jean - claude trichet : governance and convergence – the state of play in the euro area speech by mr jean - claude trichet, president of the european central bank, at the conference entitled “ euro zone – converging or drifting apart? “, organised by the european parliament ( committee of economic and monetary affairs ), open debate with national parliaments, brussels, 28 february 2007. * * * mesdames et messieurs, messieurs les deputes, permettez moi tout d ’ abord de remercier mr pervenche beres de m ’ avoir invite a debattre sur un sujet particulierement important, qui est le degre de convergence des economies de la zone euro. c ’ est en effet un grand plaisir pour moi de partager avec vous et avec mes collegues et amis jean claude juncker et joaquin almunia aujourd ’ hui quelques reflexions sur ce sujet. sehr geehrte damen und herren, sehr geehrte abgeordnete, bevor ich beginne, mochte ich zuerst frau pervenche beres danken fur die einladung und das zustandekommen dieser sehr wichtigen offenen debatte zum stand der konvergenz innerhalb des eurogebiets. es ist mir eine besondere freude, mit ihnen und meinen kollegen jean claude juncker und joaquin almunia einige gedanken zu diesem thema austauschen zu konnen. economic and monetary union and the creation of the euro area – a single economy with a single currency at the level of a continent – was, and still is, a formidable endeavour. contradicting all those sceptical – academics, media and other observers – who had anticipated a failure, emu has been a great success. for eight years we have successfully worked together in the euro area with a single monetary policy and a single currency. to those who claim that the euro has played against job creation, i would like to mention here two striking numbers : over the 8 years since the creation of the euro, the euro area created more than 12 million jobs ; over the 8 years preceding the creation of the euro, less than 3 million jobs were created ; of course i

ongoing recovery. this marks a departure from the past when euro area growth was far more reliant on external demand. while world trade has weakened considerably and last year grew at the slowest pace since the financial crisis, growth in the euro area has accelerated. looking at the domestic recovery in more detail, consumption expenditure is a key source of support for growth. rising employment and growth in real disposable income are translating into increased spending rather than increased saving, reflecting households ’ confidence in future economic prospects. this contributes to a positive feedback loop between consumption, employment and income, further bolstering the recovery. but wage dynamics still lag behind due to the remaining slack. higher incomes are mostly the result of job creation rather than salary or wage increases. investment is also gradually picking up given the favourable financing conditions, the need to 1 / 5 bis central bankers'speeches modernise capital stock after years of subdued investment and the strengthening of corporate profitability. improvements in business confidence and in the production outlook, as reflected in recent business sentiment surveys, should result in higher investment spending. however, public investment is below trend in some surplus countries. also on a positive note, the risk assessment of the growth outlook is more and more balancing. although we still face some risks, in particular regarding the external outlook, political uncertainties and fragilities have consistently evolved in a positive fashion in europe since the beginning of the year. available data also point to an improving external environment. global economic activity indicators suggest robust growth at the start of 2017, which should further support business investment in the euro area as export demand picks up. one could say we have left behind an environment of elevated uncertainty in a knightian sense and progressed to one of calculable risks. but in the euro area the balance of risk for inflation is not where the balance of risk to growth lies. in terms of the labour market, the unemployment rate continues to decline despite growth in the euro area labour force. meanwhile, survey data suggest further improvements in labour demand during the first quarter of this year. while the level of economic slack remains elevated, which subdues underlying inflation, growth rates are above potential so the output gap will continue to close over the policy horizon. this should support wage growth and return inflation towards a level that is close to, but below, 2 % over the medium term. indeed, there are also timid signs of early pipeline pressure stemming from industrial producer prices. against this background, market expectations regarding deflation