second place in this segment after the dollar, the gap between the two is large. imf estimates have set the volume of foreign reserves held in euro at the end of 1999 at 12. 5 %, compared with a us dollar share of 66. 2 % and a yen share of 5. 1 %. 6 however, one could argue that the euro has held up well in comparison with its predecessor currencies. v at this point, allow me to summarise while at the same time casting a glance towards the future. with the introduction of the euro, the balance of forces within the international financial system has shifted. a second currency now exists alongside the dollar which - given the size and economic strength of the euro area ’ s financial markets - has the potential to become a significant currency with global status. the extent to which the euro will actually realise this potential also depends on political decisions taken within the euro area and on the confidence which market participants world - wide place in the new currency. thus the first priority must be to guarantee the internal stability of the euro. this constitutes the primary objective of the eurosystem, which has already reacted to imminent inflation risks with several interest - rate increases. however, economic and fiscal policy makers, who are capable of accelerating economic momentum in the euro area through the appropriate structural reforms, are also called upon to act. much has already been undertaken or set in motion, as in the case of taxation policy. however, the markets have not ( yet ) rewarded these efforts. important policy initiatives still have to be introduced in the financial markets as well. the introduction of the euro has succeeded in ending the segmentation into different national currency zones and in intensifying the competition in individual market areas. some obstacles to the integration process only really became apparent once this had been achieved. if one is truly to speak of uniform financial markets in the euro area, priorities for the future will have to include further improvements in the infrastructure of the equity and bond markets and a standardisation of legal and administrative frameworks. transaction costs between two euro - area countries should not entail higher costs than those of purely domestic transactions. moreover, transaction costs within the euro area must not be higher than the international standard, if the euro is to prosper in international competition with other currencies. let me conclude by emphasising that the financial market trends in the euro area should also be seen in the light of the developments in the “ real ” sector of the economy. the financial

miguel fernandez ordonez : recent developments in the spanish economy testimony of mr miguel fernandez ordonez, governor of the bank of spain, to the parliamentary budget committee, madrid, 7 october 2008. * * * budgetary discussions this year are taking place at a time when the spanish economy is deep in a process of adjustment proving much more pronounced than initially expected. the international backdrop is marked by the weakening of the us economy, sharp rises in oil and commodities prices and, above all, the scale and persistence of the turmoil on international financial markets. given the latest events in the united states and europe, it is no exaggeration to say that we are faced with a global financial crisis without precedent in recent times which will require an overhaul of the principles that have governed the regulation of international finances in recent decades. the world economy is in exceptional circumstances, with a general loss of economic dynamism, surging inflationary pressures and serious financial instability problems. these are exacerbating and accentuating the adjustment of the spanish economy which the exhaustion of the cycle had already set in train, following a long period of expansion. moreover, this is the first occasion on which the spanish economy has faced such a process since joining the economic and monetary union, which provides undoubted buttresses but also poses considerable challenges. the economic policy debate behind the preparation and approval of the budget is thus of crucial importance. the far - reaching changes in the spanish economy in recent decades have equipped it with the wherewithal to overcome this difficult stage and to subsequently resume a path of sustained growth, allowing convergence to continue. but if these factors are to operate, the authorities and all agents must face up to the current circumstances and make the required efforts, and economic policies must prevent any slippage and enable the factors conducive to the resumption of sustained growth to come into play. naturally, i shall focus today on the diagnosis of the situation of the spanish economy and on its economic policy implications. but these would both be incomplete without some, albeit brief, reference to the deterioration of the international setting and to the economic outlook in the euro area which, as you know, will determine monetary policy developments. last year, the growth of the world economy reached 5 %. the forecasts available for this year, however, place the figure below 4 %, with scarcely any scope for the start of a recovery in 2009. moreover, any recovery will be moderate, slow and subject to a degree of uncertainty