policies which aim to improve the functioning of market mechanisms and the operation of the economy as a whole. In my view, there are three reasons why such enhanced co-ordination of structural policies is necessary. First, the introduction of the euro has made exchange rate fluctuations obsolete as an instrument of adjustment.
For instance, before the establishment of Economic and Monetary Union (EMU), divergent national economic developments could be addressed by a depreciation or appreciation of national currencies. In a monetary union, such adjustment has to take place via other mechanisms, such as price and wage adjustments, labour mobility, or, most unwanted, a temporary rise in unemployment.