the time. in the first instance, these attacks threatened to disrupt the functioning of financial markets. thus, immediately after the terrorist attacks, the ecb took measures to ensure the normal functioning of financial markets. the governing council also reacted to the events by holding an extraordinary teleconference meeting, at which it was decided to reduce the key ecb interest rates in concert with the federal reserve system of the united states. in the following period, as signs emerged that the slowdown in economic activity was significant, pointing in the direction of a further decline in inflationary pressures, the governing council again cut the key rates in november 2001, bringing the total reduction of the key rates in 2001 to 150 basis points. since then, economic developments, which point to a gradual economic recovery in the euro area in the course of 2002, have been largely in line with the governing council's expectations, and we consider the current level of the key ecb interest rates appropriate to maintaining price stability over the medium term. to briefly conclude on monetary policy, the ecb has, in my view, proved itself capable of adapting to and operating in a difficult economic environment. while inflation has been above the definition of price stability for some time, medium - term inflationary expectations, as implied in bond yields or in forecasts and surveys, have consistently been below 2 %. this is a sign that the credibility of the ecb is firmly established and that the public is confident that price stability will prevail. fiscal policy the economic environment with which we at the ecb were confronted was also the day - to - day reality of the fiscal policy - makers in the individual euro area countries. in 2001, mainly as a result of the economic slowdown, the average budgetary balance in the euro area deteriorated for the first time since 1993. automatic stabilisers played a significant role in budgetary outcomes in 2001. major tax cuts also contributed to the deterioration, as they were often implemented without adequate offsetting expenditure restraints. as a result, a large majority of countries failed to meet the budgetary balances targeted in the stability programmes for 2001. by the same token, most countries rightly refrained from introducing a discretionary fiscal relaxation in response to the economic slowdown. moreover, countries with remaining fiscal imbalances reaffirmed their commitment to attaining safe budgetary positions by 2003 or 2004. developments in 2001 and the projected outcomes for 2002 confirm the vulnerability of public finances – especially in the countries with remaining im

yves mersch : the evolution of the european model of integration speech by mr yves mersch, governor of the central bank of luxembourg, at the amcham ( american chamber of commerce ) financial services committee ’ s networking, luxembourg, 15 february 2005. * * * the year 2005 in europe should be marked by the ratification of the european constitution. this provides an opportunity for trying to assess the quality of european integration over the last 50 years, especially in view of a comment i have recently read in an american newspaper published in europe, which describes this integration process as shaky and unsure. before forming an opinion it is important to recall that the views we might have on our surroundings are deeply influenced by the historical dimension, as well as by the various systems of governance in our different countries and continents. we must not forget that for the united states an overriding event in its history was the civil war ( 1861 – 1865 ), which was followed by well over a century of peace on its own territory. that does not mean that the united states was not involved in wars overseas. but that is very different from having war on your own territory. a second essential element of difference concerns personal or family history. the vast majority of people living in the united states stem from the immigration of economically weak classes or people who were persecuted because of their religion or other ideological beliefs. this has led to a strong feeling of distrust vis - a - vis central government and also to a feeling of strong individualism that is expressed in the national laws and the institutional framework, as well as in the prominence of moral values. europe, on its side, has a quite different pattern of collective and family memories. in order to understand, one has to go back as far as the feudal middle ages, when there were many small states in europe, which tried to gain power or wealth in 2 ways so as to achieve mergers and take - overs with other states : one way was to marry, another was to wage war. the consequence was a permanent state of war on the continent. this led to great poverty and ultimately to revolutions, out of which came a new concept, that of the nation state, which is also familiar to the us, as madame secretary of state so eloquently recalled at iep in paris a week ago. this nation state also meant in many cases the end of feudalism and the transfer of sovereignty through marriage. the policy of acquiring lands through marriage was so successful in the case of the habsburgs that