area of boring stability. in recent years, the housing sector has thus emerged as a major channel for the transmission of monetary policy but also as a reason for concern regarding financial stability. financial innovation has allowed financial intermediaries to structure their products more in line with consumers ’ demands and to take on more risky products as the possibilities of securitizing their exposure has increased. since housing finance is normally very long - term – typically mortgages are for twenty to thirty years – the mismatch of maturities is correspondingly more acute. securitization allows financial intermediaries to overcome this problem to some extent and thus facilitate the extension of more credit in this market. however, transferring risks does not mean that nobody will pay the bill if conditions deteriorate and those who will pay the bill are usually also bank clients ( or the banks may pay compensation to holders of securitized bonds in order to minimize reputational risks ) ; thus “ securitization does not completely insulate banks ” and this simple maxim tends to be ignored today. consumers for their part have a wider array of options to choose from and this has led to an increase demand for mortgages. at the same time, the removal of many regulatory restrictions and the increased integration of markets, especially in europe, have led to increased competition and an overall reduction in interest rate spreads to the benefit of consumers. many borrowers who were previously excluded from the market now have access to affordable credit and can enter the housing market. a particular phenomenon that is widespread across the atlantic but is starting to spread over here is equity withdrawals, whereby homeowners use the accumulated equity in their houses to finance current expenditures. whilst this may depress savings in an economy, it may also improve its resilience to shocks, as the interest rate on mortgage - backed loans is normally lower than for other forms of consumer credit. another issue that may be acting toward increasing the risks in the economy is the propensity of market participants to take on risks which they do not fully understand. a specific example is the proliferation of mortgages in foreign currencies, which make borrowers vulnerable to little understood exchange rate risk and lenders to credit risk, which may remain hidden for a long period as long as everything goes well. of course, extension of credit to new borrowers at a time of diminishing spreads coupled with little understanding of risks may be a source of concern regarding financial stability, especially if house prices become stretched.

##s. i believe that emu has helped stimulate reforms in the euro area. major reforms are undoing the rigidities accumulated over decades, preparing social institutions for the looming demographic changes and making the euro area increasingly competitive internationally. it is crucial to continue strengthening competition in labour and product markets, for example, through liberalisation and deregulation, to improve the efficiency of price signals. national fiscal policies also provide important instruments. they can react to shocks in such a way as to counteract the emergence of differentials. however, sound public finances are an essential element of price stability and are necessary if automatic stabilizers are to work fully without the risk of excessively high deficits. in this respect it is important that governments strive to achieve balanced budgets or surpluses in periods of favourable economic activity. what difference would such changes make? i previously referred to the relatively - low dispersion of real growth rates in the euro area, which is, in fact, of an order of magnitude near that existing among regions of the united states. the dispersion among us regions, however, is centered around a higher average growth rate. since 1999, the us economy, which is more flexible than that of the euro zone, has grown at an average rate of about 3. 1 per cent, compared with about 1. 9 per cent average in the euro area. it is important that national labour market policies enhance flexibility at the national and regional levels. structural policies should also aim at improving the efficiency of the wage and price setting mechanism to reduce the persistence of inflation divergence. in this connection, i should note that in some countries, such as greece, wage behaviour has not fully adapted to the new regime. conclusions let me conclude with the following thoughts. recent events have given rise to some populist rhetoric about the wisdom of a single currency within europe. a few commentators have posed the question : why have a monetary union in europe? my perspective is very different. i share the sentiment of my colleagues on the governing council who have dismissed as " absurd " speculation that the euro area's future has been thrown into doubt. a single - size monetary policy has worked extremely well, delivering price stability so that changes in prices convey more effective information about demand and supply conditions. the credibility of the ecb's monetary policy has delivered interest rates that are at historically low levels to all member countries of the euro - area. yet, price stability and low interest rates are not enough to raise growth and