at least since the publication of the “ one market, one money ” study by the european commission in 1990, observers and analysts of emu have paid significant attention to the decline in transaction costs that can be achieved by unifying up to 15 different currencies, and to the resulting gains in efficiency for europe ’ s economies. the experience of the united states is useful in this respect. the fact that 50 states in the united states share a common currency - - and have done so for over 130 years - - provides the critical foundation for an integrated and efficient capital market that extends from maine to california and on to alaska and hawaii. in this market, capital flows smoothly from high - saving to high - investment areas, as required by changing business conditions, without any thought of exchange rate risk. a common u. s. currency, it is important to note, has many advantages beyond simply reducing transaction costs. it also simplifies choices for households and corporate management, enhances the efficiency with which financial institutions and the payments system function, and promotes competition across the whole productive spectrum. while a common currency in europe can be expected to lead to similar efficiency gains, the economies of the united states and europe differ in several important dimensions, so that a common currency is likely to work in substantially different ways in the two regions. the ways in which europe and the united states differ most have to do with the degree of integration of their labor markets and their fiscal systems. the united states enjoys a very mobile labor force - - across sectors and states - which allows job losses arising during sector - specific or state - specific recessions to be rapidly absorbed where jobs are growing faster. this contributes to aggregate unemployment being kept reasonably in check. this willingness of american workers to move themselves and their family is a cultural characteristic of our people, no doubt based in the history of the united states as a nation of immigrants. to complement its high degree of labor mobility, the united states also has in place a federal fiscal system that allows the federal government to channel large transfers from fast - growing regions to slow - growing regions. progressive income taxation, a high elasticity of corporate tax profits to changes in income, and an integrated federal budget are the main components of this system. in contrast to the united states, europe is characterized by a more segmented labor market and very limited integration of its national fiscal systems. both these characteristics limit the ability not only of europe ’ s private sector to shift resources in response to regional recessions

stronger then expected every year in this period. at the same time, inflation was moderate and unemployment declined. many observers attribute the prolonged period of strong growth to the new economy, which features three main aspects : • the labour market had become more flexible. while earlier experience implied an acceleration in the rate of increase in wages and prices at an unemployment rate of six per cent, unemployment fell to four per cent without triggering higher inflation. • productivity growth increased in both the it sector and in other industries. the forecasts for the annual growth potential of the us economy were revised up substantially to around 4 per cent. • equity prices for technology stocks advanced sharply, with more than a sixfold increase in the nasdaq index from the beginning of 1995 to the peak in march 2000. strong productivity growth and low wage growth led to a sharp increase in corporate profitability. expectations of a continued rise in profits spurred sharp growth in investment. at the same time, advancing equity prices boosted household wealth. households could reduce their current saving and still increase wealth, allowing them to use a growing share of income for consumption. but imbalances heightened. the fall in the household saving ratio was based on gains in the stock market, which after a time reflected unrealistic expectations of future earnings. corporate debt increased sharply and current account deficits grew larger. in spring last year, equity prices declined. the nasdaq index showed a particularly strong decline. the index continued to fall through autumn and winter, with the overall decline nearing 60 per cent. the more broad - based stock indices have also shown a decline, albeit a more moderate one. growth has been expected to slow this year for some time. in spite of this, the turnaround in the us economy was surprisingly strong and came faster than expected. consumer and business confidence indicators have shown a marked fall. the federal reserve has sought to counter the downturn. interest rates were lowered by 1 percentage point in january. the government has announced substantial tax cuts. this may moderate the downturn, but hardly bring it to a halt. consolidation in the household and business sector may imply lower consumption and investment for a period. in 2001, we expect the us economy to expand by less than half the rate recorded last year. growth in the japanese economy is also sluggish, but the downturn in japan has continued for ten years. at the beginning of the 1990s the financial bubble burst, following a sharp increase in stock and property values in the preceding years. the