country - specific to sector - specific risk assessment. in the banking sector too, the changeover to the single currency seems to have intensified the trend towards consolidation. although most mergers have been domestic, they have often been instigated and influenced by euro area - wide market developments and the integration of financial markets following the introduction of the euro. moreover, there is no doubt that the introduction of the euro has encouraged the internationalisation of banking activities. in particular, the rapid integration of the wholesale banking and capital markets, as well as large - value payment systems, has already created closer links between banks at the euro area level. overall, these new economic and financial conditions in europe are creating new investment opportunities, encouraging industrial restructuring and promoting sound competition between economic agents in a new, enlarged market. for sure, the beneficial effects of this new environment on economic structures will only be felt gradually, but there is no doubt that these effects are deep and lasting. meanwhile, other economic policies are needed to accompany this restructuring process. this is not to deny that important progress has already been made. over recent years, wage settlements have been relatively moderate, public finances have improved, deregulation and liberalisation have been initiated in a number of sectors, and there are signs that labour markets are gradually becoming less rigid. employment grew by 1. 8 % in 1999 and by over 2 % in the first half of 2000, and since the start of monetary union, the unemployment rate in the euro area has fallen by 1. 5 percentage points. however, further efforts are required in order to create the best conditions for turning the current upswing in economic activity into a period of sustained growth in an environment of price stability. with regard to fiscal policies, the overriding objective for governments should be to shelter their budgets not only from normal cyclical fluctuations, but also from unexpected shortfalls in revenues and interest rate increases. in the current favourable economic conditions, it is crucial that any loosening of fiscal policy be avoided and that further progress along the path towards fiscal consolidation is made. in parallel, governments ’ budgetary policies also urgently need to address longer - term issues, such as the structural reform of social transfer systems. significant reductions in unemployment can only be reached through resolute measures to improve the functioning of labour and product markets. the successful experience in some countries of the euro area has shown that such reforms can rapidly provide important benefits for the economy and for society. finally, looking at the process of regulatory reform, although

order to allow the individual to compete with the global investors, maybe they should be able to borrow more money : i don ’ t really think that ’ s part of the answer. we tried that before here, and we need to keep a limit on the amount of debt that households take on. because the cost of excessive debt is so high, as we know in this country. going back, how we deal with improving affordable housing, all of these are frontline political issues, that is true across europe in different ways. for a fast - growing economy like ireland, where the workforce is growing, where there is so much pressure on housing, it ’ s obviously quite intense. but we don ’ t think tighter monetary policy from us is part of the answer. some would say that part of the answer would be to cap particularly retail interest rates charged by banks. do you see that as part of the answer? this is a long - running debate here. even though the ecb rate is quite low, when you look across europe, the mortgage lending rates in ireland are higher. the ecb has provided a legal opinion on the draft law, and it highlights, in line with the central bank of ireland analysis, that a policy that caps the interest rate runs the risk of having an unintended effect, which is that it will deter entry. the irish banking system is quite concentrated. many people would like to see more banks enter to compete and, through competition, lower the rates. if you have a legal approach, where there is a legal regulation capping the interest rate, then the incentive for foreign lenders to come in is less. we have this long - running debate about the contribution of the quite high default risk in ireland being built into those higher rates. i understand the intent : trying to make housing more affordable is a big issue. but personally, and in terms of the official advice of the ecb, we think capping interest rates is not the advisable way to go. you don ’ t even see a role for it, say, if you were to consider the housing situation to be an emergency scenario ; that it would be a temporary measure given to the central bank? well, again let me come back to the basics here. so much of the funding now in the irish property market is not coming from mortgages. you give the example of global institutional investors. what is driving the overall pricing of housing, also rental accommodation and so on, is not