Nonetheless, as in the case of budgetary policies, a common framework for action is only effective if accompanied by the sufficient political resolve to adopt the measures that enable programmed objectives to be met. In the case of structural policies, these are chiefly oriented to stepping up the use of the labour factor and to increasing the pace of productivity through the promotion of knowledge, innovation and the incorporation of new technologies. As earlier mentioned, the phase of more dynamic economic growth initiated around mid-2005 continued in the opening months of 2006. The main international organisations have forecast a rate of increase in GDP in the euro area of slightly over 2% in 2006, i.e. around potential. This recovery will foreseeably be underpinned by the strength of domestic demand, among whose components investment is expected to post a high rate, while private consumption will probably trend more moderately, albeit at a somewhat higher rate than in recent years, in step with the gradual improvement expected in the labour market. However, there are some factors of risk clouding this outlook. In the external environment, such factors comprise the existing global imbalances and the persistence of high oil prices. On the domestic front, employment and consumption are the factors subject to most uncertainty. The inflationary outlook for 2006 and 2007 indicates that the rate of change of the HICP may be close to the price stability benchmark of 2%, or might even exceed it again.
In practice what that would be likely to mean in our present situation is substantially lower interest rates: the intended effect would be to stimulate external demand, but it would inevitably also involve further stimulus to domestic demand. In effect, it implies that we should acquiesce in increasing overall demand pressure leading inevitably to faster inflation. That might conceivably even BIS Review 31/2000  2  provide some relief to the suffering sectors in the short term. But increasing demand pressure, including labour market pressure, and accelerating inflation would - as we’ve repeatedly seen in the past - ultimately need to be brought back under control, involving a more abrupt tightening of policy. That frankly would not do the suffering sectors themselves much good at least for very long - and it would have a potentially serious destabilising effect on the economy as a whole. That is precisely what we are trying to avoid. And there, I do rest the case for the defence - at least in relation to the principal charge of malice aforethought - or even malice as an after thought. Just as some of you would like to see the euro strengthen from your microeconomic standpoint, so too would I, from a macroeconomic perspective, because it would help to restore a better, more sustainable, balance within the economy.