The process of consolidation and strengthening through Economic and Monetary Union will only increase the EU's standing in the world of international diplomacy and trade negotiation. The Australian Government is following with considerable interest the next stages of Economic and Monetary Union. More than that, the exact list of countries that will participate in the initial EMU-bloc is still unknown, and will remain so until at least early 1998. In the case of monetary policy, it has been widely assumed that the European Central Bank will match the Bundesbank's low inflation objectives and pursue price stability. However, there is pressure in some quarters for monetary policy to adopt a shorter term focus.
Uncertainty also surrounds fiscal policy.
While the Stability and Growth Pact provides for sanctions against countries which run excessive fiscal deficits, there is a degree of flexibility in the Pact's interpretation. For example, the European Council of Ministers of Finance has considerable latitude in deciding when an excessive deficit exists, and may take into account supporting evidence by the Member State involved - such as the cost to the German economy of German reunification. The external value of the euro is also a matter for speculation. For example, the precise method for determining the conversion rate between participating national currencies and the euro has yet to be determined, although we know it must be determined by 1 January 1999. EMU will affect Australia through its impact on EU economic growth and the EU's international competitiveness, and therefore import growth.