The euro's success depends on structural reforms such as the liberalisation of markets as well as further economic integration, the OECD said today.
"The smooth introduction of euro banknotes and coins will not guarantee the new currency's economic success. That will depend on structural reforms and completing the European single market," OECD economist Mr Patrick Lenain said in an article to be published in tomorrow's OECD Observer.
Mr Lenain said the cash changeover is less important than the locking of exchange rates in 1999.
This enabled the euro zone to avoid the sort of currency tensions which would have been expected to follow last year's economic slowdown and the September 11th terrorist attacks on the US, he said.
But economic integration lags well behind monetary integration, he said.
Important sectors are still protected by national barriers, large public subsidies continue to distort competition and public procurement still favours national suppliers, he said.
A lack of labour mobility is also a problem, and governments need to step up the pace of structural reforms, he said.
"Most of the euro zone remains stifled by cumbersome administrative regulations, rigid labour markets and high operating costs," he said.
Mr Lenain said that making the euro zone a more attractive place to invest would also help to make the euro itself more attractive to international investors.
Uneven progress towards labour market flexibility means that the euro zone economies react differently to common shocks, and they also appear to react differently to interest rate changes, whereas economies sharing the same currency should not be too dissimilar, he said.
"These dissimilarities are not an insurmountable obstacle to monetary union, but they require that member economies become more adaptable and adjust to shocks without relying on help from policy intervention," he said.
"Europe will reap the full benefit of the euro only if it removes outstanding obstacles to the free flow of goods, services, capital and workers," he said.
AFP