euro area. i would like to put them in a us context, and recall the scepticism expressed about the euro by some us commentators. to be more precise, my remarks this morning will focus on the following questions : · is it possible to have a single currency without having a nation - state? · are the economies of europe sufficiently homogeneous to handle a single currency? · last but not least, how does the euro area monetary policy function? a single currency without a nation - state many us commentators thought that the euro would not fly, as the european union does not constitute a nation - state. they argue that it is difficult to conceive how sovereign states, such as the members of the european union, can give up their monetary independence. to back up their case, these commentators sometimes refer to the united states. the us dollar was introduced in 1792 as the currency of the young nation - state that was established in 1789. indeed, the currency was regarded as an expression of the unity of the young nation and its independence from the british crown. however, in economic and even cultural terms, this young nation was a very heterogeneous collection of former colonies and in many respects, apart from the common language, perhaps much more diverse than the current euro area. it is also interesting to note that although the us dollar was introduced almost at the same time as the united states was established, the us could hardly have been called a fully - fledged monetary union in those days, at least not according to our current definitions. besides some ill - fated and short - lived attempts in the late 18th and early 19th century, the united states did not have a central bank, responsible for issuing the currency, until 1913, when the federal reserve system was set up. moreover, effective banking laws were also lacking, at least until 1863, when the national banking act became law. indeed, throughout much of the 19th century, exchange rates between us states underwent de facto fluctuation, due to the excessive use of paper money, the quality of which differed from one state to another, and the absence of widely accepted currency in the form of gold and silver. at the same time, the process of political union in the united states remained incomplete, as the civil war in the 1860s manifestly demonstrated. one can even argue that the current constitutional and political set - up of the united states and division of responsibilities between the federal and state governments goes back to the 1930s, the aftermath of the great depression

. the point that i would like to make is that – like in europe – monetary and political integration were lengthy processes that went hand in hand, processes that were much more complicated than some of these commentators would have us believe. moreover, in order to understand why europe has successfully introduced a single currency without being a nation - state, it is important to grasp the history and essence of the european integration process. having been the initiator and to a large extent the theatre of two world wars, european countries realised they could only avoid the horrors of another armed conflict by coming closer together. the strategy was, and still is, to link the countries of europe by gradually integrating their markets and economic policies. by doing so, political integration will follow. in 1968 a customs union was established among the countries of the then european economic community, followed by the establishment of a european single market in 1993. in order to make a single market, i. e. ensure the free movement of goods, services, capital and labour, it was felt necessary to introduce a single currency. and as you know, this most recent step in the european integration process occurred in 1999. its introduction was a logical step in an integration process that started after the second world war and which will ultimately lead to ever closer ties between the countries of europe. the euro area : a fairly homogeneous economic entity us commentators were also sceptical about the homogeneity of the european economies. a single currency would only be beneficial if the potential members of the monetary union were fairly homogeneous. if not, countries would no longer be able to adequately respond to diverse economic developments, as they could not let their exchange rates fluctuate. these commentators also argued that the european countries had no other adjustment mechanisms, such as a high labour mobility or fiscal stabilisation, which might serve as a substitute for exchange rate flexibility. however, in my view, there are very good reasons for having a single currency in those member states of the european union which have sufficiently converged. this is supported by the experience gained in the three and a half years since the introduction of the euro. first, economic research and empirical evidence has shown that countries in europe are not as heterogeneous as the critics of the euro project often claim. indeed, compared with the differences between the economic structures and business cycles of us regions, the european countries score relatively well. the research has also shown that a given region in the us will recover more quickly from an economic shock