s daily lives. in january 1999, the transition to the euro in book - entry form was virtually free of implementation problems, although many people had predicted that such a big project would inevitably be delayed or affected by technical glitches or organisational failures. this complex task, involving more or less simultaneous changes in countless computer programs at central banks, stock exchanges, authorities and thousands of private institutions, was carried out smoothly and in a perfectly coordinated fashion. carefully crafted contingency measures - which would be activated in the event of a breakdown of the “ core infrastructure ” - assisted the migration of all electronic systems and procedures. eventually, no incidents occurred after the irrevocable fixing of the conversion rates for the euro. on 4 january 1999 the eurosystem announced the successful completion of its first main refinancing operation. there remained looming concerns about how rapidly and smoothly the national money markets would integrate as we were aware that creating an efficient single money market also depends upon the creation of a tight network of contractual agreements between market players across the euro area. of course, an integrated euro area money market is a precondition for the very execution of a single monetary policy and for an efficient allocation of central bank money across market participants. in fact, the national money markets formed an efficient integrated euro area - wide circuit within a couple of weeks - faster than we had dared to hope. overnight rates across the euro area converged rapidly, with only negligeable differences remaining. in this respect, target - the real time gross settlement system of the euro area - has been a decisive supporting factor and has, in particular, contributed to the rapid integration of the money market. the target system, developed by the eurosystem, links all the real - time gross settlement payment systems in the european union. the payment volumes processed daily in the target system far exceed our initial expectations and the system had a market share of almost 70 % of the total volume of large - value payment transactions in the euro area already in the first months of 1999. this percentage has been increasing in the following years to reach almost 90 % in july 2004. 1 the euro cash changeover three years after the birth of the euro, the exchange of the legacy national banknotes and coins of the 12 countries of the euro area for the new euro notes and coins was a huge organisational, logistical and technical undertaking. a number of observers rightly called it the most important logistical endeavour in time of peace. this euro cash change

undertake important actions to fully realise the advantages of a stable single currency. structural economic impediments in a number of participating countries reduce employment opportunities and hold back the creation of real income compared to the pace that would be attainable, were available resources put to their most efficient uses. insufficient productivity growth - coupled with unfavourable demographic trends - in turn undermine the sustainability of social security systems. in many countries these systems incorporate relatively generous provisions for insiders to the disadvantage of younger and more deprived cohorts of citizens. it is therefore widely recognised that a much better functioning of the labour markets, together with reforms of social security and protection, and the timely completion of the single market of goods and services, including financial services, would be significantly needed to improve the prospects of the euro area. in this respect, the ecb has very much welcomed and supported the impetus given by the lisbon european council to the economic reform process. the diagnosis of the situation that emerges from the lisbon discussions is pertinent and unambiguous. as pointed out by a recent report written under the auspices of european commission2, it is time for the european union and its members to translate words into actions, especially in areas such as job creation, investment in research, and liberalisation of services. the european union needs an economic and social model aiming at facilitating adjustments into new employment rather than the excessive protection of unproductive jobs. investments are needed to build more efficient infrastructures. we need better support for research and development activities, and also improvements in our policies regarding human resources and education. all these measures are key for productivity in the european union to pick up and are of utmost importance to make the single market work better to the benefit of all europeans. structural reforms that are designed to increase the flexibility of markets permit a higher level of sustainable long - run growth and employment. they furthermore enhance the capacity of the participating countries to cushion macroeconomic shocks. the more rigid labour, product and financial markets are, the higher will be employment and income losses experienced in response to changing domestic and external economic conditions. this is due, in particular, to the fact that with nominal rigidities prices and wages cannot adjust suitably and in a timely manner. conversely, the speedier adjustments of wages and prices can take place in response to changes in macroeconomic conditions, the lower will be the burden of adjustment put on volumes and thus the lower the costs in terms of employment and output losses. we recognise that the implementation of