this is essential both for the fulfilment of the fiscal convergence criteria required for euro adoption and for the achievement of budgetary positions which will allow the automatic stabilisers to work and provide some room for manoeuvre for fiscal policy after joining monetary union. moreover, it is also essential that prospective euro area participants achieve greater convergence of market structures and institutions in the coming years. although such convergence is not, in general, a prerequisite for euro adoption, it is, in my view, important for the successful performance of their economies within the euro area. with regard to the conduct of the single monetary policy in an enlarged euro area, several questions have been raised and concerns expressed. will the adoption of the euro by a number of countries that aim at achieving real convergence affect the orientation and formulation of the single monetary policy? and will the implementation of this policy become more complex in a larger and more heterogeneous monetary union? the answer to both of these questions is a simple no. the monetary policy stance of the ecb is determined by its mandate to maintain price stability for the euro area as a whole over the medium term. the enlargement of the euro area cannot - and will not - change the ecb ’ s commitment to achieving its primary objective. and i am convinced that the national central banks that will join the eurosystem in the future share this view and commitment. indeed, the experience of acceding countries in recent years confirms the validity of the proposition - which is generally supported by evidence - that there is no permanent and exploitable trade - off between long - term growth and inflation. it is worth noting that average inflation in the new member states has declined from double - digit rates at the end of the 1990s to 2. 1 % in 2003, a level comparable to that in the euro area and only marginally above the ecb ’ s definition of price stability. and, of course, all countries that will join the euro area in the future will have attained a high degree of sustainable convergence towards price stability. that said, it is foreseeable that a future enlargement of the euro area will increase the divergences in inflation and growth rates across the different regions of the single currency zone. however, regional differences in economic performance are an inescapable feature of any large currency area. the existence of regional differences is certainly not news to a us audience. inflation here in san francisco is different to that in dallas or new york

investment opportunities. how close an economy is to the break point, exceeding which would impair the efficient allocation of savings, could be labelled the degree of financial fragility. this definition is very broad and - in my opinion - intellectually convincing. due to the focus on the resilience of the financial system it would not classify each individual bank failure or each large swing in an asset price as proof of financial instability. to the contrary, large swings in asset prices possibly leading to some failures of monetary and financial institutions in the aftermath of a large real or financial shock could even be a sign of stability and of self - purifying powers of the system, as long as an efficient financial intermediation and financing process can be maintained. however, this definition contains little practical guidance for any institution trying to maintain or to contribute to the goal of financial stability. other, less conceptually convincing, but more directly observable definitions ( and therefore frequently used in theoretical work ) equate financial stability with situations without banking crisis and with asset price stability, including interest rate smoothness, see gaspar and smets ( 2002 ) and issing ( 2000 ). see ecb ( 1999 ). a similar definition stressing the shock resilience and the payment processing dimension of financial stability can be found in padoa - schioppa ( 2002, p. 21 ). in this context one could think of schumpeter ’ s creative destruction and the reduction of moral hazard risks. relative to some benchmark. but such definitions are only apparently more tangible, because a suitable benchmark would still have to be found. the difficulties related to the definition of financial stability reveal more than problems with semantics. the central bank ’ s role in contributing to financial stability is at stake. the definition to some degree predetermines the role subscribed to monetary policy in contributing to the goal of financial stability and anticipates the answer to the trade - off question. for example the system - based definition of financial stability intuitively and reasonably suggests that prudential supervision should play the first violin in pursuit of financial stability objectives. the reason is that comparing the toolboxes of regulators and monetary policy authorities ( in a narrow sense ), it is clear that the former have an absolute advantage in caring for system wide stability of financial institutions, as they are able to define, monitor and enforce the rules of the game. the central bank ’ s tools primarily influence the money supply