in the forecast period is expected to be below the target and vice versa. the repo rate was cut in two more steps in november, from 4. 10 to 3. 60 per cent, followed by a further reduction to 3. 40 per cent in december when the forecast was revised downwards again. even after the series of downward revisions during the autumn, the december assessment still carried a downside risk of the international slowdown being even more pronounced and prolonged than expected. the uncertainty about international economic prospects has been accentuated somewhat by the economic problems in brazil and the real ’ s depreciation since the turn of the year. the world economy may be affected contagiously, either via real mechanisms or via increased financial market turbulence. under normal circumstances, the real economic effects in the industrialised world from decreased trade with brazil should be relatively limited. there is a risk, however, of the crisis also becoming more profound among brazil ’ s neighbours, leading in time to somewhat larger repercussions in the industrialised countries as well. the effects via financial markets could be greater in the short run but developments to date in this respect have been better than many feared. the picture in other parts of the world economy at the end of 1998 is somewhat varied. growth in the u. s. economy is still good, whereas the slowdown in the euro area has become slightly more marked than many observers counted on and we have yet to see an economic recovery in japan. the sustained strength of the u. s. economy is mainly due to the unbroken growth of private consumption – the slowdown that was foreseen in our december inflation report has still to materialise. the stock exchange has recovered from last autumn ’ s fall and even reached new all - time highs. together with a positive development of employment, this has helped improve the confidence of american consumers. in time, however, a slowdown in the u. s. economy still seems probable ; but the course to date does suggest that it will not occur as soon as the riksbank expected earlier, in which case the trend in 1999 may be stronger. a more dramatic downturn could occur if the u. s. stock markets were to fall markedly. even without this, economic activity could slacken in connection with decreased investment on account of falling demand and lower profits, as well as with a lower consumption propensity among households whose debt burden is already very high. in the euro area the available statistics indicate that the slackening of

accomplished ”. what has been achieved so far is not enough. the answer to the remaining challenges could take the form of a “ convergence process 2. 0 ”, which should have an agreed timeline and milestones. but convergence can only be sustainable if it is associated with a commensurate deepening of integration, if it is a race towards best practice institutions and policies rather than towards mere nominal outcomes. in this context, structural reforms, if properly designed, lead to greater prosperity in each country and, at the same time, ensure greater resilience of emu as a whole, thereby contributing to economic and social stability. growth and stability are therefore mutually reinforcing. the convergence process should consist of two legs : on the one hand, it should underpin the convergence of economic policies and structures at the national level. on the other hand, it should facilitate joint action. at the national level, convergence implies that euro area governments need to step up structural reforms, in particular those which have the greatest efficiency gains given the relative distance to best practices. and policy - makers should pay due attention to ensure that the burden of the adjustment effort is shared fairly. bis central bankers ’ speeches the convergence in national structures could be complemented by joint action at the european level to increase investment and by the transfer of certain budgetary responsibilities to the european level with a view to strengthening risk - sharing within the currency union. but joint action can only occur once trust has been restored across countries and within countries, and the convergence process has advanced successfully. the level and the form of budgetary responsibilities, and how they are matched by appropriate democratic arrangements, should emanate from the political process. the biggest threat to the single market is not euro area integration : it would be euro area stagnation. the challenge of making the emu work is far from over. let ’ s get ready for the next stage of the race. intro ladies and gentlemen, let me first of all thank the economist for inviting me to this distinguished panel. almost exactly ten years ago, the olympic triathlon took place here in vouliagmeni. on race day, the weather was as hot and as dry as it is today. the athletes needed to have two important attributes in order to be able to compete in a triathlon in these conditions : resilience to withstand the heat and commitment to endure all three disciplines with equal passion. economic and monetary union ( emu ) is a political triathlon. it requires