Yves-Thibault de Silguy

Europe is at the start of an exciting new era. The euro is the currency of eleven EU Member States with a joint population of 290 million people. The euro zone accounts for almost 20% of world Gross Domestic Product (GDP) and a similar proportion of world trade. Its economic weight is be comparable to the United States.

The arrival of the euro is an historic event which is having profound effects in participating countries. All the important political and legal decisions have been taken. For the financial markets, EMU was a reality months before the legal birth of the euro on 1 January 1999. This explains the rock-solid exchange rate stability between currencies of the euro zone despite recent international turbulence.

As a result of sound economic preparations for EMU, the euro zone has brighter economic prospects than either the United States or Japan in 1999. With an economic and commercial weight similar to the United States, the eurozone will emerge as a significant force in the international financial system.

Although we do not expect brutal overnight changes, estimates suggest that the euro might be used for as much as 30% of commercial transactions and a growing proportion of official reserves. At the same time, the use of the euro will grow in international financial flows as it is perceived in the markets as a credible alternative to the dollar.

This creates new opportunities of greater influence for Europe. The international financial system will become more balanced as the role of the euro develops alongside the dollar and the yen. Our partners will have a greater interest in ensuring an effective international dialogue as the spill-over effects of economic events in the euro zone are felt throughout the world.

Intensified international co-operation could help to limit violent exchange rate movements which can undermine confidence and damage trade flows. In today's world of free capital movements, exchange rates are not set by decree. The markets decide the relative values of our currencies on the basis of the economic conditions in the countries involved.

The key to greater exchange rate stability is therefore working together to reduce the economic divergences which can provoke markets to react. Without an effective international dialogue, it is unrealistic to envisage any system of indicative zones for exchange rates.

To make the most of its potential influence, the euro zone will need effective procedures to define a common position in advance of international discussions like the G7 Finance or the IMF. And we will need to be sure that the European representatives at these meetings speak with a single voice. These are the aims of proposals which the Commission recently presented to the Council of Ministers and which formed the basis of the conclusions of Europe's leaders at their meeting in Vienna in December.

They should ensure the Community is able to make a bigger contribution to anticipating and preventing crises, and to the ongoing debate on the reform of the international financial system.