faculty of professors was in nearly full attendance. i was quite dissatisfied with my speech, it felt to me like an utter failure. despite that, i only heard friendly words ; this therefore demonstrates how easily satisfied the audience was. fellow people of karlsruhe : in the knowledge and awareness of your expertise, i would prefer today to count on your goodwill. 2 where do we stand after 25 years of the euro? it has now been nearly a quarter of a century since the euro was introduced. a good time to look back on 25 years of the single currency. and to recall that the creation of a monetary union was met with great scepticism, especially in economic circles. the euro is coming too soon was the name of a manifesto signed in february 1998 by 155 german professors. however, voices of warning were heard not only in germany. nobel laureate milton friedman, for example, predicted that the euro would collapse again soon after its introduction. although that prediction turned out to be incorrect, some of the problems foreseen by friedman and others actually ended up occurring. for starters, however, everything went smoothly with the euro. three years after the euro was introduced as a book currency, it also entered into circulation as cash. and thus squarely into the awareness of the general public. you may remember the small plastic bags known as " starter kits ". in germany, they contained coins worth €10. 23, the equivalent of 20 deutsche mark. prior to this, a largescale ad campaign was launched, with prominent backing, to encourage people to return their deutsche mark holdings at an early stage. meanwhile, enthusiasm for the new notes and coins quickly subsided. after the changeover, many felt that the euro had actually become a " teuro " – a german play on the word " teuer, " or " expensive ". however, this effect was not borne out by statistical evidence. in the long run, the euro has already proved to be a stable currency. the chart tracks inflation in the euro area since 1999. in the early years, inflation rates were mostly above 2 %, but only marginally. this speaks to the success of the euro area national central banks and the european central bank, which together comprise the eurosystem. it was able to credibly communicate that it would conduct a stability - oriented monetary policy. of course, the eurosystem also lucked out by being launched during the " great moderation ". that was the name given to the spell

their exchange rates? should they aim for floating exchange rates or for fixed but adjustable exchange rates? or should they establish a currency board? some countries are even debating whether or not to abolish their currency entirely. this is a decision that requires serious consideration. the abandonment of a sovereign currency would deprive the national economic policy of the ability to take action in two fields : exchange rate policy and monetary policy. the question as to which currency to orient one ’ s economy to is only of secondary importance and is determined mainly by trade flows. many emerging economies have been forced to learn that today, monetary issues can hardly be separated from topics such as the functioning of international financial markets or the soundness of the national banking system. the financial crises in asia, latin america and russia have shown that the exchange rate policy has often been too rigid, as : – it prevented domestic monetary policy from curbing liquidity sufficiently ; and – the apparent exchange rate guarantee towards the dollar all but invited residents to incur debt in us dollars. these experiences must be taken into consideration whenever emerging economies seek to peg their currencies to one of the poles. pegging a currency can actually help to improve the standing of the country on the international financial markets. it can also help to establish internal discipline. this can enhance credibility. however, such pegs have their limits where, during periods of tranquillity, disequilibria develop which cannot be adjusted appropriately. a currency board has its limits, too. it can make a contraction of the domestic money stock - at least temporarily - necessary with accordingly high interest rates. to see this through, a country needs a sound financial sector, and its real economy must have sufficient flexibility. iii therefore, there is no one - size - fits - all method of managing a tripolar world. the euro, the dollar and the yen are all in a state of healthy competition with one another. the international monetary system as a whole can only profit from this competition. three conditions serve to promote a healthy competition : – first, a lot of common ground is necessary regarding the anti - inflationary stance of the countries ’ monetary policy ; – second, further sustainable progress in consolidating public sector budgets is needed - especially in europe ; – third, the currency areas have to rise to the economic challenges. the usa has to prove that its large external debt is justified by its growth, innovative power and efficiency. in europe it is important to enhance competitiveness and to