Therefore, it should be clear that I regard it as crucial for governments to make further structural improvements to their fiscal positions, as this would allow them to regain sufficient flexibility in their budgets and, most importantly, could effectively contribute to supporting stability and growth in the euro area. In this regard, I should like to note that only moderate fiscal consolidation is currently envisaged for the medium term. A number of national stability programmes only aim to attain the necessary flexibility at a relatively late date. It is important that we see a commitment from policymakers either to ensuring the swift achievement of this aim or to going beyond the aims envisaged in these programmes once economic growth has picked up. BIS Review 50/1999  2  Let me turn now to the contribution that stability-oriented structural reforms, particularly of euro area labour markets, can play in reducing unemployment and in supporting the stability of the euro. The high level of European unemployment is quite rightly a source of deep concern and should be addressed at a fundamental level. Clearly, the approaches that are most likely to have a lasting effect are those that address the root causes of the problem, not just the symptoms. The root causes of high unemployment in the European Union are structural rigidities in the labour market as well as tax and public transfer policies. This view is supported by a wide body of academic literature and was also a key finding of the OECD Jobs Study.
The most important contribution that the Eurosystem’s monetary policy can make to maximising the benefits of EMU is to fulfil its primary objective of maintaining price stability, as laid down in the socalled Maastricht Treaty; the Treaty on European Union. As has long been argued by central bankers and is increasingly accepted by academic economists, inflation and deflation are economically and socially costly. EMU is a tool with which to consolidate the progress made towards price stability in recent years and to firmly anchor expectations in line with price stability, thereby establishing the framework necessary to fully exploit the opportunities of Monetary Union. The Eurosystem enjoys full independence in determining the appropriate level of interest rates so as to satisfy its primary objective of price stability. Moreover, the members of the Governing Council of the ECB have long terms of office and may only be dismissed on grounds of serious misconduct or inability to perform their duties. These provisions imply that the concept of monetary stability benefits from explicit legal protection. 1  BIS Review 50/1999  A further important benefit of EMU is that it has removed the risk of serious real exchange rate misalignments within the euro area. This contributes to economic growth and helps to avoid any misallocation of resources. In fact, it enables the European Single Market to function smoothly and thereby makes it possible to reap all the rewards, to the benefit of producers and consumers.