jean - claude trichet : emu and the euro - successes and challenges speech by mr jean - claude trichet, president of the european central bank, at the institute of international finance spring 2006 membership meeting, zurich, 30 march 2006. * * * ladies and gentlemen, i am grateful to the organisers of this event ( institute of international finance ) for inviting me here today and allowing me to share with you my views on emu and the euro. this year, the euro is in its eighth year, with a single currency and a single monetary policy for more than 300 million citizens. all in all, emu has worked very well since its inception. naturally, there are also significant challenges, pointing to the need for change and reform going forward. but allow me to start with the successes to date. successes of emu and the euro i would like, first, to refer to the introduction of the euro on 1 january 1999, an event of the greatest significance that has turned western europe into an even more economically integrated area. i will not dwell long on this, but the logistics of the cash changeover on 1 january 2002 for over 300 million european citizens represented a tremendous organisational and technical challenge. the changeover however took place in a very smooth fashion, and the euro in its physical embodiment was immediately accepted by the citizens of europe. the transition to the new banknotes and coins was facilitated by the fact that the financial markets were already fully accustomed to the euro since january 1999. at that point in time, the introduction of the euro in book - entry form had represented another complex task that was carried out successfully and in a perfectly coordinated manner. at the time of the introduction of the euro, a completely new monetary policy framework was introduced with the european central bank conducting a single, stability - oriented monetary policy for the entire euro area. however, the european central bank and the euro could inherit the high level of credibility achieved by the most stable national currencies and the monetary policy framework of these national central banks. the new framework, together with the convergence of general economic policies that was implemented during the run - up to the introduction of the euro, generated an environment supporting enhanced macroeconomic stability. as you know, the european central bank aims to maintain price stability by keeping inflation rates below, but close to, 2 % over the medium term. looking back at the period since the euro was launched, the inflation rate in the euro area was on average very close to 2

households and businesses and reduces the ability of central banks to respond to downturns. the public ’ s expectations about inflation are thought to be an important driver of actual inflation. many measures of u. s. inflation expectations - - both from surveys and from market - based readings - - are still well below their pre - crisis levels, although some have moved up as of late. the only way to ensure that inflation expectations remain safely anchored near the fomc ’ s target is to keep inflation close to that target on a consistent basis. so, while the current shortfall may seem small, it is important that inflation continue to move up to 2 percent, as i expect it will. the fomc does not have a numerical goal for maximum employment because the long - run sustainable level of employment changes over time and is determined mainly by nonmonetary factors that are outside the fed ’ s control, such as evolving labor market practices, demographics, social change, and fiscal and regulatory policies. nonetheless, four times each year fomc participants write down their estimates of the longer - run normal level of the unemployment rate ( the natural rate ) ; at the september fomc meeting the median estimate was 4. 8 percent, very close to the current unemployment rate of 4. 9 percent. other labor market measures are also healthy, including payroll job creation and labor force participation. employers have been adding roughly 180, 000 jobs per month so far this year - - a pace a little below that of the past several years but significantly higher than underlying growth in the labor force ( figure 2 ). despite these strong job gains, the - 3unemployment rate has flattened out this year after several years of sharp declines, thanks to welcome developments in labor force participation ( figure 3 ). the labor force participation rate represents the percentage of adults aged 16 and over who are in the labor force, which is defined to include only those who are employed or actively looking for work. when people enter or reenter the labor force and begin to search for a job, that is generally a good thing even though at the margin their entry tends to increase the unemployment rate ( or prevent it from declining ). beginning in the 1960s, labor force participation rose steadily as women entered the paid workforce ( figure 4 ). that trend ran its course as participation peaked around 2000 and has declined steadily since then as a result of the aging of our population and other longer - run trends, notably the decline in participation by