stable, particularly owing to the corporate sector's sizeable cash surplus. according to the national institute for statistics and economic studies ( insee ), the self - financing rate of companies and near - companies stood at around 114 % in the second quarter of 1996. i shall now make a few comments concerning interest rates, which fell across the board in 1996. this decline in interest rates, which began in october 1995, corresponds to a considerable increase in confidence in the