willem f duisenberg : the international role of the euro speech by dr willem f duisenberg, president of the european central bank, on the occasion of the 2000 spruce meadows round table, held in calgary, on 8 september 2000. * * * let me first thank the organisers of this conference for having invited me to share some thoughts with you on the international role of the euro. the euro was successfully launched 20 months ago as the single currency of 11 member states of the european union ( eu ) - known as the “ euro area ”. on 1 january 1999 these member states transferred their monetary sovereignty to a new supranational institution, the european central bank ( ecb ). since then, the eurosystem - composed of the ecb and the national central banks ( ncbs ) of the 11 countries that have adopted the euro - has been in charge of the euro area single monetary policy and related functions, such as foreign reserve management and operations and payment systems oversight. the euro has brought about fundamental changes to the economic and financial environment in the euro area and beyond. by lowering transaction costs and enhancing price transparency, the single currency represents a major contribution to fostering competition and efficiency in goods and financial markets across the euro area. as such, the introduction of the euro represents a quantum leap towards completing a fully integrated single market in the eu and lays a solid basis for the improvement in the living standards of european citizens. besides these welfare - enhancing effects on the “ domestic ” economy of the euro area, the new setting also has far - reaching consequences for the world economy and the international community. let me shed some light on the international ramifications of monetary union by highlighting three interrelated aspects. first, the use of the euro as an international currency in the global financial system ; second, the growing role played by the eurosystem in international policy cooperation ; and, third, relevant aspects of the exchange rate of the euro. before dealing with these points in turn, i should like to recall some key economic features of the euro area. key economic features of the euro area let me begin by putting the euro area into an international perspective. the euro area represents a large and relatively closed economy. given its population of almost 300 million people and its significant weight in the global economy, the euro area is broadly comparable with the united states. as regards its size and structure, the most striking fact is that the euro area economy has a share of world output of around

after its inception, we can state that the eurosystem and its monetary policy have delivered upon their responsibilities. the policy measures by the ecb governing council have resulted in an inflation rate which is in line with our quantitative definition of price stability. on the fiscal side, the picture has been less positive, though. the fiscal stimulus measures in response to the financial crisis, large - scale government support programmes for ailing domestic banking systems, the working of automatic stabilizers and eroding tax bases in the face of weakening growth have put government budgets in the euro area countries under intense pressure. however, let me emphasise that for some euro area countries government budgets had already suffered from lax fiscal policy before the crisis. governments which entered the crisis with significant fiscal imbalances exited the recession with the highest deficit and debt - to - gdp ratios recorded in times of peace. the aggregate fiscal balance of the euro area increased from a close - to - balanced budget in 2007 to a deficit of more than 6 % of gdp in 2010, with a debt ratio rising from about 66 % in 2007 to more than 85 % in 2010 – and still increasing. this already drastic aggravation of public finances in the aggregate masks much more extreme developments for some individual countries. the sovereign debt crisis has shown that sound public finances are all the more important in a monetary union where a large number of independent fiscal policy - makers share the benefits of a single currency, gaining access to a large pool of savings and being immunized against exchange - rate risk. originally, it was expected that financial market pressures as well as treaty obligations would provide strong disciplining devices for member states to maintain sound public finances and to engage in structural reforms. bis central bankers ’ speeches firstly, financial markets were expected to discriminate between sovereign borrowers, leading to differentiated long - term bond yields across issuers with differing degrees of fiscal soundness. 2 however, as we have seen during several years before the crisis, markets did not come up with differentiated pricing, but rather with a fairly complacent pricing of risk across the board. in the wake of the financial crisis, these – one might say, “ falsely comforting ” – steady states have abruptly turned around. on the one hand, the government bond yield increases that we saw over the last years certainly contained episodes of overshooting, not fully reflecting economic fundamentals. on the other hand, the re - pricing served as an important wake - up call that strongly pushed for