the european capital market. a key factor contributing to the rapid integration of the euro money market is the target system. target ’ s main objectives for the monetary policy of the eurosystem and the euro money market have been achieved ; the provision of a safe and reliable mechanism for the settlement of cross - border payments and a rapid and effective increase in the efficiency of cross - border payments within the eu. in july, a daily average of slightly more than eloolrqzdvwudqvdfwhgyldwkh7 $ 5 * ( 7v \ vwhp the eurosystem ’ s monetary policy instruments are working smoothly. the main refinancing operations are fulfilling the functions assigned to them, which is to signal the monetary policy stance, to steer the money market rates and to supply the banking system with the bulk of liquidity. supplying the banking system with liquidity on a more sustained basis through the longer - term refinancing operations is not posing any problems either. the standing facilities have effectively limited the overnight interest rates. the averaging provision applying within the minimum reserve system has contributed to smoothing out daily fluctuations of liquidity. previous experience has shown that the eurosystem ’ s operational framework constitutes an effective set of instruments for steering money market rates and limiting their fluctuations. by the way, it seems remarkable to me in this context that the dispute over the benchmark rate in the euro money markets was resolved in favour of the euribor far more quickly than many market participants had expected. the day - to - day money market rate for the euro ( eonia ), which is ascertained by the ecb, has established itself as a representative picture of the market conditions in the euro area. eonia and euribor cover the whole range of the euro money market reference rates in a consistent manner. for the pfandbrief market, it was crucial in connection with the decisions on the monetary policy instruments that pfandbriefe were included in the list of tier - one assets and were thus treated “ neutrally ” in monetary policy terms relative to government bonds. this status has certainly benefited the competitive position of the pfandbriefe by increasing its liquidity. the bond markets had already partly anticipated the introduction of the euro, although, in the final analysis, the euro bonds issued prior to the start of monetary union were nothing other than ecu bonds with the pre - announced conversion rate of 1 to 1. the decision

inflation. this effect, however, does not suggest the maastricht criteria to be revised. the inflation criterion already allows for inflation to diverge by 1. 5 percentage points from the three best performing members of the currency union. nor does the balassa - samuelson effect suggest to loosen the two percent ceiling for price - stability in the euro area, which leaves enough room for price increases due to catching up. sustainable convergence in inflation rates is crucial. inflation rates can be kept at a sufficiently low level only if other policies comply with the stability orientation. prudent wage policies will contribute to containing overall price developments. structural policy also has a role to play. currently, 25 percent of prices in accession countries are still administrated. microeconomic reforms and further price deregulation have to be carried out. only then can the price mechanism fully work through to the economy - a defining feature of a fully functioning market economy. fiscal policy is of special importance in this respect. excessive deficits are to be avoided. the public sector deficit is the decisive measure of a government ’ s demands on the financial markets. it is the benchmark for its stability orientation. last year general government deficits among the accession countries ranged from 0. 4 percent of gdp ( in estonia ) to 7. 1 percent of gdp ( in malta ). eight of the accession countries had not yet met the maastricht budgetary criterion. however, the debt criterion - public debt less than 60 percent of gdp - was met by a broad majority of the accession countries. there are still a few years in which to pursue convergence and to prove its sustainability. nominal convergence is not a goal to be reached at a certain point in time ; it is, rather, the natural and sustainable state of a stable currency union. apart from nominal convergence, real convergence is of importance in a monetary union. i use the term here in the sense of synchronicity of business cycles. the governing council of the european central bank designs monetary policy appropriate to the euro area as a whole. a country whose business cycle gets grossly out of step might suffer if it is subject to a monetary policy that is inappropriate to its national economy. however, marching in absolute lockstep is not necessary, as can be seen in the usa, where certain regions grow faster than others. growth rates of states and regions within a currency union may differ to some degree. it is the size of the gap between actual and potential growth rates