However, in the long run monetary policy cannot influence overall employment or its distribution across industries. A lower interest rate would have resulted in higher price and cost inflation, which would also have weakened profitability in the manufacturing sector. The end result would have been the same for employment and production, but in addition we would have had to face the costs of high inflation. Even if employment and production in manufacturing are affected, the situation for Norwegian enterprises will not necessarily be negative. Some enterprises could be at the forefront of technological developments and increase efficiency in pace with the relatively high rate of growth in real wages in Norway. In recent years, we have also seen that many enterprises have moved large portions of their production abroad, particularly the most labour-intensive production. Norwegian manufacturing companies could therefore remain profitable even if the size of the manufacturing sector in the Norwegian economy is reduced. However, the scaling back of manufacturing also involves a risk. It makes the economy more vulnerable. The growth potential of the economy – the basis for learning, innovation and development – may be impaired when less of the business sector is exposed to intense foreign competition. Over the last thirty years, manufacturing industry has been scaled back in waves. The sharpest declines were observed in the years between 1977 and 1984 and from 1987 to 1992. The declines were preceded by a fall in profitability in this industry.
Wage moderation is a key factor in favouring the expansion of employment and in helping to create the conditions for a sustainable increase in the potential growth rate of the euro area economy. Current estimates for trend potential growth in the euro area are in the order of 2-2½%. There is much scope for raising potential growth in the euro area. The ECB will make its contribution by focusing on maintaining price stability in the medium term. But other policy actors also have to take up their responsibilities. The Broad Economic Policy Guidelines for 2002, which have just been approved in Seville, place the emphasis quite rightly on the need for further structural reforms in the euro area. I understand that this view is also shared in the draft resolution. The future welfare of euro area citizens will also depend to a large extent on the prudent conduct of fiscal policies. The solidarity pact of our monetary union requires all participants to maintain a mediumterm perspective in compliance with the framework of the Stability and Growth Pact. This implies that budgetary positions in all countries should be close to balance or in surplus over the business cycle as a whole in order to allow sufficient room for a smooth functioning of automatic stabilisers. We have seen some worrying developments in fiscal policy in some countries over the last few months.