klaus liebscher : a stable euro for a strong europe panel statement by dr klaus liebscher, governor of the austrian national bank, at the european banking & financial forum, prague, 25 march 2003. * * * it is a great pleasure for me to participate once again in the european banking & financial forum here in prague and i congratulate the organizers for the interesting topics they have chosen this year. i would like to focus my deliberations on the state of the economy, on the stability - oriented framework of emu, including the need for further reforms required to enhance the euro area's noninflationary growth potential, and - last but not least - on the eu enlargement process. the governing council of the ecb decided on march 6 to reduce the key interest rate by 25 basis points to 2½ %. this decision was taken in the light of an improved outlook for price stability, owing in part to the appreciation of the euro and the subdued pace of economic growth in the euro area. the latter must be seen in the context of increased geopolitical risks over a protracted period of time, which once again led to higher oil prices. additionally, a fundamental downward correction of companies'profit expectations as well as increasing pessimism on the part of consumers and investors have substantially dampened demand and depressed stock prices in the industrial world. however, apart from these unfavourable shocks, some structural inefficiencies have also been holding back the euro area economy. forecasting the future is notoriously difficult - even more so under the current geopolitical conditions. heightened volatility in oil markets, for instance, makes it more problematic than usual to assess shortterm inflation developments. however, on the assumption that geopolitical tensions will decrease over time, more fundamental factors should dominate price developments in the euro area. the significant appreciation of the euro over the past year, which will feed through to the economy via lower import and producer prices, subdued economic activity and somewhat more modest wage settlements should dampen inflation in the medium term. if oil prices moderate, as indicated by futures, inflation rates in the euro area will most likely fall below 2 % in the course of 2003 and should remain at levels in line with price stability thereafter. against this background, interest rates in the euro area have fallen to very low levels, both in nominal and real terms. on the basis of currently available information, this policy stance, while contributing to

, austria ’ s demographic projections pointed toward stability, even decline. ii yet, recent unforeseen developments have transformed perspectives. largely due to migration, austria ’ s population is expected to grow by as much as 12 % until 2040 according to the latest forecasts. iii the impact of migration serves as a reminder that we live in an age of globalization. one reason for gloomy expectations in europe is a widespread perception that we are about to be overtaken by strongly growing emerging economies. and indeed, the eu ’ s share in global economic activity has been declining, namely from 26 % in 2004 to 22 % in 2015, and it is expected to fall below 20 % by 2030. similarly, the eu ’ s share in world population, currently at 6 %, will shrink to a mere 4 % by 2060. iv but let us not lose sight of the fact that neither one of these shares in isolation is relevant for measuring our prosperity. what really counts is per capita income. here, the eu – while still slightly lagging behind the u. s. a. – is still far ahead of any other economic region. and within the eu, austria is among the top performers with respect to per capita income. perceiving the world economy as an endeavor where the expansion of one country results in a loss for the rest is a misperception that can become outright dangerous if it forms the basis of international policy making. economic growth in emerging markets in recent decades went hand in hand with a growing world economy. in such an environment, a declining share in the world economy does not imply a welfare loss. after all, the global economy is not a zero - sum game. focusing on per capita income might undoubtedly mask huge asymmetries in the distribution of the gains from globalization within countries. but also in this respect, the european union comprises the most equal societies in the world. admittedly, it has not managed to escape the general trend of declining labor income shares that had started in the 1980s. as to household wealth, information collected in the eurosystem ’ s household finance and consumption survey points to disparities that are even more pronounced than inequalities in income. income and wealth inequality may fuel social tension and harm economic growth, as pointed out by the imf ’ s recent world economic outlook. to tackle inequality, the imf reminds us that we will have to envisage policies which strengthen the position of those at the bottom of the income