Furthermore, the start of Stage Three of EMU has also eliminated short-term intra-EU exchange rate volatility and exchange rate risks, and has thereby encouraged trade and investment. In addition, the benefits of economic integration afforded by the development of the Single Market are enhanced by the elimination of the transaction costs of exchanging different currencies, a direct result of the introduction of the euro. While they are difficult to measure, they effectively form an additional layer of protection for domestic producers. The single currency makes prices across the euro area directly comparable, which should increase competition and hence efficiency and economic growth in the area. A number of further positive effects on economic growth flow from the elimination of separate currencies in the euro area countries. One benefit is the potential for the reduction of risk premia built into real interest rates, which, in turn, will stimulate productive investment. Another benefit is that by facilitating the development of deep and integrated capital markets, the single currency should further reduce long-term rates via the elimination of an illiquidity premium. In addition, a wider and deeper capital market in the euro area will improve intermediation between savers and investors. Ensuring the benefits: stability-oriented policies It should be emphasised, however, that the true benefits of EMU derive from the fact that it is a unique opportunity to shape a macroeconomic environment conducive to stability, growth and employment, and to foster structural change which is needed to maintain or restore medium to longterm dynamism in the European economies.

It is obvious that structural problems require structural solutions. Implementing an inflationary monetary policy would not result in lasting reductions in unemployment, but would actually serve to exacerbate the problem over the medium term. I recognise that structural reforms are not always easy to implement. The benefits are often enjoyed in the medium term, while short-term costs for some groups may mean that reforms are vigorously opposed by interest groups. Although there is a common objective of reducing unemployment, there is no common programme of reforms that will work in all countries. While it is possible to learn from the experience of others, each Member State will wish to develop workable policies that reflect its own particular circumstances. Although the path of structural reform is not always an easy one, it is the only way in which we can achieve the lasting reductions in unemployment that are so urgently needed. Only structural reforms that aim to create stable labour markets in which there is flexible interaction between supply and demand will ensure that the benefits of EMU in terms of economic growth are achieved to the maximum extent possible. Conclusions To conclude, Economic and Monetary Union provides a great opportunity to create and maintain a large zone of price stability and economic prosperity in Europe. However, while price stability is a necessary condition for fully grasping the opportunities of EMU, it is not, in itself, sufficient. Stability-oriented polices regarding the development of national fiscal positions and the functioning of labour markets are also of crucial importance.