other indicators all point towards strong growth of the domestic economy. the rate of growth of industrial production, for example, not only increased in april, but also incorporated an upward revision for the first quarter. industrial and consumer confidence both remain at, or close to, record high levels. at the same time, external developments are continuing to provide a positive stimulus to economic growth in the euro area. reflecting favourable domestic and external conditions for growth, the outlook for euro area growth continues to be positive. there have not been any major changes in bond and foreign exchange markets since the decision of the governing council on 8 june to raise the ecb interest rates. current bond market yields continue to show market expectations of a period of sustained economic growth in the euro area. at the same time, the accumulated depreciation of the exchange rate of the euro remains a cause for concern and has to be taken into account in the assessment of the risks to price stability. as regards consumer price developments, inflation in may 2000, as measured by the harmonised index of consumer prices ( hicp ), remained at 1. 9 %. a lower year - on - year change in services prices offset relatively strong rises in other prices, in particular energy and unprocessed food prices. over the coming months the rate of increase in consumer prices could continue to be affected by lagged effects of the increase in import prices. for the outlook for price stability in the medium term, it is essential that these short - term movements of inflation do not become protracted and translate into second round effects. overall, the outlook for price stability will be affected by several factors, which will need to be monitored carefully. first, strong monetary growth and ample liquidity conditions call for continuous monitoring. in addition, it will be important, in the current phase of strengthening economic growth, for wages to continue, on average, to grow at rates compatible with the objective of price stability. this, together with structural reform in the labour market, will be important to sustain the process of non - inflationary growth and to reduce unemployment in the euro area. developments in import prices, which are influenced by the evolution of the exchange rate of the euro and the price of raw materials, may affect the outlook for prices in the period ahead. finally, i should like to stress that a pro - cyclical loosening of the fiscal policy stance could also add to upward risks to price stability. in this respect, when looking at the euro area as a whole on

system rather than on individual banks. thus, it aims at reducing the probability that an adverse shock could endanger the stability of the financial system with potentially harmful effects on the real economy. safeguarding financial stability is a national seite 3 von 10 deutsche bundesbank, directorate general communications wilhelm - epstein - strasse 14, 60431 frankfurt am main, germany, tel : + 49 ( 0 ) 69 9566 3511 or 3512, fax : + 49 ( 0 ) 69 9566 3077 presse @ bundesbank. de, www. bundesbank. de reproduction permitted only if source is stated. responsibility. given the close integration of european financial markets, however, macroprudential policy is coordinated closely at the european level. currently, first experiences with macroprudential measures are being gathered. take, for example, measures recently announced in france on large exposure limits and on counter - cyclical capital buffers. 1 but even the best set of rules cannot prevent crises from happening. therefore, a framework for dealing with crises situations was created with the european stability mechanism ( esm ). mechanisms to deal with insolvent banks were established. neither existed prior to the crisis. during the crisis, decisions on how to allocate losses had to be made ad hoc. at the national and the european level, new institutions handling the restructuring and resolution of insolvent banks were created – the single resolution board and national agencies. these reforms contribute to the reduction of incentives for risk - taking, they enhance the resilience of the financial system, and they strengthen the european institutional framework. yet, some reforms have not yet been completed or fully implemented. many of the new rules and institutions are still “ untested ”. therefore, we must learn from past experience and address any shortcomings. learning from past experience an independent monetary policy depends on stable financial markets which are resilient with regard to financial crises. a structured evaluation of reforms aiming at the stability of financial markets and at preventing that sensible reforms are rolled back is thus important. 2 the risk of a roll back is imminent whenever achievements of the reform agenda are insufficiently visible and whenever unintended side effects occur. like in many other areas, the costs for the affected institutions are more visible in the short - term than the benefits of financial market reforms for society. seite 4 von 10 deutsche bundesbank, directorate general communications wilhelm - epstein - strasse 14, 60