signals a self - sustaining recovery in the euro area. in my view, therefore inside the euro area the gradual pace of adjustment of the monetary policy stance, of the overall provision of liquidity and of its allotment modes can continue. the euro : sound track record in the first decade in a longer perspective the performance of the currency union is far more flattering. between 1999 and 2009 real per capita output in the euro zone grew on average by 1. 5 % per year. this is a comparable order of magnitude to that in the us, despite higher overall growth rates in the us. consumer prices developed in line with the ecb ’ s definition of price stability. in the eleven and a half years after the creation of the single currency the harmonized index of consumer prices ( hicp ) has risen on average by exactly 1. 97 % per year. the performance of the ecb in delivering price stability has beaten that of the former benchmark currencies, the deutsche mark and the dutch guilder. high cost of fighting the crisis still, there is no scope for complacency. in recent months, europe has demonstrated unwavering commitment to the unity and integrity of the single currency area. however, the fight against the financial crisis and the deep recession has not only been successful, but also very costly. moreover, it has uncovered institutional weaknesses as has been the case in the history of most currency unions. in particular, it poses challenges to the sustainability of public finances. in the euro area the government deficit climbed to 6. 3 % of gdp in 2009. this year the euro area government deficit will peak at 6. 6 %, before declining only to 6. 1 % in 2011. the overall government debt is expected to amount to 88. 5 % of gdp next year. this is still below the level prior to the introduction of the euro. but it is also an increase of more than 20 % from the level before the crisis. although, it is not too comforting that other major currency areas are facing even more severe deteriorations of public finances, it is a matter of fact : in the us fiscal stimuli and rescue packages have resulted in the federal budget deficit widening to around 10 % of gdp for the fiscal year 2009 – and it will probably stay at that level in 2010 and 2011. by consequence the government debt - to - gdp ratio in the us was about 84 % in 2009. it is expected to rise to 102. 5 % by 2011. in the

yves mersch : the euro – a credible currency? speech by mr yves mersch, president of the central bank of luxembourg, at the luxembourg financial centre conference, shanghai, 28 september 2010. * * * excellences, ladies and gentlemen, it is my pleasure and honor to talk to such a distinguished audience this afternoon. i am very grateful to for this opportunity to exchange views on the credibility of the euro and on the role of our respective currency areas for a more balanced global economy. let me start with the credibility of the euro. if you ask me, who has been a member of the governing council of the european central bank ( ecb ) since its establishment in 1998, if the euro was a credible currency, you will not be surprised that my answer is “ yes ”. the statement the euro being a credible currency might be more surprising against the backdrop of the current economic and financial crisis. especially, as it has doubtlessly affected not only the ( global ) economy but also the major institutions of the euro area. some outside observers even have prematurely forecasted its demise. let me explain why these predictions are wrong. currently ongoing recovery in the euro area in the short term, the economic situation is improving. the euro area and its single currency are recovering from the most severe recession since world war ii at a pace which takes laymen and experts by surprise. since mid - 2009 economic activity has been expanding. recently the recovery has gained momentum. euro area real gdp increased, on a quarterly basis, by 1 % in the second quarter of 2010. clearly, the euro zone was hit hard by the great recession. in 2009, i. e. in the aftermath of the near meltdown of financial markets in september 2008, real gdp fell by 4. 1 % in the euro area. as a consequence unemployment rates soared to beyond 9 % the same year. correspondingly, the free fall of energy prices and the decrease of economic activity slashed down inflation significantly in 2009, pushing the inflation rate even into negative territory for a couple of months. more recently, price developments have somewhat normalized, staying in line with the ecb ’ s aim of keeping inflation rates below, but close to, 2 % over the medium term. although, in line with the ecb ’ s projections recent data and surveys indicate a moderation of growth in the second half of this year in the euro area as well as on the global level, i am confident that the positive underlying momentum is increasingly broader based and