economic area and the growing integration of the financial market alone is concerned, the euro no doubt has the potential to become more important than all of the single currencies of the euro area put together. expectations were therefore very high among politicians, and also among a number of academics, even before the start of monetary union. those expectations have presumably even been reinforced by the advance confidence the euro had been given on the basis of the solid and stability - oriented institutional framework for monetary policy. it was assumed that • there would be significant portfolio shifts in the euro area, • that international investors would quickly add euro - denominated securities to their portfolios, and • that central banks all over the world would diversify their foreign reserves to a greater extent in favour of the euro. instead, a certain disillusionment has emerged since the beginning of this year. however, very little time has elapsed since the introduction of the euro. experience shows that the structure of international financial markets changes only very slowly. it is certainly too early to make a final assessment. we shall have to wait and see how things develop. at present, the dollar is strong, while the euro has tended to decline in value since the start of monetary union. however, i do not see any reason to dramatise this. for example, the current exchange rate of the d - mark against the us dollar is almost identical with its rate in the spring of last year. when reasons for the weakening of the euro are sought, particularly three factors are mentioned : firstly, the so far robust state of economic activity in the united states, and secondly - in contrast to this - the slowdown of economic growth in continental europe. the resultant trends in interest rates have not failed to have an impact on the relationship between the euro and the dollar. thirdly, the euro has recently weakened further due to the situation in kosovo, while the dollar established itself even more as a safe - haven. there is yet another hypothesis about the recent performance of the euro : many investors are currently avoiding the euro area, because it obviously seems less attractive to them. some analysts argue that this has something to do with the uncertainties about fiscal, economic and structural policy strategies particularly in the larger economies of the euro area. their main question therefore is : does the euro lack political confidence? iv it is certainly not easy to establish a new currency in the current international environment. in this context, i would like to give particular emphasis to the fact that

the european central bank is a new institution. in my opinion, this makes it all the more important to boost confidence in the euro and the eurosystem. a stable euro and confidence in its stability are in europe ’ s proper interest. what - apart from escb - independence - is required to guarantee a stable european currency and the lasting success of emu? the euro countries must not be content with the success hitherto achieved in terms of convergence. monetary stability and the promotion of growth and employment must be seen as a lasting challenge. greater efforts are required, in particular, in order to • overcome certain signs of flagging in budgetary consolidation, • and push ahead with the urgently needed structural reforms including the establishment of a tax framework that is conducive to growth. only if all the member states pursue stability - oriented and consistent financial, economic and structural policies will the euro be able to produce its positive effects on europe ’ s economies. incidentally, sound public finances and more flexible structures in the european economies are required not just because of the euro. they are also necessary in order to • reduce government activities - which in some areas are exaggerated - and foster private initiative, • prevent future generations from being burdened excessively • and increase the impact of growth on lowering unemployment. a few figures may illustrate this. on average, in the euro countries last year, • the government spending ratio was almost 49 % of gdp, • the debt level reached just over 73 % of gdp • and the taxes and social security ratio came to almost 44 % of gdp. 2 only a successful monetary union and a stable euro will benefit our international partners, too. europe ’ s responsibility is not only limited to its own house, but relates to the global economy and the international financial system as well. v i am sure that in the medium term european monetary union will influence the international financial markets significantly. monetary union has already created one of the three largest financial markets in the world and it will create a liquid financial market offering a considerably broader range of investment and financing instruments than is currently available in europe ’ s still fragmented financial market place. the introduction of the euro will result in • a fundamental change in european money, bond and equity markets • higher transparency of financial markets • intensified competition among financial institutions operating in europe • further promotion of technological changes and deregulation. european commission, economic forecasts spring 1999. instead of saying that the euro will compete with the us dollar it is – in my