Whether such divergences create problems for the performance and functioning of a monetary union depends on their causes, size and persistence. What are the facts about the relative macroeconomic performances of euro area member countries? And what is the diagnosis about the causal factors and the underlying processes that explain them? I would like to point out two interesting facts that are contrary to popular perceptions. The first is that during the first six years since the creation of the euro, the growth and inflation differentials observed between member countries have not been greater than those recorded in the 25 years before the establishment of EMU. On the contrary, according to some measures, the dispersion in growth rates has recently reached a historically low level. The second fact is that both growth and inflation differentials in the euro area since the introduction of the euro have been broadly of the same order of magnitude as the corresponding differentials observed across regions and metropolitan areas in the United States. These facts would seem to suggest that, at least on the basis of size, the heterogeneity  2  BIS Review 46/2005  observed in the macroeconomic performance of euro area member countries is not exceptional and thus need not be a cause of alarm. Nevertheless, there are certain other developments that suggest caution and point to the need for a deeper and more comprehensive analysis. One such development relates to the significant and persistent divergences in measures of competitiveness between member countries.

On the one hand, further integration of labour, product and capital markets can be expected to reduce economic heterogeneity within the euro area. On the other hand, some degree of heterogeneity can be expected to remain and, indeed, it can be considered a natural feature of any monetary union. These propositions raise several important questions, for example: •  What kind of convergence processes has EMU set in motion? •  To what extent has EMU-induced convergence moderated economic heterogeneity within the euro area? •  What are the causes and consequences of sometimes sizeable and in some cases persistent inflation and output growth divergences across different euro area countries, in a macroeconomic environment shaped by the ECB’s monetary policy, which aims to preserve price stability for the euro area as a whole? These questions, which will be addressed in this workshop, relate to diverse but interrelated issues, such as trade integration, business cycle synchronisation, financial integration, structural reforms in product and labour markets, as well as inflation persistence and inflation differentials. I believe that the quality of the papers to be presented and the impressive group of discussants, chairpersons and panellists will contribute to fruitful debates. Looking at the titles of the various sessions of the workshop, I would like to share some thoughts with you on three specific topics. The first relates to the consequences of market integration for trade. The second, “closer to home” for a central banker, concerns inflation and output divergences across euro area countries and their implications for policy.