rates hovering around 2 % over the past couple of months. these developments are broadly in line with previous expectations of inflation rates for the remainder of the year, but recent upward tendencies indicate that the short - term trend has been affected by oil price developments. however, subdued economic activity and the stronger euro should help to dampen inflationary pressures over time. at the same time, however, we need to assess other factors which may involve upward risks to price stability. among those, wage developments play a particular role. wage growth remained on an upward trend until early this year. although we have indications that this trend may have come to a halt in the second quarter of 2002, close monitoring is necessary. to sum up, inflationary pressures have declined. looking forward, recent trends in economic activity and the exchange rate of the euro imply downward pressure on inflation rates, but other factors, in particular monetary developments, wage trends and oil prices, need to be monitored for their possible upward impact on inflation. overall, therefore, we are of the opinion that the risks to price stability over the medium term are at present balanced. we thus consider the current level of the key ecb interest rates to be appropriate. at this juncture it is of utmost importance that all macroeconomic policies remain oriented to the medium term, with all players fulfilling their responsibilities. monetary policy will continue to provide a reliable anchor for the economy, especially in an environment characterised by high uncertainty and fragile confidence. this implies focusing on the maintenance of price stability over the medium term. let me make a remark in this context, linked to comments which arise with a certain regularity in public debate and which argue that monetary policy should follow a different orientation, an orientation in which price stability is not the overriding objective. i should like to recall in this connection the fundamental and yet simple principle that monetary policy should not be overburdened with objectives that it cannot fulfil. it is well established that monetary policy can only control price developments over the medium term and cannot have an impact on output beyond the short term. monetary policy can certainly not heal structural problems in the economy, such as those underlying the high level of unemployment. in line with these principles, the treaty establishing the european community has assigned the ecb the primary objective of maintaining price stability. in the end, strictly following this mandate, with the appropriate medium - term orientation, is the best contribution the ecb can make to supporting sustainable non - inflationary growth and a high level of

very important. they contribute to making europe really " one market " and to providing further economies of scale. fiscal developments are monitored very closely by the ecb. we have noted that a number of governments need to reinforce their efforts to proceed along the path of fiscal consolidation in order to achieve the objectives of the stability and growth pact. by increasing the level of ambition of their stability programmes, especially in respect of expenditure restraint, they would free resources for productive investment and reassure the public with regard to future tax developments, thereby fostering economic growth. i have already expressed the view that the ecb's best contribution to economic welfare in europe is to maintain price stability in the euro area. the ecb will continue to address governments and other policy - makers, convinced as we are that monetary policy does not act in a vacuum and that the task of maintaining price stability is much easier in a flexible and competitive economy. in this regard, we have taken note that, while some countries have implemented structural reforms, much remains to be done if the objectives set at the lisbon meeting are to be attained. one area where further progress is needed is the integration of the equity and securities markets. there is still a certain degree of fragmentation in europe's financial markets. the eurosystem is directly involved in the area of securities and settlement systems, because of the repercussions these may have on the conduct of the common monetary policy. the eurosystem is also active in ensuring that retail payments systems are harmonised across europe. at the moment, cross - border retail payments cost more and take longer than payments effected within countries ; this is incompatible with a well - functioning monetary union. all these aspects represent important challenges for the eurosystem and the financial sector at large. in conclusion, i hope that my presentation of the challenges the ecb and other european policymakers are facing has not distracted you from the assessment in the first part of my talk. it is perhaps useful to restate my main findings. the introduction of the euro has been a notable success, and i am sure that the euro will contribute to raising economic growth in europe in a lasting manner.