Title: The euro – benefits and challenges
Headings: The euro – benefits and challenges
The euro – benefits and challenges
Speech by Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECBConference “Poland and the EURO” Warsaw, 26 November 2007
1. Introduction
2. Benefits of joining the euro area
3. Challenges related to adoption of the euro
4. Joining the euro area – the formal process
5. Future challenges
European Central Bank
Directorate General Communications

Content: Moreover, the dispersion of inflation rates is substantially smaller that that experienced in the previous decade, and the dispersion of the growth rates across countries has declined somewhat over the past 20 years. However, the persistence of inflation and growth differentials across countries, in the sense that it is the same countries which persistently exhibit developments above or below the euro area average, may suggest that the underlying adjustment mechanisms in the euro area economies are functioning only gradually and not as fast as might be desirable. This, in turn, could have adverse implications for activity and employment. Accordingly, appropriate reforms and economic policies are warranted. I will come back to this point later. The main benefit of the euro for the individual country, especially for small and open economies, relates to its potential to promote trade. By eliminating exchange rate volatility and providing complete price transparency, the euro has greatly enhanced the forces that lead to economic activity to be conducted across borders. It has been shown in a number of studies [ [ 1]] that trade integration has increased rapidly among countries that have introduced the euro, with a significant increase in intra-euro area trade and foreign direct investment (FDI). Indeed, exports and imports of goods within the euro area rose from about 27% of GDP in 1999 to around 32% in 2006. This rise in cross-border trade may to a certain extent be due to the introduction of the single currency, the increased price and cost transparency it helped foster and the absence of exchange rate risk.