us. germany counts for 32 % of euro area gdp, france for 22 %. taken together, california, new york and texas count only for a modest 28 % of us gdp. but on the other hand, gdp in our smallest euro area member state, luxembourg, is roughly the same as the share of small states like vermont, south dakota or maine. consider another example. in europe, the finnish economy is heavily dependent on only one sector, telecom. i am sure, the nokia trademark rings a bell here, too. but take texas : it is heavily dependent on the oil industry. such differences in economic structure can cause differences in cyclical patterns among regions, both in europe and in the us. these differences also explain differences in exposure between regions to economic shocks, a phenomenon well known in the us. maybe economic divergences in europe attract much more public attention than in the us because the euro area has a very short history. or maybe divergences in europe catch the eye due to the fact that we are used to thinking about economic divergences in terms of sovereign countries. probably, both answers contain elements of truth. but there is an additional reason why regional divergences in the us do not attract much attention. regional differences in the us tend to cancel each other out in the medium term. it is common for a us state to have inflation and economic growth above the federal average in a particular year, and to have inflation and growth rates below average few years later. with only two years after the establishment of monetary union, we do not know whether this will also be the usual pattern in the euro area. us states do not diverge persistently from federal trends. that is due to economic mechanisms that restore equilibrium. a very important mechanism is labor market flexibility. if there are lay - offs in one part of the us, people tend to move to other, more buoyant regions. every year, more than 2 % of the american population moves to another state to find a job. a further mechanism that contributes to restoring equilibrium in the us is income transfers by the federal government. to be honest, similar redistribution mechanisms to absorb shocks on an interregional basis are less developed in europe. labor mobility is limited across europe, and even within countries. fiscal transfers between countries would be politically difficult to implement and they lack public support. in addition, the current european commission budget is very small in comparison to the us federal budget, and certainly too small for significant fiscal

a h e m wellink : heterogeneity in europe and the role of monetary policy opening address by dr a h e m wellink, president of the nederlandsche bank, at the cepr / european summer institute conference, held in amsterdam, on 15 september 2000. * * * introduction it is a pleasure to be here to give the opening address to this conference and to welcome you to amsterdam. after only a couple of years, this annual conference has established a reputation for stimulating discussion on economic policy issues in europe. this year ’ s programme looks set to further enhance your reputation. issues of heterogeneity were the subject of much debate and analysis in the run - up to the introduction of the euro. the debate has continued since then, too, and this conference will no doubt provide fresh insights into the issue. enlargement is also on the conference agenda. obviously enlargement will have implications for current eu members, as well as for accession countries. further, there are links between enlargement and heterogeneity. this afternoon i would like to talk a little about heterogeneity in the euro area, and its implications for policymakers. i would also like to look forward and discuss these issues in the context of eu and emu enlargement. heterogeneity first, some thoughts about heterogeneity. we are used to thinking about heterogeneity mainly in terms of nation states. we focus on differences between countries. of course, it is not only when discussing economic policies that we think about national differences. we also highlight differences in other areas – the netherlands was a mass of colour from supporters of different countries earlier this summer during the european soccer championships. and, the sydney olympics provide an opportunity to celebrate national achievement, as well as individual sporting excellence. traditionally, monetary policy has also been conducted on a national basis, although european monetary policy did become more coordinated in the run - up to the introduction of the euro. other economic policies have generally continued to be set on a national basis, although eu membership does impose some degree of consistency. heterogeneity also occurs on other dimensions, such as between sectors of the economy. i will return to that point in a minute, but first want to make a couple of comments about country differences. there have been many studies in recent years focussing on differences between euro area countries. and, while a few studies find evidence to the contrary