is therefore crucial that forthcoming updates of the stability programmes make sufficient headway towards safe budgetary positions in the countries concerned. for all countries it is paramount that pro - cyclical policies be avoided in the current economic upswing. productivity, growth potential and monetary policy over the last fifteen years the euro area has witnessed an almost steady deceleration in the growth rate of labour productivity. this deceleration can be explained by underlying developments, some of which are welcome, whereas others are less favourable. first, it is the effect of some welcome progress in labour market reforms and wage moderation over the last decade. although it is seldom stressed in public discourses, these measures have contributed to remarkable results. over the last eight years ( the period in which the single monetary policy has been in place ), employment has risen by 9. 2 percentage points and the unemployment rate has declined by 1. 9 percentage points. let me also stress that if i compare the 8 years after the euro was set up with the 8 years before the euro, we created 11. 73 million jobs after the euro and only 2. 65 million jobs before the euro. second, and less welcome, the decline in productivity is partly the result of capital investments not keeping up with the pace of job creation. the still existing rigidities in product and labour markets that impair effective competition and flexibility, and more generally the presence of regulatory restraints on business, have prevented firms from investing more strongly in the adoption of new information and communication technologies, which could be effective tools to reduce costs and improve productivity. ultimately, the growth rate of the actively working population and the pace at which technological progress is implemented in the production process are the critical determinants of the growth rate of potential output. it is extremely important, especially at this juncture, to strengthen the reforms aimed at increasing employment, fostering competition in the product markets and creating an environment favourable to the development and implementation of new concepts and technologies. all individuals need to have the opportunity to get appropriate training. in a knowledge economy the wealth and prosperity of european citizens depend on their education, training and skills and the extent to which these skills can flourish in a flexible economy open to innovation and change. there are sometimes calls upon the central bank for more expansionary monetary policy as an incentive to increase productivity. i shall make two points on this. first, monetary policy cannot enhance the trend growth rate of productivity and potential output. a loose monetary policy would just create high inflation and inject

volatility into the economy. on the contrary, a monetary policy geared to delivering low and stable inflation contributes to creating a favourable macroeconomic environment for employment creation and investment decisions. price stability reduces interest rate premia, and thus the cost of capital, and allows wage and price - setters to focus on productivity, costs and competitive factors, rather than wasting resources on protecting themselves against uncertainty about future inflation. second, the negative productivity developments i have just discussed have not only been a drag on economic activity, they have also put significant temporary upward pressure on inflation, especially after 2001. the increase of unit labour costs due to mediocre productivity, combined with other supply shocks such as oil price increases, have contributed to a level of inflation over the threshold of our definition of price stability of less than 2 %. had we not had a highly credible monetary policy, we would not have been able to anchor solidly medium and long - term inflationary expectations in the euro area and we would have had to pay a significant price in terms of growth and job creation. developments in monetary aggregates and their impact on inflation let me now turn to the important role played by the monetary analysis in the ecb ’ s monetary policy strategy and interest rate decisions. as you know, we are cross - checking the results of our economic analysis with those of our monetary analysis. allow me to recall that the strong long - term relationship between monetary growth and inflation is one of the best documented empirical findings in economic literature. many studies have documented this relationship in the euro area, demonstrating that it is particularly close over longer horizons. i will add that the national currencies that had the highest level of credibility prior to the introduction of the euro and against which the euro has been benchmarked, all relied on a monetary policy framework embodying a role for monetary analysis. given the ecb ’ s mandate to maintain price stability, the necessarily medium - term orientation of its strategy to do so and the continuity between the most credible national currencies and the euro, assigning an important role to the analysis of monetary developments is both necessary and very useful. the monetary pillar of the ecb ’ s monetary policy concept has contributed importantly to the success of our monetary policy and to the anchoring of long - term inflation expectations. in recent years, money has grown strongly while, at the same time, inflation developments have remained under control. this begs the question of how the ecb has interpreted strong monetary growth. the