early 1990s to a low of less than one percentage point in the second half of 1999. since that time, inflation dispersion has changed very little - that is, it remains less than a percentage point. to provide a basis of comparison, since 1999 inflation dispersion across the euro area has fluctuated close to the level observed across the 14 metropolitan statistical areas of the united states. remarkably, the process of nominal convergence in the euro area was not accompanied by greater dispersion of real gdp growth rates, which has remained close to its historical average of around 2 percentage points following the adoption of the euro. there is one notable difference, however, between inflation differentials in the euro area and those in the united states. although inflation differentials in the euro area have not widened, they have exhibited a relatively - high degree of persistence, higher than that experienced across the 14 metropolitan statistical areas of the united states. seven of the 12 euro - area economies have recorded annual inflation rates that have remained either persistently above or persistently below the euro - area average since 1999. one of those countries is greece, where inflation has persistently exceeded the euro - area average by about one - and - a - half percentage points since greece became a member of the euro area in 2001. several factors have contributed to the persistence of inflation differentials across euro - area economies. one factor in relatively - low income countries, such as greece, is the so called balassasamuelson effect, according to which long - term differentials in regional inflation are attributable to differences in the rate at which productivity increases in the various regions'tradable and non - tradable goods sectors. although it is difficult to quantify this effect with precision, it provides only a partial explanation for the persistent inflation differentials that exist in the euro area. in any case, this effect is a transitory one. it is part of what i have called the adjustment mechanism - in this case, the adjustment to a higher standard of living. other factors contributing to the inflation differentials within the euro area, including misaligned fiscal policies, wage dynamics not linked to productivity developments and structural inefficiencies such as rigidities in product and factors markets, are not so benign. redressing these problems, as you know, is not within the domain of monetary policy. national economic policies are the relevant instruments to enhance the ability of individual countries to respond to economic shocks and to national divergence

##ly demonstrated in the 1980s and the early 1990s - but also the credibility gains associated with a stable, low - inflation monetary regime. in the 15 years until 1994 - the year in which greece's efforts to qualify for euro - area entry began in earnest - inflation averaged almost 20 per cent while real growth averaged less than 1 per cent. in contrast, during the past 6 years real growth has averaged more than 4 per cent while inflation has been slightly above 3 per cent. another way to infer the credibility gains is by looking at interest - rate spreads. in 1997, the year in which a 10year government bond was first issued in the greek financial market, the yield differential between that bond and the comparable german bond was 412 basis points. today, it stands at only 24 basis points. i suggest, therefore, that giving up a nationally - tailored monetary policy has not, in fact, been a cost, but a benefit. now let me turn to the trade channel. recent empirical work has shown that a common currency can promote trade and growth over and above any effect produced by separate currencies tied together with fixed exchange rates. for the euro area, the evidence suggests that the adoption of the euro has already increased trade among emu members by between 4 and 16 per cent compared with trade among european countries that have not adopted the euro. increased trade integration leads to morehighly - correlated business cycles because of common demand shocks and greater intra - industry trade, reducing the need for country - specific monetary policies. there are additional reasons that a monetary union reduces the incidence of country - specific shocks. one of the principal causes of asymmetric shocks - the effects of divergent monetary policies - no longer exists. furthermore, it is to be expected that the deepening of financial - market integration will also entail a convergence in the transmission mechanism of monetary impulses. finally, the common currency helps to increase price transparency and, therefore, competition in goods, services and factor markets, leading to a further alignment of economic cycles. inflation differentials the fact remains, however, that there are inflation differentials among the members of the euro zone. how significant are these differentials and how concerned should we be? recent evidence provided by the ecb shows that, over the period 1990 - 99, the 12 countries now comprising the euro area experienced a downward trend in the degree of inflation dispersion - measured as the standard deviation of that dispersion - from about 6 percentage points in the