on a particular political programme. the example - or should i say controversy - i have selected to illustrate the task of economists in government is the introduction of the euro, which took place on january 1, 1999. from the perspective of an economist, the launch of a common currency promises benefits and causes costs. since the benefits are mainly the result of structural improvements and the costs are due largely to the greater difficulty in steering inflation and economic activity, it is difficult to offset the advantages of a monetary union against its disadvantages. whether a monetary union, on balance, creates benefits or causes costs depends on a whole range of factors. robert a. mundell can be summarised as follows : in order to form a so - called optimal currency area, the member countries must be structured along similar lines and exhibit a high degree of flexibility. the benefits of a monetary union consist in a reduction of transaction costs for changing money, the elimination of internal exchange rate uncertainty, tighter competition thanks to easier price comparisons, the expansion of trade within the common currency area, the prevention of competitive depreciation and speculative attacks on a currency, and growth in the liquidity of the financial markets. the most significant costs of a currency union arise from the loss of the individual countries ’ independent monetary policies. the loss of monetary policy autonomy is particularly felt when the size or number of asymmetric shocks is large. such disruptions affect the economic structure, business activity and inflation of member countries in different ways. thus, they cannot be combated with a uniform economic policy. a controversy that has not yet completely died down is this : was the reunification of the two germanys after 1989 a shock that significantly impaired the prospects for a successful integration of germany into the european monetary union? related to this is today ’ s debate on the economic soundness of the stability and growth pact. is it right to adhere strictly to the maastricht treaty ’ s stability requirement even if in germany business conditions diverge strongly from the euro - zone average? the jury is still out. but in the eyes of most economists when asymmetric shocks abound, a uniform monetary policy and similarly restricted fiscal policies are not recommendable. in a longer - term perspective, the costs of the loss of monetary and fiscal policy independence will be progressively lower as the pace of economic adjustment accelerates over time. the speed with which the economy recovers depends largely on the flexibility of the labour market and on job mobility. when salaries develop in line

the stock market. in other words, the snb basically does not select individual equities. instead, we use rule - based procedures to invest in a very broad equity universe. at present, the snb holds some 6, 000 securities in more than ten currencies. the equity universe on which our equity investments is based covers some 90 % of global market capitalisation. we mainly invest in mid and large cap companies. this makes sense, particularly in view of the special liquidity requirements i have already mentioned. in addition, we also place funds in small cap companies. in terms of market capitalisation these holdings only account for a small portion of our equity portfolio, but in numbers they make up about three - quarters of all the securities we hold. this, too, shows the breadth of our equity universe. when selecting our equities, we use a benchmark. this is a combination of various commonly used indices, assembled by us. as soon as we have determined the benchmark, equity investment becomes a largely automatic process. why does the snb not make targeted investments in individual companies or sectors where an above - average return can be expected? in other words, why do we not engage in stock picking? warren buffett is quoted as having said, wide diversification is only required when investors do not understand what they are doing. i can assure you that our investment specialists have an excellent understanding of what they are doing. however, we choose to have recourse to a broad equity universe for the following four reasons. first, we achieve a greater diversification effect within the equity segment by investing as widely as possible, across both regions and sectors. second, it should not be our objective to enforce strategic or, indeed, political interests by means of our investments in individual companies. this could limit our monetary policy room for manoeuvre and would also make our position vulnerable. due to the size of our foreign exchange reserves, the snb could quickly acquire large shares in companies, and this might be misconstrued as strategic participations in the event of active management of our equity holdings and corresponding overweightings in some areas. our strategy ensures that holdings in individual companies remain low. third, through a passive strategy we can minimise our market influence, since our policy does not cause us to give preference to individual securities or sectors. fourth, our investment horizon is very long - term, that is, it spans several business cycles. the academic literature shows that