ernst welteke : the bundesbank ’ s view on the world economy speech by mr ernst welteke, president of the deutsche bundesbank, at the annual members ’ dinner of the financial services industry association in dublin, on 4 september 2001. * * * i ladies and gentlemen! for a true european dublin today is a great place to be. ireland has shown the most spectacular catching - up process in the eu. it is all the more impressive as ireland lies geographically on the edge of the eu. the favourable starting conditions created by the advent of the common currency framework were helpful in this respect. economic and political convergence make for an ever - stronger economic entity in europe. great challenges are ahead for us. we are on the eve of the physical introduction of the single european currency. and we are in the process of negotiating the access of new eu members, most of them much less wealthy than the current member states. the euro area is the second - largest economy in the world. right now, we find ourselves in an environment of slowing global growth. increasingly, the global markets have brought the strains in the world economy to our doorstep, faster and with more thrust than at first expected. we do not blame the markets, though. on the contrary, we are glad to see the financial markets in europe evolving rapidly. in this regard, the euro is important. the single currency both facilitates and accelerates integration. and with the financial markets becoming ever - more complicated, financial supervisors are faced with a challenge. in ireland, as well as in germany, a debate on how best to design prudential supervision is taking place. ii ladies and gentlemen! the development of the irish economy is indeed impressive. most of the catching - up took place in the second half of the 1990s. since 1994, ireland has been the fastest - growing country in the european union with an average real growth rate of eight percent a year. more than half of the growth occurred due to an increase in capital and labour inputs. employment growth was the highest in the eu. the unemployment rate has fallen by nearly ten percentage points during this period. with employment conditions being that favourable, ireland now sees net immigration. ireland is the only eu country that has consistently seen double - digit growth in private investment since 1994. productivity has thus risen faster than in most eu countries. ireland is now among the most productive countries in the eu. last year, gdp per worker was 15 percent above the eu average. foreign direct investment

it would have an overwhelming incentive to take the sort of supply - side measures which have proved so difficult to implement hitherto. and the people in those countries would similarly have the incentive to accept structural change. i am not wholly persuaded that you can necessarily rely upon that making life very much easier. but what i think this discussion leads to the broader conclusion, given that the euro is to go ahead, that structural reform - in labour markets and welfare systems and in broadening and deepening the single market for goods and services, but also capital markets - in order to improve supply - side flexibility - becomes more crucially important than ever. the need for greater supply - side flexibility was the subject of much of the discussion at the informal meeting of european finance ministers and central bank governors in york last weekend, and i was greatly encouraged by the degree of consensus around the table on this point. the united kingdom of course will not participate in the first wave of monetary union. that decision, taken last october, was - as i noted earlier - a disappointment to some of our eu partners ; but it was a considerable relief to others because uk participation from the outset would certainly have complicated the project - not least because of the substantial cyclical divergence between ourselves and the major countries on the continent. but in making its announcement the british government made it clear that it is not opposed to euro membership as a matter of principle. when the time comes - and that will almost certainly not be during the lifetime of the present parliament - it will make its decision - and submit it to parliament, and the people in a referendum - on pragmatic, economic, grounds. in the meantime the united kingdom will prepare both for the introduction of the euro on the continent from next january and for our own eventual participation. [UNK] the fact is that monetary union will have a major effect on this country whether or not we are a part of it, and it is clearly in our national interest as well as the interest of the participating countries, that it should be successful. we benefit in macro - economic terms from a stable and prosperous europe just as continental europe benefits from a stable and prosperous united kingdom - and the same mutual interest, of course, applies between europe and its mediterranean neighbours. we can contribute to that success in at least three ways. most immediately the government has undertaken to use its current term as president of the european union council of ministers to promote an orderly decision - making process during the crucial next few months. not being