the time. in the first instance, these attacks threatened to disrupt the functioning of financial markets. thus, immediately after the terrorist attacks, the ecb took measures to ensure the normal functioning of financial markets. the governing council also reacted to the events by holding an extraordinary teleconference meeting, at which it was decided to reduce the key ecb interest rates in concert with the federal reserve system of the united states. in the following period, as signs emerged that the slowdown in economic activity was significant, pointing in the direction of a further decline in inflationary pressures, the governing council again cut the key rates in november 2001, bringing the total reduction of the key rates in 2001 to 150 basis points. since then, economic developments, which point to a gradual economic recovery in the euro area in the course of 2002, have been largely in line with the governing council's expectations, and we consider the current level of the key ecb interest rates appropriate to maintaining price stability over the medium term. to briefly conclude on monetary policy, the ecb has, in my view, proved itself capable of adapting to and operating in a difficult economic environment. while inflation has been above the definition of price stability for some time, medium - term inflationary expectations, as implied in bond yields or in forecasts and surveys, have consistently been below 2 %. this is a sign that the credibility of the ecb is firmly established and that the public is confident that price stability will prevail. fiscal policy the economic environment with which we at the ecb were confronted was also the day - to - day reality of the fiscal policy - makers in the individual euro area countries. in 2001, mainly as a result of the economic slowdown, the average budgetary balance in the euro area deteriorated for the first time since 1993. automatic stabilisers played a significant role in budgetary outcomes in 2001. major tax cuts also contributed to the deterioration, as they were often implemented without adequate offsetting expenditure restraints. as a result, a large majority of countries failed to meet the budgetary balances targeted in the stability programmes for 2001. by the same token, most countries rightly refrained from introducing a discretionary fiscal relaxation in response to the economic slowdown. moreover, countries with remaining fiscal imbalances reaffirmed their commitment to attaining safe budgetary positions by 2003 or 2004. developments in 2001 and the projected outcomes for 2002 confirm the vulnerability of public finances – especially in the countries with remaining im

given that in normal circumstances around 70 % of banknotes are put into circulation via automated teller machines ( atms ), a quick adaptation of these machines was crucial to a smooth changeover. it was necessary to convert a total of more than 200, 000 atms, either " on - site " in bank branches or " off - site " – for example in shopping centres. following thorough and highly efficient preparations by the banking sector, the adaptation process was extremely rapid, with virtually all atms converted by 4 january 2002. a fourth factor which contributed to the smooth changeover was the particular commitment of the banking sector to putting the low - denomination banknotes of up to eur 20 into circulation on a large scale at the beginning of 2002. this reduced considerably the need for retailers to hold large amounts of cash during the first few days of 2002. in addition, in countries where welfare payments are paid largely in cash, these were effected in low denominations. all this ensured that, at the beginning of the year, low - denomination banknotes accounted for over 80 % of the total number of banknotes and for 40 % of their value. this is clearly more than the usual share of low - denomination banknotes in banknote circulation. monetary policy let me now talk about the introduction of the euro from a broader perspective. i shall begin with monetary policy and the primary objective of the ecb, namely to maintain price stability in the euro area. for the sake of this presentation, i would like to divide the first few years of the single monetary policy into three phases – rather artificially on the basis of whether inflationary pressures were seen as rising or falling. in the first of these, which began at the start of stage three of economic and monetary union ( emu ), inflationary pressures in the euro area were abating during a phase of economic slowdown at the global level which had started in 1998, following several episodes of financial turmoil around the world. the decline in economic growth was accompanied by a sharp reduction in commodity prices, which contributed to a significant fall in import prices. in this environment, the governing council decided, in april 1999, to reduce the key interest rates, to a level of 2. 50 % for the main refinancing rate. this was a precautionary move, aimed at reducing the risk that inflation could head towards and hover around very low levels. in the course of 1999, the second phase in my breakdown, signs gradually emerged that