a pace determined by the overall economic situation and in particular by the need for these countries to increase real convergence. the maastricht inflation criterion, which will not be revised to take into account any possible balassa - samuelson effect, should not be seen as an immediate requirement for these countries, but rather as a medium - term objective for central banks. as the experience of some euro area participants shows, progress in nominal and real convergence can be, and should be, pursued in parallel. indeed, the experience of countries such as greece, spain and portugal confirms that a key element of their successful entry into the euro area was their success in controlling sources of inflation other than the balassa - samuelson effect. in particular, a balanced monetary and fiscal policy mix and the control of real wage increases have supported the disinflation process in these countries, and allowed them to advance in the process of nominal convergence without compromising the gradual catching - up in real incomes. 3. monetary policy and exchange rate strategies with regard to monetary policy and exchange rate strategies, most accession countries have already indicated their intention to join erm ii as early as possible after entry into the eu. the accession countries have also signalled their intention to adopt the euro as soon as possible, that is, after two years of erm ii membership. the whole issue of the timing of erm ii membership, both as to when to join and how long to remain in the system, is dependent on a somewhat more complex question, namely whether the discipline which erm ii imposes on its members is advantageous for the accession countries. the answer, in our view, is “ yes ”. ladies and gentlemen, allow me to reflect on this question for a moment and explain why we hold this view. being small open economies, most accession countries cannot disregard exchange rate developments when making their monetary policy decisions. the exchange rate is generally a more potent transmission channel of monetary policy decisions than domestic interest rates, and it also plays a crucial role in explaining the pass - through to price developments in most accession countries. thus, in order to achieve further disinflation and sustainable growth, excessive exchange rate fluctuations need to be avoided. in our view, and this view is supported by our previous experiences with the ems / erm framework, erm ii provides a useful mechanism to anchor exchange rate expectations. at the same time, erm ii, with its adjustable central rate and its current fluctuation band of ±15 %

gdp per capita in the accession countries is, in terms of purchasing power parity, around 44 % of that of the euro area, and this figure is even lower when current exchange rates are taken into account. the size of the gap, combined with the limited growth differentials, suggests that the process of real convergence will be a very slow one, likely to continue far beyond the tentative dates for eu accession and for the adoption of the euro. hence, although differences in income levels are compatible with membership of emu, it is important for accession countries to progress in the process of real convergence with the euro area. in particular, real convergence can help to create economic cohesion within emu and promote integration between members states. further real convergence will also help to minimise the risks and the effects of asymmetric shocks. against this background, it seems crucial that accession countries pursue structural policies that enhance the potential output growth of their economies. 2. inflation developments with regard to inflation developments, i should like to stress that, on the whole, the accession countries have made remarkable progress in bringing inflation down to single - digit rates. inflation in the accession countries is expected to average around 6 % - 7 % by the end of this year. however, reducing inflation from relatively low levels to even lower ones is clearly a difficult task. evidence points to a number of micro and macroeconomic factors which affect current inflation rates in the accession countries. these include ongoing price liberalisation, privatisation processes, relatively expansionary fiscal policies and stubborn inflation expectations. inflationary pressures stemming from high productivity growth in the tradable sector of fast - growing economies – known as the balassa - samuelson effect – have also been cited as one of the main reasons for higher inflation in catching - up economies, such as those of the accession countries. a closer examination of inflation developments in the accession countries shows, however, that the balassa - samuelson effect alone cannot explain the persistence of inflation differentials vis - a - vis the euro area. moreover, notwithstanding its importance, the balassa - samuelson effect should not be overstated when explaining current inflation rates in the accession countries. indeed, most empirical studies estimate the balassa - samuelson effect within a range of 1 to 2 percentage points. this does not mean, however, that the pursuit of real convergence conflicts with further progress on disinflation. on the contrary, the process of disinflation should be advanced in the accession countries, at