The dangers of a lack of convergence when countries enter EMU are self-evident. Notably, if fiscal positions are not initially under control, there may be repercussions on monetary policy from large deficits, and adverse spillovers across borders affecting the Monetary Union as a whole from lax fiscal policies in individual Member States.
Similar arguments apply in respect of inflation.
These difficulties are far from theoretical. Such strain could become unbearable or, to put it less dramatically, could lead to a dangerously unbalanced policy mix if it were compounded by the consequences of initially weak budgetary positions in the member countries. As regards current performance, important progress has been made in respect of the downward convergence of inflation and bond yields, and exchange rate stability has to date been broadly maintained. However, on the fiscal side, deficits in 1996 substantially overshot the benchmark laid down in the Treaty in most Member States, despite efforts at consolidation. Debt ratios have continued to rise in the aggregate, despite favourable trends in some Member States.