with ease. today, the european central bank – more than 300 years younger than the bank of england – has already successfully established a reputation for guaranteeing price stability in the euro zone. the three - year - period from 1998 to 2000 saw an average rate of inflation of 1. 1 %. this early euro - period is remarkable : it was one of the three most outstanding periods of price stability performance in germany since the 1950s. since last summer high energy costs, in part linked to the external value of the euro, and demand shifts due to the european food crisis have taken their toll. thus, from today ’ s point of view, it looks probable that in 2001 we will not be able to meet our target of holding inflation below the 2 % ceiling. however, on may 10, the governing council decided to lower official interest rates by 25 basis points. the interest rate for the main refinancing operation is now 4. 5 %. this decision was based on the twopillar strategy, i. e. monetary growth in the first pillar and the broader assessment of the outlook for price developments in the second pillar. in the period since last spring, monetary growth came ever closer to the reference value of 4. 5 %. furthermore, indications that monetary growth is somewhat overstated have been confirmed recently. non - euro area residents ’ purchases of negotiable paper included in m3 – that is money market fund units and other marketable paper – are sizeable as well as rising. however, the relevant concept of m3 is residents ’ holdings. once these distortions are accounted for, the first pillar indicates no further risks for price stability. the second pillar also points in the direction of receding upward risks for price stability. external developments are dampening the prospects for euro - area growth. wages are rising, but only moderately. on balance, both pillars of the ecb ’ s monetary strategy paint a rather favourable picture for the medium - term outlook for price stability. thus, we are confident that the hicp will drop below the 2 % threshold during the course of the next year. in the run - up to european monetary union, prices in those european countries with a history of higher inflation rates had been remarkably stable. all countries met the inflation criterion with ease. recently, the sustainability of this monetary convergence process has been questioned. the spread between the lowest and the highest inflation rates in the euro area is now wider than it was at the outset of monetary union. in january 1998

financial markets. enterprises now have access to a broader and deeper capital market in their domestic currency. transaction costs are lower and – of course – hedging costs have to be incurred much less often. and, on the other hand, the introduction of the euro has considerably heightened what we call “ reformbereitschaft ”, that is not exactly reforming zeal, but at least the readiness to carry out reforms. thus, under the euro framework germany has become more attractive as a business location. the same holds true for our fellow euro countries that adopted the euro. now, what about the united kingdom? are there gains to be had from joining the euro area? yes, there certainly are. the united kingdom ’ s economy is closely linked to the continental economies in europe in terms of trade, in terms of foreign direct investment and in terms of portfolio investment. the uk and the euro area are the most important trading partners for each other. more than half of uk trade in goods and services is done with the euro area. thus, integrating financial markets and product markets further by having a common currency makes sense to me. it makes sense for both sides, so the uk ’ s joining the euro looks like a mutually beneficial deal. in terms of geography, great britain may well be an island. in terms of economics, it is not. i am in no position to provide the uk with advice in the area of adopting whichever currency scheme. however, in my opinion, due consideration should be given first and foremost to the advantages to be had from joining the european monetary union. in germany we already enjoy those advantages. ladies and gentlemen, thank you for your attention..