Whilst in the United States, over the last twenty years, unemployment has declined significantly during the economic cycles as a result of a successful deflationary and stability policy introduced by the Federal Reserve, unemployment in Europe has increased further in the same period. Since the beginning of the year, the rate of unemployment has stabilised at around 10% in the euro area. Those Member States with more flexible employment markets and more restrained wage bargaining generally have much higher levels of employment than the average in the EU. It is still hoped that the current upturn will not be slowed down by excessive demands for higher wages and will be used to make decisive structural policy reforms. Flexibility in the employment and commodity markets would therefore appear to be urgently needed. As you know, at the summit in Cologne the European Council called for an Employment Pact to be created with the aim of achieving a sustained reduction in unemployment. The Pact underlines the need for the implementation of structural reforms in Europe. It is hoped that the Pact will achieve this objective. Together with the national fiscal policymakers, the unions and the European Commission, the Eurosystem will also take part in the macroeconomic dialogue. We shall use this dialogue to make it absolutely clear to the other parties that structural unemployment cannot be reduced without decisive reforms.
The fact that no central bank knows exactly how the economy functions and the effects of monetary policy also means that one normally proceeds cautiously in changing interest rates. Finally, a desirable interest rate path should also be determined with consideration to an assessment of different types of risks and the consequences for inflation and the real economy if they are realised. Some risks may be difficult to quantify and capture in our normal forecasts. In my opinion, they should nevertheless be included in the balance when shaping monetary policy. One recent example is the risks linked to a rapid increase in property prices and household indebtedness as a result of a longer period of expansionary monetary policy; a problem many central banks around the world have faced. Let me also, for the sake of clarity, point out that when we publish our own forecast for the repo rate it will indicate a smoother development in the repo rate than the policy that will be conducted. This is because interest rate decisions must in practice be taken in stages and at particular points in time. It is difficult to build this into the forecasting work. Changes to the Inflation Report Let me mention another new item, before I round off. Our inflation report will involve a change of name, to "Monetary Policy Report”. One reason for the name change and the most important change is that the reports will from now on contain not merely inflation forecasts, but also a monetary policy message.