monetary union depends on their causes, size and persistence. what are the facts about the relative macroeconomic performances of euro area member countries? and what is the diagnosis about the causal factors and the underlying processes that explain them? i would like to point out two interesting facts that are contrary to popular perceptions. the first is that during the first six years since the creation of the euro, the growth and inflation differentials observed between member countries have not been greater than those recorded in the 25 years before the establishment of emu. on the contrary, according to some measures, the dispersion in growth rates has recently reached a historically low level. the second fact is that both growth and inflation differentials in the euro area since the introduction of the euro have been broadly of the same order of magnitude as the corresponding differentials observed across regions and metropolitan areas in the united states. these facts would seem to suggest that, at least on the basis of size, the heterogeneity observed in the macroeconomic performance of euro area member countries is not exceptional and thus need not be a cause of alarm. nevertheless, there are certain other developments that suggest caution and point to the need for a deeper and more comprehensive analysis. one such development relates to the significant and persistent divergences in measures of competitiveness between member countries. the diverging competitiveness is a consequence of various factors and policies as well as of market adjustment mechanisms, which in some cases reflect rigidities in labour markets and the low degree of integration and competition in certain product markets, particularly for services. the persistence of these developments suggests that adjustment mechanisms are functioning slowly and that self - equilibrating forces are not sufficiently strong. the extent and the cumulative effects of differences in competitiveness between some euro area countries raise concerns about their impact on growth. in addition, other factors – some exogenous, such as competitive pressures resulting from globalisation, and some internal, influencing consumer sentiment – affect economic activity and tend to compound the adverse effects of the erosion of competitiveness in some countries or partly offset the benefits from the increased competitiveness attained in other countries. a better understanding of the factors and processes that determine economic fluctuations, inflation persistence and competitiveness developments across the euro area countries will contribute to the diagnosis of the present situation and the assessment of future trends. two papers in this workshop provide insights and useful results to this end. the extent of synchronisation of economic activity in europe is examined in the paper by domenico giannone

and lucrezia reichlin, which evaluates long - run tendencies and cyclical fluctuations. different growth trends may be due to different patterns of specialisation, which can be desirable within the monetary union provided that countries can share risk through capital market integration. this study and other recent research show that european financial integration has resulted in increasing opportunities to share risk. the paper by ignazio angeloni, luc aucremanne and matteo ciccarelli concentrates on determinants of inflation dynamics in different euro area countries, notably the evidence on the price - setting behaviour of firms and on factors explaining inflation persistence. a thorough analysis of aggregate inflation dynamics and of the inertia characterising core inflation is of direct relevance to the formulation of monetary policy and also contributes to the diagnosis of the causes of growth fluctuations and of the high unemployment in europe. one general conclusion that emerges from the papers prepared for this workshop is that the divergences observed in the euro area are fundamentally the consequence of structural and not of conjunctural factors – even if current divergences may also have been influenced to a certain extent by conjunctural events. the policy implication of this general diagnosis is that more economic reforms are needed to address the structural impediments to growth and the causes of growth and inflation divergences. of course, structural reforms are not always easy to implement, they may be politically costly, and their positive effects may not be immediately visible – which makes it difficult to communicate them and convince the public at large about their benefits. nevertheless, only the implementation of appropriate economic reforms can address effectively and permanently the root causes of the euro area ’ s economic problems. consequently, the focus of the public debate should be how to speed up the reform process and its beneficial effects and thus strengthen consumer and business confidence. the role of the euro in fostering reforms in product, labour and financial markets has the euro been of help in pushing the reform agenda? at the time of the launch of the single currency, some observers had seen the euro as a “ reform whip ” that, together with the completion of the single market, would push in the direction of increased competition, higher productivity growth and greater market flexibility, which are essential for the smooth functioning of monetary union. after all, in a single currency area, the adjustment of domestic imbalances cannot be corrected by exchange rate policy any longer, but rather has to take place via prices and costs. the paper by romain duval and j