This gave rise to a new policy requirement resulting from the so-called "impossible trinity", which implies that autonomous national monetary policies are incompatible with fixed exchange rate objectives in an environment of free capital movements. As a result, national authorities participating in EMS/ERM had to subordinate monetary and, to a large extent, fiscal policy to the achievement of exchange rate stability. This led logically to monetary union, with the creation of the ECB as a supranational institution and the introduction of the euro. 3. Operational requirements While consensus on the key policy objectives pursued over time has been crucial for effective exchange rate and monetary policy co-operation in Europe, one should not play down the importance of operational aspects in the day-to-day management of the EMS/ERM. Three main lessons can be drawn in this regard. First, the operational framework had to be flexible in order to withstand episodes of tension as well as to adjust to changing economic and financial market conditions. In the European experience, examples of tension and changing conditions were the episodes of US dollar misalignment in the 1980s and 1990s and the asymmetric shock caused by German reunification in the early 1990s. In the EMS/ERM, flexibility was ensured through fluctuation bands around central exchange rates, which were either narrow (+/-2.25%) or wide (+/- 6%) depending on the degree of convergence of the countries concerned. The system became even more flexible when a +/- 15% fluctuation band was introduced following the crises in 1992 and 1993.

The possibility of adjusting central rates through "realignments" to be agreed by the ministers and governors of the participating Member States added to the resilience of the system. Second, arrangements for regular consultations among all parties to the system were used, including mechanisms for monitoring economic, monetary and financial developments and for assessing policy responses. In Europe, peer reviews of domestic policies became increasingly demanding over time. As a result, the provision of mutual financial assistance was increasingly subordinated to compliance with the policy recommendations made in such reviews or in the context of "realignments". Third, the operational framework made it possible to achieve exchange rate and monetary cooperation among countries with different levels of economic development. Nominal convergence proved to be consistent with real convergence, as the countries engaged in the catching-up process were committed to implementing the necessary structural reforms in addition to macroeconomic stabilisation measures and their economic weight was small compared with that of the so-called "core" countries. 4. Conclusions A few conclusions of direct relevance to our Asian partners may be drawn. As experience with the implementation of the ASEAN and APEC arrangements shows, Asian countries are developing their own way of strengthening regional integration. This is the right avenue to follow. Indeed, Asian countries will succeed only if they set realistic objectives in line with their own regional conditions and the corresponding level of political commitment. This is what Europeans have done over the last 50 years.