reaction. a target band gives us more flexibility in the implementation of monetary policy. no doubt, however, that a point target can also be attractive, as it is clearer and constitutes a stronger anchor for expectations. given the snb's excellent track record with regard to price stability – twelve years of inflation below 2 % – we can benefit from firmly anchored expectations without having to accept the unnecessary constraints that a point target would imply. the third subtlety is that, while the snb defines price stability as inflation of less than 2 %, the ecb, which has more or less the same definition, aims for a rate close to 2 %, and the bank of israel has an inflation target of 1 to 3 %. why is it that the three central banks have different views as to what exactly constitutes price stability? there are several considerations here, but the most important is the historical perspective. for central banks that have faced relatively high and volatile inflation levels in the past, a comparatively high inflation target is already ambitious. only once expectations have been anchored, can further steps towards price stability be envisaged. this is true for israel, where keeping inflation between 2 % and 3 % is a huge step forward as compared with historical records. for the ecb, which still has to cope with adjustment difficulties ( such as higher inflation in countries that are catching up, like spain or greece ), an inflation rate " close to 2 % " seems reasonable. monetary independence thus allows a country to choose the level of inflation it finds appropriate. monetary independence also helps reduce the variability of inflation and economic conditions, and i will turn to this issue next. reaction to country - specific shocks the second reason why i think that switzerland should not adopt the euro is that monetary independence gives us the necessary leeway to react to country - specific shocks. although i mentioned earlier that the swiss economy is highly integrated into the euro area, we are not an average european country. over the last 20 years, switzerland has become a platform for global activity : while we count 4. 2 million jobs within our country, swiss firms employ another 1. 8 million people abroad. moreover, we are an international financial centre : about 15 % of swiss gdp originates from the financial sector. as a consequence, switzerland's business cycle is closely related to the development of the world economy and to the situation in financial markets. mood swings in international financial markets and in investment decisions impact on the swiss economy through different channels. on the one hand,

at the heart of the union, next to its largest members, but also because we have signed several bilateral agreements with the eu giving us free access to the european goods and labour markets. israel's situation is quite different in that respect, but it remains a fact that, in both countries, fluctuations on the real side are closely linked to those in the euro area. regarding the level of growth, israel, as a relatively young country with a growing population, has outperformed both the euro area and switzerland, with an average growth over the last five years of 2 % versus 0. 8 % and 0. 6 % respectively. nevertheless, israeli gdp per capita is still only roughly half of that in switzerland. on the nominal side, our two countries'links with the euro area differ markedly. swiss and euro area inflation have a correlation of 39 %, which, although low, corresponds to the average correlation of inflation rates within the euro area itself. israel's inflation shows a weaker link here, displaying a correlation with euro area inflation of only 19 %. comparing again the levels instead of the correlations, switzerland has a long tradition of monetary stability with an inflation rate that has been clearly lower than those in israel and the euro area. over the last five years, the average inflation rates were 0. 8 % in switzerland, 2 % in israel and 2. 2 % in the euro area. while for switzerland, low and stable inflation is not particularly noteworthy, it is important to remember that price stability in israel is a recent achievement and that inflation remains relatively volatile here. overall, this quick look at the data suggests that israel and switzerland have different records in terms of stability, that both countries are highly integrated into the euro area, but that, for obvious reasons, switzerland seems to be more " european " than israel. if switzerland is indeed as integrated as any regular euro area member, what advantages do we see in maintaining our monetary independence, while our neighbours have abandoned their national currencies in favour of the euro? reasons for monetary independence as you well know, the large majority of european countries have come to the conclusion that adopting the euro is beneficial. for them, one of the major advantages of joining a monetary union is stronger economic growth thanks to lower transaction costs and reduced exchange rate risk. moreover, for countries that have historically experienced high and volatile inflation and thus high interest rates, adopting the euro brings a fall in nominal and real interest rates, thereby reducing government and private debt burdens