, inflation rates are expected to remain in line with the eurosystem ’ s definition of price stability of below [, but close to ] 2 % over the medium term. neither wage developments nor inflation expectations are to date considered a major risk to this assessment. economic and trade integration in europe has proven a fruitful co - operation for all involved parties. the current eu member states experienced deepened trade integration, a speeding up of the convergence process of income levels, and better access to a broader knowledge pool. intensified peer pressure increased incentives to stick to sound macroeconomic policies and to implement overdue structural reforms. all these factors contributed to a stable and favourable economic environment, even though many challenges still remain to be tackled. now, on the eve of eu enlargement, it is time to look ahead. i am convinced that all involved parties are going to benefit from this further integration in europe. the new member states will certainly gain most from their new status, but also the current eu member states, especially those with strong trade links towards the enlargement area as for example austria, will also experience positive effects. while there may be initial adjustment costs in some sensitive areas these costs should be of a temporary nature and will be outweighed by far by the positive long - term effects, related to trade creation, increased competition and intensified foreign direct investment flows. actually, in this respect one does not even have to look to the future ; a considerable part of the expected benefits has become reality even today. the european agreements eliminated trade barriers already in the second half of the 1990s, causing imports from central and eastern european countries to the eu to double in the first five years. supported by intensified trade, the stabilization of expectations and the decrease in interest rates, the acceding countries experienced a gdp growth rate of 3. 6 % in 2003, well above the euro area average. since january 1, 1999, when eleven eu member states entered the third stage of economic and monetary union ( emu ) by adopting the common currency, the euro has gained international importance. further to its role in trade and financial markets, where it has been well received, the euro has asserted itself as an important official reserve currency and as an anchor in exchange rate regimes in many non - euro area countries. increased price transparency, lower interest rates and transaction costs, and the import of stability and credibility are only some of the manifold benefits of the euro. i would, however, like to stress one specific aspect of monetary integration that

klaus liebscher : the euro area and the challenges of enlargement speech by dr klaus liebscher, governor of the austrian national bank, at the european lawyer conference “ advising clients in an expanded europe ”, vienna, 29 april 2004. * * * ladies and gentlemen, it is a pleasure for me to be with you today. my contribution will focus on two milestones of european integration : the enlargement of the european union ( eu ) and the establishment of a monetary union within the eu. as austria ’ s central bank, the oesterreichische nationalbank, has largely contributed to both forms of integration, i am pleased to share with you some of my views. over the last half century, europe has followed an impressive path of voluntary integration of nations. in parallel to the successive deepening of economic integration, the european union has been gradually enlarged. at present, we are at the threshold of a further historic enlargement stage. on saturday, ten countries - five central european and three baltic countries as well as two mediterranean islands - will join the european union, expanding the eu ’ s population by 20 %. this enlargement round is not only the most important one to date in terms of scale, diversity and economic growth potential, but also - as commissioner verheugen once put it - the best prepared in the history of the european union. i would like to state very clearly that we highly welcome the acceding countries ’ joining the european union. after the fall of the “ iron curtain ” 15 years ago, the central and eastern european countries have undergone an impressive and successful, if often painful, process of transformation and we see their joining our union as a well - deserved step of historic dimensions. the forthcoming enlargement of the european union comes at a moment when the euro area sees increasing signs of a gradual recovery in economic activity. while growth has been relatively modest so far, both external and domestic factors give reason to expect a strengthening of the recovery through 2004 and beyond. on the external side, all recent indications confirm that global economic growth in 2004 will be robust and broadly based across different regions of the world. on the domestic side, the conditions for a recovery in private demand are in place and there have been signs over recent months of a pick - up in investment. the positive growth outlook is supported by a favourable outlook for price stability in the euro area. while over the short term, inflation may show some volatility reflecting temporary factors