decisions are state - dependent rather than time - dependent and as a consequence, both the frequency and the amplitude of the policy changes are mainly driven by the underlying state of the economy. as far as the eurosystem is concerned, the more gradualist approach is nothing but the reflection that the economy of the euro area has been less affected by cyclical fluctuations than the us economy. moreover, recent research carried out by the eurosystem on inflation persistence tends to show that the degree of inflation persistence in the euro area is quite moderate while the degree of price stickiness is considerable and higher than in the united states. this finding may provide another justification for a gradualist monetary response to cost - push shocks as : first, the impact of an inflation shock will be small as agents anticipate a low persistence of this shock and therefore will maintain their expectations of future inflation at low levels ; in turn, the negative response of the output gap will be limited implying a less persistent response of the real rate. 5. as a result, the eurosystem monetary policy has won european citizens ’ confidence in and acceptance of the new currency finally, the euro has been readily accepted by economic agents and is now part of european consumers ’ daily lives. surveys confirm that the general public has confidence in the euro, as a solid currency, and in the eurosystem as their central bank. however, there remain two causes for concern : - one is the natural difficulty in moving to an entirely new set of price references – and it may take a number of years before this switch is fully made by the public at large. - and the second, probably related to the first one, is the feeling in the public that there have been excessive price increases linked to the cash changeover. indeed, the public ’ s attention has focused on a small number of goods and services in which abnormal increases occurred at the time of this event, leading to a misperception of the real rate of inflation. this gap between perceived inflation and real inflation has however been narrowing progressively and should hopefully disappear in the near future. concluding remarks to conclude, let me emphasise that eight years after its adoption, the euro has lived up to all of our expectations. after the unprecedented challenge of a continent - wide cash changeover, the euro almost instantly replaced the legacy currencies without any disruptions. it has fostered both price and macroeconomic stability through its credibility and has shielded many euro area countries from significant exchange rate volatility and

which we aim over the medium term. this figure mainly reflects the sharp increase in oil prices over the last two years. however, hicp inflation has remained below 2 % since september 2006. in addition, let me remind you that hicp inflation was around 4 % in the 1980s and about 9 % in the 1970s [ see figure annex p3 ]. until recently, the single monetary policy also succeeded in stabilising and anchoring medium to long - term inflation expectations at around 1. 8 % to 1. 9 %, despite all the above mentioned shocks. that is to say, once again, at a level close to, but below, 2 % in accordance with our definition of price stability – whether one takes the inflation expectations derived from surveys ( for example, consensus forecast, or the ecb survey of professional forecasters – [ see figure annex p4 ] ) or those drawn from market data, notably index - linked government bonds. recently, the awareness of a higher cost of oil has pushed expectations slightly above 2 %. this is asking for strong vigilance so as to ensure that medium to longerterm expectations in the euro area remain solidly anchored at level consistent with price stability. 2. macroeconomic stability and convergence price stability has not come at the expense of higher unemployment. moreover, there are no visible signs of costs in terms of higher real macroeconomic volatility. quite on the contrary, the volatility of real variables has declined relative to the averages observed during the 1980s and 1990s. does one size fit all? it is often argued that a single monetary policy combined with inflation differentials leads to different real interest rates across countries, which in turn may destabilisize the currency union by creating divergence in output growth that exacerbate inflation differentials. this is by no way what we have observed : first, inflation dispersion among the euro area countries ( measured as the unweighted standard deviation of annual hicp inflation rates ) amounted to 0. 7 percentage point in 2006 compared to around 6 percentage points in the 1990s. since the inception of the euro, the average inflation dispersion across the euro area countries has been around 1 percentage point. this figure is very close to the dispersion observed across the 14 us metropolitan statistical areas. concerning growth differentials, euro area averages naturally mask a variety of growth performances of individual countries within the single currency area, especially in a context where structural convergence has not been completed yet. growth di