jean - claude trichet : economic diversity on both sides of the atlantic speech by mr jean - claude trichet, president of the european central bank, at the us sciences po foundation annual benefit, new york, 16 june 2011. * * * ladies and gentlemen, it is a great pleasure for me to speak to you here tonight. the past few years have been a testing time for the economies of both the united states and europe. we were faced with the worst financial and economic crisis since the second world war. still today – on both sides of the atlantic – we are dealing with the consequences of the crisis – for economic growth, for employment and for government finances. the crisis has also exposed the united states and europe to a number of asymmetric shocks – in which different parts of our economies have had a wide diversity of experience. some countries within the euro area are the particular focus of market attention at the moment as a result of their sovereign debt issues. some observers have been wondering how diversity can be dealt with in europe ’ s economic and monetary union ( emu ), what it means for monetary policy and whether the variations in economic conditions are aggravated by product and labour market rigidities. it has often been argued that economic diversity or heterogeneity is very significantly larger in europe than in the united states. we at the european central bank ( ecb ) have been looking closely at the degree of diversity in the two large, continental advanced economies on either side of the atlantic. and some of the findings from this comparison are quite interesting. because they show that economic diversity within the two currency areas is very similar in many ways. the analysis also shows that, in fact, in a large number of respects the two economies are similarly diverse. i would like to share some of the key insights of this analysis with you tonight. i. economic diversity in the euro area and the united states the united states and europe are often compared. this is quite natural. americans and europeans share a common cultural legacy. but our two economies, and i am speaking here of the economy of the euro area on our side, are also similar. both are of similar size, in terms of population and in terms of economic output. both have closely integrated financial and product markets. and both have a single currency. let me begin my comparison with an economic indicator that is particularly close to a central banker ’ s heart : inflation. in historical terms, overall inflation has been low and stable in both the united

states and the euro area since the late 1990s. the ecb aims at an inflation rate of below, but close to, 2 % over the medium term. since the inception of the euro, the ecb has achieved that objective. annual inflation in the euro area has been 1. 97 % on average over the first 12 years. importantly, the standard deviation in inflation across the members of the euro area has been around 1 %. and it has remained broadly stable at similar levels to those observed in the us metropolitan statistical areas. from that standpoint prices in the euro area are broadly homogenous and similar to those in the united states. my second point of comparison is how diverse the united states and the euro area are in terms of economic growth. the results here are similar to that for inflation. first of all, the overall growth rates over the first twelve years of the euro were actually quite similar in the bis central bankers ’ speeches euro area to those in the us, once you adjust for differences in population growth. in both the euro area and the us, per capita growth was about 1 % during 1999 – 2010. as concerns dispersion within the economies, before the crisis, the standard deviation of growth rates was around 2 % in both the euro area and the united states. dispersion rose somewhat during the crisis in both currency areas but remained broadly in line with pre - crisis patterns. 1 allow me to go one step further and compare the sources of this growth dispersion in the united states and the euro area. both currency areas include regions that experienced a significant boom - and - bust cycle over the past decade. both also contain regions that are facing significant structural challenges of a more long - term nature. let me start off with the united states. here, several states experienced increases in house prices that outpaced the national average by a wide margin. the steep house price increases probably contributed to above average growth in these states, owing to strong positive contributions from real estate, construction and financial services. nevada, arizona, florida and california are good examples, where average growth between 1998 and 2006 exceeded that of most other states. the sharp fall in house prices in recent years turned boom into bust. these states experienced the harshest recession among the us states. at the same time, some other us states have seen a long period of below average growth, particularly the former manufacturing powerhouses in the “ great lakes ” region. structural shifts in the us economy towards services have gradually