the whole world were made by the us. in principle, the same logic should also hold for the euro area. the euro area is the second largest economic area in the world. therefore economic developments in the euro area are significant for developments and prospects elsewhere. the mandate of the ecb clearly states that price stability in the euro area is its primary objective. price stability is indeed a key element of an overall environment leading to sustained growth at domestic level. in such a context, the best contribution which a large economy as the euro area can provide to support sustainable non - inflationary growth in the world economy is to pursue policies maintaining price stability " at home ". this is the only reasonable allocation of responsibilities across world policymakers. anything else risks blurring responsibilities and diluting accountability. this, in turn, would distort incentives in a perverse way. it goes without saying that exchange of information and views, for instance in the context of international fora, may in such a context further help the policy - makers of large economies assume their global responsibilities by providing them with a better understanding of the economic environment. notwithstanding the clearly positive outlook for the euro area, a lot has still to be done. while monetary policy will have to remain focused on its commitment to maintain price stability - thereby providing a credible anchor for expectations, the challenge for the euro area will be to best exploit and enlarge its growth potential in the coming years. structural reforms have taken place but are far from being satisfactory in most countries. their implementation is of crucial importance to foster the supply of labour and capital and the innovation and diffusion of new technologies and production methods. more flexibility in labour markets and reforms aiming to encourage labour force participation are necessary to offset the low growth in the working age population. fostering a knowledge - driven economy, removing barriers to investment and creating the institutional structures needed for a rapid and efficient adoption of new technologies, will strengthen the process of capital accumulation. the ongoing current regulatory reform process will create the conditions to enhance competition and is expected to have important economic benefits. overall, sound economic policies designed to avoid the appearance of economic imbalances and structural reforms will allow the euro area to better exploit its growth potential, thereby also contributing to growth and economic stability worldwide. conclusion to conclude, let me recall what i said at the beginning of my address. while i am not satisfied with hicp inflation of above 2 % as we have at present, price stability will be maintained over the medium term. what

mr duisenberg discusses the ongoing dialogue on monetary policy, the overall economic situation and other activities of the eurosystem introductory statement by dr willem f duisenberg, president of the european central bank, at the hearing before the committee on economic and monetary affairs of the european parliament, brussels, on 20 march 2000. * * * it is my pleasure to continue today our ongoing dialogue on monetary policy, the overall economic situation and other activities of the eurosystem. since our previous hearing in november, the european economic outlook has brightened further, while, at the same time, the balance of risks to price stability has shifted upwards owing, in particular, to external factors. against this background, the decisions of the governing council of the ecb to raise interest rates in early february and last week, as well as the reasoning behind these steps, are at the centre of my presentation today. moreover, i should like to touch upon the overall european economic environment. finally, i shall briefly turn to some other activities of the eurosystem which might be of particular interest to you. 1. current economic developments and prospects as you are aware, the governing council of the ecb decided on 3 february and 16 march 2000 to increase the three main ecb interest rates. these two decisions followed the interest rate decision taken on 4 november 1999. whereas the interest rates were increased by 50 basis points in november 1999, on the past two occasions the main refinancing rate and the rates on the marginal lending facility and on the deposit facility were each increased by 25 basis points, so that they now stand at 3. 50 %, 4. 50 % and 2. 50 % respectively. all three decisions were taken in the context of the monetary policy strategy of the eurosystem to address upside risks to future price stability in the euro area. both pillars of the monetary policy strategy indicated that the balance of risks to price stability in the medium term had been shifting upward in late 1999 and early 2000. starting with monetary developments in the context of the first pillar, the three - month average of annual m3 growth exceeded the reference value throughout 1999 and in january 2000. together with the continued strong expansion, at annual rates of around 10 %, of credit granted to the private sector, this signalled that liquidity in the euro area is ample, contributing to upside risks to price stability in the medium term. in the context of the first pillar, let me briefly take up the issue of the reference value for monetary growth