with the signing of the treaty of rome in 1957 recently reached a decisive point. on january 1, 1999, european monetary union was launched by introducing the euro as the single currency in 11 of the 15 member states of the european union. at the same time, the european system of central banks, consisting of the european central bank and the central banks of the participating member states, assumed responsibility for conducting monetary policy. monetary union sets up a new economic architecture in europe with far - reaching consequences for the strategic behaviour of all parties. the delegation of national powers to an independent monetary authority certainly requires a new common understanding of policy making within the countries of the euro area. owing to the abolition of national currencies, it is no longer possible for member states to resort to individual monetary and exchange rate policies. interest rate differentials and currency fluctuations, hitherto devices for readjusting economic competitiveness in the event of asymmetric shocks, will have to be replaced by more market flexibility. at the same time, we are seeing signs of an ever - increasing degree of economic concentration in terms of large - scale transnational mergers and acquisitions in virtually all sectors of the european economy. there is also an open contest between regions for corporate investors. even at national level, governments worry about the effect of fiscal policy on their country ’ s competitiveness. these developments are closely linked to the beneficial characteristics of the single currency. exchange rate risks and the cost of foreign exchange transactions have ceased to burden european economies. in combination with fundamental structural reforms this will prove a stimulus to investment and economic growth as well as help to ease the ailing labour market situation in europe. in addition, the exclusive use of the euro on most financial markets in europe will make capital allocation more efficient, thereby reducing volatility and enhancing the stability of a more integrated european financial market. b ) the road to the euro in a historical perspective on the road towards the single currency legal and economic hurdles had to be cleared. besides the necessary ratification of the amended treaty by national parliaments, a process of economic convergence indispensable for exchange rate stability had to be initiated. the so - called convergence criteria embedded in the treaty provided a clear incentive for national governments to exercise fiscal restraint. specifically, four economic criteria had to be met before joining the single currency : the achievement of a high degree of price stability, 1 a sustainable government financial position, that is to say, the absence of an excessive deficit, 2 membership of the european monetary

system for at least two years without devaluation while keeping the exchange rate within the fluctuation margins and, finally, a moderate long - term interest rate level. 3 no doubt, for some member states economic convergence has represented a long and painful process that required a stronger dedication to improving and maintaining government budget discipline. in the end, however, those continuous efforts are bearing fruit. we are now seeing unprecedentedly low levels of inflation and interest rates throughout the euro area. preserving this state has become the responsibility of the ecb, the european central bank. c ) strategic approach of the ecb the ecb governing council, consisting of the president, the vice - president and the four other members of the executive board as well as the governors of the national central banks of the euro area, has adopted a monetary policy strategy in accordance with its primary objective of maintaining price stability as mandated by the eu treaty. besides a quantitative definition of price stability – consumer prices in the euro area should over the medium term on a year - on - year basis increase by less than 2 % – two main pillars were established : one, a reference value for the growth rate of broad money is announced in advance — at present a rate of 4½ %. average inflation rate no more than 1. 5 % above the inflation rates of the three member states that achieved the highest degree of price stability. reference values are 3 % of gdp for the general government deficit and 60 % of gdp for general government gross debt. average long - term interest rate no more than 2 % above the respective rate in those three member states that achieved the highest degree of price stability. two, a broadly based assessment of the outlook for price developments and risks to price stability in the euro area as a whole is conducted on an ongoing basis. this approach to monetary policy reflects a medium - term orientation and by no means a willingness to fine - tune the economy. the ecb acknowledges that during the first few years of monetary union it will not be sufficient to rely exclusively on the development of broad money. initially, the transmission mechanism may vary because of differences in the process of financial intermediation. in other words : it is not yet clear whether there is a stable relationship between the broad money aggregate and price developments in the euro area. the ecb therefore considers a number of general economic indicators. d ) apparent tension between centralised monetary policy and decentralised fiscal policies there is an apparent tension between centralised monetary policy and decentralised national