This not only created a dynamic towards further integration, but also resulted in a growing realisation that a truly single European market could not be created while currency fluctuations and the exchange rate risk continued to create de facto barriers to trade. Then, in 1989, the collapse of the communist regimes in Eastern Europe and the fall of the Berlin Wall provided Europe’s leaders with an opportunity to shape the Europe of the future in ways that had been unimaginable before. If the completion of the single market project and the fall of the Berlin Wall created the necessary dynamics, the changing economic environment and, with it, the growing economic policy consensus removed, at the same time, many of the obstacles that had previously stood in the way of European Monetary Union. Increased international capital flows and the removal of restrictions on cross-border capital movements made it virtually impossible for individual Member States to pursue truly independent monetary policies without this resulting in destabilising capital flows and, ultimately, a reversal of policy. Moreover, it had, in any case, come to be universally accepted that monetary policy could not be used successfully to stimulate economic growth, but should instead focus on maintaining stable prices, thereby also creating an appropriate climate for sustainable growth. Since it was now considered neither possible nor desirable for individual countries to pursue significantly diverging monetary policies, both the real and the perceived losses that might result from relinquishing monetary policy sovereignty and adopting a single currency had been significantly reduced.
This has not only created, regardless of existing differences at the state level, a common legal environment, but also led to harmonised or similar policies in most other areas and not least fostered the development of a common ground of behaviour in economic life. By contrast, the history of the 11 Member States of the euro area was different. Notwithstanding my earlier reference to the integration process over the last decades and the EU institutional set-up for the coordination of economic policies, Europe is still a more heterogeneous area than the United States. The Treaty establishing the European Community does not state how price stability is to be maintained. In other words, it does not define what is called a monetary policy strategy. Therefore, the Eurosystem has designed its own stability-oriented strategy. Apart from the quantitative definition of price stability, it consists of two pillars. The first pillar is a prominent role for a broad monetary aggregate, M3. This is based on the view that inflation is ultimately a monetary phenomenon. A reference value of 4½% for annual M3 growth has been defined. Deviations of actual monetary growth from the reference value will not be corrected mechanically, but will always be analysed with regard to the signals they provide with regard to future price developments. The reason for being cautious is that the introduction of the euro may have changed the behaviour of economic subjects, also their demand for money.