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: The euro has brought exchange rate stability within the area, which supports trade and enables economies of scale, thereby providing the conditions for a more efficient allocation of resources. For the ordinary citizen, the most striking advantage is of course that they no longer need to exchange currencies when travelling in the euro area. In addition, the euro has brought monetary stability, with low inflation and a convergence of long-term interest rates to the low levels prevailing in the countries that had the highest monetary policy credibility before the euro was introduced. This was not an obvious outcome. In fact, given differences across countries and the complexity of the task at hand, many commentators doubted whether the euro area could ever achieve the high degree of monetary stability and credibility of some of its legacy currencies. Moreover, despite significant economic shocks over the years, due for instance to oil price and financial market developments, inflation and inflation expectations have remained closely anchored to price stability, as defined by the ECB. Price stability, low inflation expectations and low long-term interest rates are key objectives for monetary policy, as they provide the best support for sustainable economic growth and employment. For the individual countries, however, the story could be somewhat different, given that favourable developments in the euro area could mask a considerable level of diversity among countries. In recent years, there has been much discussion about divergences across countries in the euro area. However, while inflation and growth differentials between euro area countries are not insignificant, they have not been unusually large since the launch of the euro in comparison with other large currency areas, particularly the United States.