Today's Date:

Europe's face is changing. The fragmentation once so typical of the map of Europe can no longer be considered its characteristic feature. Europe has forfeited none of its cultural diversity, which is indeed one of its greatest strengths. But much has already changed in the political and economic sphere. Europe is growing together.

The second world war left Europe in ruins. Cooperation between the free nations began again with Franco-German reconciliation. It was this friendship that enabled other countries to work together in a spirit of mutual trust - a cooperation culminating in the Treaties of Rome and the founding of the European Community.

Great achievements have emerged from the nucleus of the Treaties of Rome in the course of the past 40 years. Throughout Europe's long history, political cooperation between western European countries has never been closer than it is today. Economic cooperation has been marked by the creation of a single European market. The European Union has made a decisive contribution towards establishing the high level of prosperity in western Europe. The peoples of Europe have benefited as never before from this form of political and economic cooperation.

The introduction of a single currency was the logical development of the European single market. The euro was launched on 1 January 1999.

The countries wishing to take part in monetary union had to comply with strict criteria, thus ensuring that participants had the same economic policy stance and pursued coherent policies. The European Stability and Growth Pact provides the assurance that public finances will remain sound. More than ever, stability is set to become a strong characteristic feature of Europe.

The countries participating in the euro have assigned responsibility for monetary policy to the independent European Central Bank. The primary objective of the European Central Bank is to maintain price stability. It has been effective in performing this function, which is necessary to ensure a durable growth. Europe has a low price-increase index and so inflation is no longer a problem for economic policy as core inflation remains subdued in spite of the oil shock of autumn 2000. Stability-oriented fiscal policy in all countries participating in the euro has helped to achieve this important result. Budget consolidation in the Euro area has taken on a significance unprecedented in economic history, and has been a crucial factor behind the economic upturn in Europe.

The euro has also been instrumental in fostering the coordination of economic policies and the progress of structural reforms. The 12 Finance Ministers of the Euro area gathered in the Eurogroup regularly discuss growth prospects and budgetary stances in the Euro area and compare the reforms undertaken in their countries. The President of the ECB participates in the discussion, thereby enabling a fruitful dialogue and an efficient policy-mix at the Euro area level.

The state of the economy both in the Euro area and the European Union at large is better than it has been at any time in the past years. A sustained upturn supported by strong domestic demand and vigorous export growth has led to an appreciable rise in employment and thus to a perceptible decline in the number of persons out of work. More than six million new jobs have been created solely in the Euro area since 1998. The outlook remains favourable. The development of information and communication technology means a further improvement in prospects, whilst reforms are enhancing the economic fundamentals. An important step in this direction was taken at the Lisbon European Council where a range of measures in the fields of employment, innovation and economic reform was adopted. A further step was the adoption by the European Council in Nice of a Social Agenda aiming at stimulating job creation and social cohesion. European governments have taken a decisive step to promote further economic reforms. On the whole, therefore, an average growth rate of 3% in the coming years may realistically be assumed, with the objective of reaching full employment in Europe.

Economic activity has also been stimulated by the introduction of the euro. Fixed exchange rates within the Euro area have created a stable environment for investment. On this basis, too, long-term trade relations can be more readily established in the absence of exchange rate risk. As currency conversion costs and the need to hedge against exchange rate risk no longer apply, small and medium-sized businesses are now also able to reap the benefits of the large single market and develop their activities in other Euro area countries. All this has gone hand in hand with intensified competition in Europe.

As from 1 January 2002, people throughout the Euro area will have the same coins and banknotes. They will then be able to use the same currency in all Euro area countries. This will further enhance market transparency. It will be easier to compare prices. Competition will be stepped up still further, bringing additional benefits. A price-moderating impulse is the likely outcome.

Moreover, national capital markets in the Euro area have undergone a de facto amalgamation into a European capital market. This has intensified competition and led to the emergence of entirely new products and new business opportunities for international investors. The appreciable increase in capital market volume also means that transactions can now be undertaken which only a few years before would have been unthinkable within the narrow confines of national capital markets. The European capital market benefits issuers and investors alike. Moreover, its size lends extra stability, so that not even single, large-scale transactions can throw it off balance. With the single currency a EUR 2,200 billion-deep bond market has emerged. In terms of bond issuance, the Euro bond market is on a par with the dollar market. The Euro bond market is a high-grade market, among the most diversified and internationalized. As concerns financial services, the recent Lamfalussy report has paved the way for the building-up of an unified market without borders which will open increased business opportunities for international investors.

In many countries the introduction of the euro has acted as a catalyst for reform. Changes of direction in fiscal policy and tax reforms have been launched or speeded up. In Germany and France, for example, ambitious tax reforms came into effect at the start of the year that will improve the functioning of both labour and capital markets and boost economic expansion. The euro quite simply made these reforms necessary and will continue to ensure that the countries of Europe undertake reforms in response to new challenges.

Among the greatest of these challenges is the integration of Central and East European candidate countries into the European Union. Once the eastward enlargement of the Union has been successfully achieved, the iron curtain that has for so long divided Europe will definitely be a thing of the past. Not only will the enlargement of the Union create a larger single market, but it will also definitively anchor democracy in Eastern Europe. The rapidly growing economies of candidate countries will profit from the scope afforded by the single market. The more developed economies of the European Union can supply the goods that these transition economies need. Hence eastward enlargement will be to the benefit of all concerned. Accession to the European Union will not automatically be followed by introduction of the euro in the new Member States. The stringent criteria that were applied to the present Euro area countries will apply to new participants as well. This is an essential requirement to ensure the permanent stability of the euro.

To date, the euro has functioned very effectively. Solely in its relation to the US dollar has it failed to come up to expectations, but the trend over the past few weeks has been most encouraging. It would now seem that the markets have finally acknowledged the soundness of economic fundamentals in the Euro area. The downscaled growth forecast for the USA accelerated this awareness. In Europe we expect to see economic growth of over 3% for 2001 as well. We should be able to make good our growth lag in relation to the United States before the end of this year. These favourable prospects have already had an impact on international capital flows. Since last autumn, net capital outflows from the Euro area are decreasing at a sustained pace. Increasingly, the single market and the euro are helping the Euro area to attract foreign direct investment. As a result, the euro still has potential to appreciate, and it will make full use of that potential.

Europe will enter a new epoch on 1 January 2002 with the introduction of Euro-denominated notes and coins throughout the Euro area. We can already foresee that this will be an epoch of political stability and economic prosperity.

The economic foundations for a strong and stable euro promoting growth have been laid. More than ever, we are convinced that Europe will overcome the challenges of the future./.