markets, wages are generally higher in the economy as a whole and although the scope for productivity gains may be more limited in the non - traded sectors of the economy, a general rise in wages tends to lead to higher relative prices in the non - traded to traded goods sectors. the euro area countries undergoing this catch - up process will, therefore, in general have higher inflation. as an ultimately temporary but nevertheless protracted phenomenon, there is also an ongoing process of convergence of prices of individual goods. price differences across countries will tend to be reduced for goods and services which are widely traded across national boundaries as a result of increasing integration of the single market. the introduction of the euro can, of course, be expected only to intensify this process through increased price transparency and the elimination of exchange rate risk. are national differences a cause of concern? are differences in growth and inflation among euro area countries a matter of concern? in terms of growth, there are no indications that the differences are particularly large or unusual. harmonised prices data do not exist over a longer time period, but available national figures point to the fact that differences are much smaller than they were in some other periods in the past. for example, in the early 1990s, the differences between the highest and lowest inflation rates were of the order of magnitude of over 10 percentage points. thus, a more stable price environment in the euro area as a whole has also been accompanied by a considerable degree of narrowing in inflation rate differentials. the move to a single currency and the introduction of the euro are based on the success of this convergence process towards low inflation rates in all participating countries. it may be recalled that the achievement of a high degree of price stability is one of the convergence criteria established in the treaty to be used to assess whether countries have fulfilled their obligations regarding participation in monetary union. however, this does not mean that after countries have joined the monetary union they will - at all times - have the same rate of inflation. to put the current differences in inflation in the euro area into context, it is useful to compare developments in the euro area with variations in inflation in the united states, a large single currency area which has been established for a long period of time and which is highly integrated in terms of labour and product markets. analysis of data for price developments in various us cities over the past suggests not only that significant inflation differences occur within a monetary union, but also that they are at least as great as those currently prevailing between euro area

economic efficiency and on price developments. it increases the strains on the monetary policy and, in a monetary union, there may be significant adverse spillover effects on other euro area countries. an institutional framework that guarantees sound government finances is an important contribution to macroeconomic stability and is conducive to sustained output growth and employment. it also helps to underpin the monetary policy. the implementation of the stability and growth pact provides sufficient scope in the medium term for a stabilising role for fiscal policy in monetary union. while, on the one hand, an unbalanced fiscal position creates difficulties for the economy concerned, if the government debt level is reduced to a reasonable level and fiscal deficits are close to zero or in surplus, this creates room for manoeuvre in economic downturns for fiscal policy to act as an automatic stabiliser. but this should then also apply if the ecomony grows rapidly or inflation is relatively high. windfalls occurring in such cases should then lead to lower deficits. of course, in making this remark i am not addressing one country in particular. fortunately, however, the dutch language gives me the opportunity to say : “ if the shoe fits, wear it ”. concluding remarks to summarise, national differences in growth and inflation observed in the euro area in the recent past do not appear to be unusual either in a longer - term perspective, nor compared with that which has been seen in the united states. looking into the future, it is of course difficult to predict how these differences may evolve. the experience of the united states suggests that they will not disappear completely. the further development of the single market is likely to lead to some sources of divergence becoming less significant, while others may become more important. divergences across countries will be monitored closely by the ecb but, given that monetary policy is geared towards maintaining price stability in the euro area as a whole, this means that other economic policies are required in circumstances where country or regional developments differ significantly, or over too long a period of time, from area - wide developments. in particular, this means that wage developments, backed by structural reform in labour and product markets, have a significant role to play while fiscal policy, within the framework of the stability and growth pact, must also make a significant contribution.