All three of the interest rate measures taken over the last few months indicate the Eurosystem’s continued determination to counter the emerging upside risks to price stability in a timely and pre-emptive manner. It is our strong conviction that we can thereby maintain a non-inflationary environment, which is a prerequisite for making the economic upswing in the euro area sustainable. Currently, the prospects for strong economic growth in the euro area are very favourable. We are very much satisfied by the fact that economic activity is now expected to grow more strongly than anticipated earlier. In fact, most forecasts suggest that euro area real GDP growth will be above 3% in 2000 and 2001, reflecting both the favourable external environment and buoyant domestic demand. These expectations have just been underpinned by the first estimate by EUROSTAT of real GDP growth in the fourth quarter of 1999, which indicated that economic activity continued to expand at a robust pace at the end of last year. Surveys of consumer and industrial confidence conducted by the European Commission in early 2000 indicate that the positive development of economic activity should have continued in the first months of this year. Financial markets also expect a prolonged phase of economic expansion, as can be inferred from the fact that the yield curve has remained relatively steep. In this environment, employment is expected to increase further and the still very high level of unemployment should continue to fall.
To date, wage growth has been moderate and the same applies for actual wage settlements to date. It remains important that the expected improvements in economic conditions and labour market prospects are not jeopardised by inappropriate wage settlements. In fact, wage moderation would help both to contain inflation in the euro area and lead to further progress in employment creation. Wage negotiators can be assured that the primary objective of the Eurosystem is the maintenance of price stability in the medium term and that we are fully committed to this objective. The temporary increases in the 12-month rate of consumer price inflation which we are currently observing as a result of the oil price developments should not be reason for higher wage demands. There is now a broad consensus, also at the level of governments, that the currently favourable prospects for output growth in the euro area would be enhanced by a deepening of the structural reform process in the euro area. Governments of the euro area have already taken important initiatives, but the high level of unemployment in many countries shows that there is still much to be done. In this respect, fiscal policies can also make a substantial contribution to maintaining favourable economic conditions by using the current upswing as an excellent opportunity to proceed swiftly towards fulfilling the objectives of the Stability and Growth Pact. Governments should continue the process of fiscal consolidation which was observed in the run-up to Stage Three with ambition.