area non12 emu countries = share of intra euro area nondomestic assets in total euro area holdings. domestic assets in total euro area holdings. other country groupings = share of euro area other country groupings = share of euro area assets held by non - euro area residents in total assets held by non - euro area residents in total non - euro area residents ’ holdings non - euro area residents ’ holdings one important conclusion can be drawn from this analysis. by reducing the barriers for cross - border portfolio allocation, emu has had an impact on regional financial integration not only among euro area member states, but also vis - a - vis other european countries, which is particularly sizeable in the fixed income market. this brings me on to one of the key achievements since the creation of emu : namely, the fostering of european financial integration, which goes well beyond the mere elimination of the exchange rate risk. 12 by providing a higher degree of financial integration, emu has enhanced risk - sharing among participating member states and contributed to a smooth and effective implementation of monetary policy in the euro area. 13 to sum up, from a global perspective, the establishment of emu in january 1999 represents a fundamental institutional change in the world economy, and could in part help explain the large reallocation of capital that has taken place worldwide. a more sophisticated analysis based on an international portfolio choice model reaches the same conclusion ( see de santis and gerard, 2006 ). emu has enhanced regional financial integration in the euro area in both the equity and bond markets. there is evidence of active trading among euro area member states, with euro area investors assigning a higher weight to portfolio investment in euro area countries. over the period 1997 - 2001, the average increase in weights - on top of the world average portfolio weight increase in euro area assets - amounts to 12. 7 percentage points for equity holdings and 22. 4 percentage points for bond and note holdings. see ecb ( 2005 ). on international risk sharing and emu see for example sorensen and yosha ( 1998 ). the euro area – a zone of stability before concluding, let me emphasise that since 1999 we have experienced a number of important shocks to the global economy, such as the y2k problem at the turn of the millennium, substantial oil price increases, the fall and the rise of the euro exchange rate, the boom and burst of the equity market bubble, global imbalances and the clouds of war and terrorism. amidst

a prerequisite. concluding remarks let me now conclude, in what is going to be my last public speech as a member of the executive board of the european central bank. by coincidence, – on 8 may 1998 –, just before the beginning of my mandate at the ecb, i gave a speech in vienna at that year conference organised by the oenb ( title of the speech : welche geldpolitische strategie fur die ezb? ). i am again back in vienna at the end of my mandate. distinguished economists have often criticised the very concept of european monetary union, mainly because the member states in question did not fulfil optimum currency area criteria, having for example a low degree of labour mobility, inflexible real wages as well as sharp differences in commodity prices and segmented financial markets. at this point, i have to confess that i too was sceptical for similar reasons, also because i have always argued that unsound government fiscal policies would ultimately discredit the efforts of monetary policymakers to fight inflation. however, at the same time, i also believed that, if all countries did their homework and the maastricht treaty criteria were met, i could envisage a successful monetary union – although, to be honest, in the first half of the 1990s i did not think it would be possible for 11 european countries to achieve price stability at the start of monetary union. in 1998, at my hearing in front of the european parliament, i said : “ the introduction of the euro will reshape the face of europe. it is the most significant event in the international monetary and financial world since the end of the second world war. but the euro will budget balances for 2005, broadly ranging between a 2 % of gdp surplus and a 5 % deficit, and debt ratios varying from 7 % to 108 % of gdp, are accompanied by differences in the interest rates on government bonds of around 30 basis points at most. ten years before, when spreads still included substantial exchange rate risk premia, they exceeded 600 basis points, with budget balances ranging from a 3 % of gdp surplus to a 10 % deficit, and debt ratios varying from 7 % to 133 % of gdp ( ecb, 2006 ). for a survey of the literature on the impact on growth of contractionary fiscal policies, see briotti ( 2005 ). only be able to play its intended role if it becomes a stable currency