of intra - area exchange rate fluctuations would be to distort competition across firms located in different countries and producing similar products, rather than to adjust shifts in the demand and supply of different products through changes in their relative prices. in addition, individual countries in the euro area are very open to international trade. the degree of openness, as measured by the average of exports and imports of goods and services as a percentage of country gdp, is around 30 % on average and exceeds 60 % in smaller countries such as belgium and ireland. the more a country is open to international trade, the more likely it is that a depreciation of its exchange rate will lead to inflation over the medium term, without any significant improvement in its competitive position. these arguments are, in my opinion, useful in explaining why, just one year ago, the citizens of the eu initiated the so - called “ stage three ” of emu. stage three does not only entail the introduction of the euro, but also the adoption of a new institutional and operational framework for economic policies in the euro area. according to this new “ balance of powers ”, monetary and exchange rate policies are conducted at the area - wide level. in this context, the primary objective of the eurosystem is to maintain price stability. without prejudice to this objective, monetary policy also supports the general economic policies in the euro area. the monetary policy stance is decided by the governing council of the ecb. this council comprises the six members of the executive board of the ecb and the 11 governors of the national central banks which have introduced the euro. the members of the governing council do not represent their respective country or national central bank, but act in a personal capacity with responsibility for the euro area as a whole. by contrast, certain other economic policies continue to be set in a national context. fiscal policies, however, must be formulated in accordance with the so - called stability and growth pact. by signing this pact, the member states which make up the euro area agreed to reduce their general government deficits to close to balance or even to create a surplus in the medium term. this is intended to enable automatic stabilisers to work throughout the economic cycle, while simultaneously observing the limit of 3 % on the public deficit / gdp ratio, as laid down in the maastricht treaty. structural policies remain the main instrument available at the national level ; however, certain forms of multilateral surveillance are being promoted even in this field, although in

i have my doubts. however, i shall not embark upon a discussion of that issue today. a second option is currency substitution, namely the unilateral adoption, either de jure or de facto, of a typical anchor currency, such as the us dollar or the euro, as legal tender. “ dollarisation ”, as well as “ euroisation ”, is a policy option open to a wide number of open economies with a high degree of trade and financial integration with the anchor currency. i shall take a closer look at this option in the final part of my speech. finally, the third option is super - nationalisation of money a la mundell. this is the path which was followed by 11 member states of the european union ( eu ) when they adopted the euro one year ago. but why the citizens of the european union, and why only at the end of the 1990s? the main argument is that the more a process of regional integration moves beyond a free trade area towards a single market, or even an economic union, the stronger the need for intra - area exchange rate stability and, eventually, irrevocably fixed exchange rates. this causes a conflict with the autonomy of monetary policy at the national level, thus creating the need for monetary union. this is exactly the situation that characterised the eu at the end of the 1990s, as a result of the long process of integration initiated more than 40 years previously. the eu is indeed an area where there is not only full mobility of goods but also of capital and, at least in principle, labour ; subsidies and regulations which favour domestic producers are not permitted ; there are common or coordinated policies governing several fields. in an area with these characteristics, cross - border demand for similar products produced in different member countries is sensitive to price changes. this implies that a major change in the exchange rate would shift competitive advantages within the area, thus having an impact on profitability and triggering political reactions. in addition, a number of specific economic features of the euro area strengthen the case for intra - area exchange rate stability and, ultimately, monetary union. first of all, most of the trade carried out by individual euro area countries takes place with other euro area countries. all these countries present a rather homogeneous commodity composition of production and trade, unlike the north american free trade area ( nafta ), where mexico and canada are relatively heavily dependent on the production and export of primary commodities. in the euro area, therefore, the first effect