a world of increasing real economic interdependence, and with global financial markets, the question of monetary integration is also becoming more urgent. the calculability and appropriateness of monetary relationships is becoming more important. globalisation therefore increases the overall pressure to pursue a stability - oriented monetary policy everywhere. if a country, especially a bigger one, drops out, this may lead, in an integrated world economy, to serious damage due to volatile financial market prices. and this is why many countries are switching over to monetary cooperation, or even to pegging their exchange rates. one part of europe is now going a radical step further. eleven eu countries will enter into monetary union on a durable basis at the end of this year. that union will then pursue a single supranational monetary policy decided by a supranational and politically independent central bank. a number of countries will closely watch the outcome of this experiment, which may change europe considerably. this is true in particular of those countries of the european union which do not wish to join the monetary union as yet. accession candidates in central and eastern europe, too, will of course watch developments with keen interest. but countries in other parts of the world as well will focus their attention on the euro area. this is because some countries in south america or asia are beginning at least to contemplate the option of a monetary union. even if they still have a long way to go. iii what is it that prompts sovereign states to follow this basic trend towards economic integration, even if of course it does not always lead as far as is planned for euroland? essentially, three more or less major benefits may be derived from any form of economic integration : firstly, more integration leads to more competition. competitive pressure enhances efficiency. secondly, integration changes market structures. markets become larger. enterprises are able to exploit economies of scale. national economies can specialise to a greater extent. resources are fed into a larger pool, from which they can be allocated more efficiently. and market breadth increases. the consumer can choose from a wider range of products offered. thirdly, integration reduces information and transaction costs. this applies in particular to monetary integration, too. but - what is invariably true is also true of economic integration : there is no such thing as a free lunch. first of all, it is helpful to distinguish between market integration and policy integration. market integration mainly implies dismantling barriers and obstacles. then national markets can grow together

. policy integration goes further. it also implies that countries coordinate or even harmonise the general direction of movement in individual sectors of national policy, or individual parameters. the countries which join an integration process must clearly appreciate three potential problem areas : first problem area : market integration going beyond national borders poses increased domestic challenges. for instance, integration in the international division of labour accelerates structural change and calls for more internal flexibility, especially on the labour market. and liberalising capital movements places demands on the domestic financial sector, which must be able to handle international capital flows that may rapidly change direction. second problem area : to be really efficient, market integration with the elimination of barriers may require a minimum of policy integration. this applies, for example, to some protection provisions for products and in the production process. different tax systems may of course likewise distort cross - border goods and financial flows. and if capital markets are globalised, different approaches to monetary policy may contribute to volatility. such volatility may have a strong impact on financial and real investment. but, and this is the third problem area : policy integration is itself a two - edged sword. it may make markets more efficient. but it can also contribute to curbing policy competition. that may involve risks : an excessive tendency towards centralisation may arise which does not take sufficient account of diverging conditions. the delineation of responsibilities may become blurred if mixed responsibilities arise with undue bureaucracy. in the worst - case scenario, efficient policy solutions may no longer be implemented. policy innovation is blocked. countries must be able to come to terms with these three risks and problem areas in their efforts to coordinate or integrate their policies, if they are to secure the benefits of integration. striking the right balance here is not always easy. iv the financial markets are something like the flywheels of globalisation. free capital movements and efficient financial markets greatly facilitate direct investment. they provide the basis for transactions and for the safety of payment flows, which are the financial equivalent of real integration. the global financial markets promote and strengthen market structures. they also make it possible for investment in emerging economies to be funded privately, rather than officially, today on a much greater scale than previously. capital is allocated today, more than it used to be, in accordance with economic, rather than political, criteria. conversely, the integration of the emerging economies into the global financial markets provides new investment outlets for savings. this must also be seen against the backdrop of the age