I would also like to recall the unanimous recommendation we submitted on the voting modalities of an enlarged Governing Council, which has been accepted by the EU Council and is about to be ratified within these days by all Member States. This will allow the ECB to maintain efficiency and timeliness of decision-making in an enlarged euro area. Eventually, enlargement of the EU will lead to the extension of the euro area, as the new Member States are expected to adopt the single currency at some point in the future. In fact, upon EU accession, they will be committed to striving towards the eventual adoption of the euro. The main aim of the Eurosystem in the process towards euro adoption is to ensure that the monetary integration of each new Member States proceeds in a smooth manner and in line with Treaty provisions. In view of this challenge, at the end of last year the Governing Council of the ECB adopted a policy position paper on exchange rate issues relating to the acceding countries. The Treaty foresees that at some point following accession, new Member States will join the Exchange Rate Mechanism II (ERM II). To ensure a smooth participation in ERM II, however, it would be necessary that major policy adjustments - for example with regard to price liberalisation and fiscal policy - are undertaken prior to participation in the mechanism and that a credible fiscal consolidation path is being followed.
The more flexible labour, product and financial markets are, the lower the employment and income losses in response to adverse domestic and global economic developments will be. Moreover, given that demographics in the euro area are less dynamic than in other economies, including the US, we need even more improvements in terms of higher productivity growth, rising labour force participation and declining structural unemployment. The case for decisive structural reforms is therefore pressing. Structural reforms are generally associated with changes in the long-term equilibrium demand and supply conditions of an economy and changes in the relative prices of goods and services. The transition from the pre-reform to the new post-reform equilibrium conditions normally takes time and within this period some resistance and uncertainty may occur. For this reason the implementation of structural reforms requires a strong leadership, a great deal of courage and a tireless explanation activity. It is very important to make it clear to the public that, if governments, Parliaments and social partners deliver those reforms, the benefits will be significant. In capital markets, structural reforms should aim at allowing a more effective allocation of savings toward the most rewarding investment opportunities. Since the introduction of the euro, the pace of capital market reform has been impressive. This includes policy-induced reform, such as the Financial Services Action Plan initiated by the European Commission in the spring of 1999 or the development of national legal frameworks governing the issuance of mortgage bonds.