that the eu has already achieved a high degree of integration, both in economic and political terms : a functioning single market has been complemented by the successful introduction of a single currency. the framework for the pursuit of a common foreign and security policy is being given real substance, soon to be underpinned by a nascent military capability. in addition, the scope of common activities now also extends to highly sensitive fields such as internal security, immigration and asylum. it is on this premise that i should like to put forward the following proposition, which i will try to illustrate in the remainder of my presentation : the depth of integration in the eu today, which is based not only, but especially, on the establishment of economic and monetary union, in itself will, over time, trigger further integrative steps. these dynamics are at work anyway, and are unlikely to be derailed by the process of enlargement. using the metaphor of the “ bicycle theory ”, which is the notion that european integration has to progress in order to avoid backtracking on past achievements - just like a bicycle has to keep going to avoid falling over - i would argue that the future eu, rather than being diluted, is set to achieve further deepening, even if enlargement increases diversity. allow me to illustrate. emu as a catalyst for integration economic and monetary union in itself could be regarded as a source of, and catalyst for, deeper integration in europe - and the fact that both sides in the euro debate in this country use this argument might be seen as underlining its significance. there is plenty of evidence to support this proposition, which can be seen from the preparatory phase of emu ( during the 1990s ) or in connection with the actual launch of the euro in 1999. but i believe it is also true from a longer - term perspective. over the past decade, the very process of preparing for the introduction of the euro has brought about a greater degree of integration. the aim of achieving economic and monetary union by 1999 at the latest called for the complete liberalisation of capital movements within the european community, closer coordination of national economic policies, as well as institutionalised cooperation among monetary authorities within the european monetary institute. an emerging “ stability consensus ” among policymakers in europe on the desirability of a stable currency and sound public finances provided the crucial backing for a, sometimes painful, process of budgetary consolidation and disinflation, in which domestic policy objectives needed to be brought in line

setting of common rules and the promotion of consistent practices merely help to provide the necessary framework for the proper functioning of a single european financial market, with a depth and sophistication similar to that of the united states. it is in such an integrated european financial market that resources will be allocated most efficiently, to the benefit of all, be they individual savers, institutional investors or corporate borrowers. as i have amply illustrated thus far, the introduction of the euro has undoubtedly marked a significant step towards the deepening of the european union. it has also further advanced the emergence of a unified eu economy, which, in turn, has contributed towards developing an external perception of “ europe ” as an entity in its own right. ladies and gentlemen, having “ prepared the ground ” on the basis of existing evidence, allow me to elaborate now on possibly the most controversial aspect of my aforementioned proposition, namely that economic and monetary union will, in itself, act as an impetus for further deepening. the internal dynamics of emu as a source of future deepening the euro is in a unique position in that it is “ a currency without a state ”. historically, the soundness of money has always been closely associated with the strength and stability of the political structure of which it is an expression. therefore, it is a legitimate question to ask whether emu can function without some form of political union. allow me to approach this question in the following manner. to start off, the concept of political union is not very well defined. i am sure that you, as attentive observers of the euro debate in this country, would agree with me that the term “ political union ” can mean many things to many people, often depending on political expediency or the desired public relations impact. from a central banker ’ s perspective, that is, “ a forward - looking assessment based on all the information currently available ”, i would argue that the eu today, with its single currency, already represents a highly advanced institutional construction, combining both supranational and intergovernmental elements. with the introduction of the euro, member states ’ governments, especially those of the euro area, have started to jointly assume - together with the european commission and the ecb - their “ shared specific responsibilities for the single currency ” ( luxembourg european council conclusions ). will the joint exercise of shared responsibilities for an area as pivotal as macroeconomic policy - even if this concerns so far only a sub - group