., “ labor market adjustment dynamics and labor mobility within the euro area ”, dgtpe working paper, 2007 – 6. see arpaia, a. and mourre, g., “ institutions and performance in european labour markets : taking a fresh look at evidence ”, european economy – economic papers, no 391, directorate general economic and monetary affairs, european commission, 2009. bis central bankers ’ speeches 2000 and 68 % in 2006. the analogous numbers for italy were 108 % and 106 %, and for greece 103 % and 106 %. the stability and growth pact was devised in 1998 to make sure that national budgets were kept close to balance or in surplus, thus regaining their ability to deliver insurance against macroeconomic shocks. it did not work. while progress was at best slow when it came to labour flexibility and national fiscal policy, market - based risk - sharing mechanisms developed surprisingly quickly. integration of financial markets proceeded at a rapid pace, allowing firms and households in europe to reap the benefits of lower and more uniform financing costs. the ecb developed its own set of indicators, both price and quantity indicators, in order to monitor the progress of financial integration in the euro area. 5 in some market segments, integration was immediate and complete ; in others it was more gradual. euro area money markets achieved the fastest and most complete integration. the cross - country standard deviation of unsecured lending rates decreased essentially to zero immediately after the introduction of the euro. while somewhat more fragmented, equity markets showed significant signs of integration as well, especially after the application of the financial services action plan. for example, the share of equity issued by euro area residents and held by residents of other euro area countries more than doubled between 1997 and 2006, to 29 %. 6 perhaps the most striking sign of market - based risk - sharing in the first years of emu was the simple fact that the current account deficits and surpluses of euro area countries widened significantly. furthermore, the large current account deficits were financed internally, within the euro area. in the years between the launch of emu and the global financial crisis, greece saw its current account deficit rise from about 7 % to 15 % of gdp ; spain from about 3 % to 12 % ; ireland from zero to about 7 % ; and portugal from about 3 % to 5 % of gdp. these deficits were financed in the market, largely by investors from a single country : germany. germany, which entered emu with a

euro area countries did continue, though essentially independently of any policy measures and as a result of previously taken commitments, such as the single european act, and to some extent as an endogenous consequence of monetary union. trade flows within the euro area have increased and their nature has changed, with a lot more trade at the intensive margin and export price compression. 2 however, labour markets remained rigid in essentially all member countries. labour within individual euro area countries has traditionally been significantly less mobile than labour in this country. economic research shows that in the united states, in the year after a regional labour demand shock, labour mobility accounts for about one - half of the increase in regional employment resulting from that shock. in the european union, before the crisis, it would take three times as much time – three years – for labour mobility to account for a similar proportion of the rise in regional employment after a shock. instead, most of the reaction to shocks came through changes in participation rates. 3 almost everywhere, the adoption of the euro was followed by at best incremental reform steps. dual labour markets developed, with a significant fraction of employment growth due to temporary, and thus fragile, jobs. 4 perhaps most importantly, many countries had entered emu with high levels of public debt and did little or nothing to reduce it. for instance, france had a public debt - to - gdp ratio of 57 % in the year 2000 and 64 % in 2006. germany had a public debt - to - gdp ratio of 60 % in see bordo, m., “ the euro needs a fiscal union : some lessons from history ”, shadow open market committee, october 2010. see fontagne, l., mayer, t. and ottaviano g., “ of markets, products and prices : the effects of the euro on european firms ”, intereconomics : review of european economic policy, 44 ( 3 ), 2009, pp. 149 – 158. strikingly, this finding held within individual european countries. this empirical regularity could not therefore be explained by factors such as language or unwillingness to move to another country. see decressin, j. and fatas, a., “ regional labour market dynamics in europe ”, european economic review, 39 ( 9 ), 1995, pp. 1627 – 1655. the contribution of labour mobility to adjustment may have improved in the 1990s and now be closer to that observed in the united states. see l ’ angevin, c