both with respect to the medium term and the longer term. given the inherent uncertainty surrounding long - term growth forecasts, the formidable rise in costs associated with providing for an aging population with longer life expectancy, and a potentially protracted elevation in national security costs, it makes sense to build a stronger financial position into our fiscal future. the present fiscal trajectory entails an uncomfortable scale of borrowing and little insurance against possible adverse outcomes in an uncertain world. building a stronger fiscal cushion can help reduce the risk of adverse outcomes - those that might come in the form of a decline in the willingness of foreigners to acquire claims on the united states on the present scale, as well as those that might take the form of a reduction in private investment and lower future productivity gains. strengthening confidence in our fiscal management and fiscal sustainability is critical to reducing the risk in the size of our external imbalance. third, the u. s. and the major economies have an important role to play in encouraging further evolution in the international monetary system. policy makers in asia are well aware of the complications and costs involved in sustaining their current regimes. many are moving toward permitting more flexibility against the dollar, and even in their effective exchange rates. few however are comfortable with the prospect of accepting large short - term volatility and large movements over time in their effective exchange rates. they are looking for a world in which they can have more monetary policy independence, progressively more financial integration with the globe, and face less risk of large destabilizing moves in the major currencies and less vulnerability to acute pressure on their own currencies. the exchange rate system among the major currencies provides a desirable degree of flexibility in real exchange rates. although the process of cooperation among the g - 7 has not eliminated the large swings in exchange rates associated with large changes in fundamentals among the major economies, it has had some modest success in avoiding more damaging movements. this cooperative framework, characterized by a pragmatic approach to promoting greater stability in exchange markets, offers a reasonable model for cooperation among the major currencies and those of the emerging world. the challenge ahead is to help manage the transition to the monetary system that provides for more flexibility in the exchange rates of all the major economic areas, and this has to be handled with care. finally, it is important that the world ’ s major private financial institutions run themselves with a sufficiently strong financial cushion, a cushion calibrated not just against the risks they confront in this uncertain

. the “ economic criterion ”, as the second of these criteria is termed, requires the existence of a functioning market economy as well as the capacity to cope with competitive pressures and market forces within the european union. the economic reasoning which lies behind this criterion is also quite straightforward and requires little elaboration. however, i should like to add that for the accession countries, while it is no doubt a difficult and sometimes painful task, fulfilling this criterion is an essential step towards creating a solid basis for future non - inflationary economic growth. and, finally, there is the third criterion concerning the adoption of the so - called “ acquis communautaire ”. this requires that a candidate country be able to take on the obligations of eu membership, including the adherence to the aims of political, economic and monetary integration. it is this last point which is of course most relevant to the eurosystem. eu enlargement and the eurosystem as i understand it, it has been decided that no new “ opt - out ” clauses, such as those negotiated by the united kingdom and denmark, shall be available to new member states. this implies that, when joining the eu, the new member states will have to comply with all of the requirements outlined in the acquis communautaire which relate to european economic and monetary union ( emu ). moreover, following accession, they shall each have to prepare themselves for the eventual adoption of the euro. thus it is clear that the accession process and the entry of new members into the eu will have deep and wide - ranging consequences for the ecb and the eurosystem. of course, meeting the maastricht convergence criteria is not a prerequisite for joining the eu. however, the introduction of the euro certainly puts some pressure on accession countries to make progress towards fulfilling the convergence criteria. in fact, we might consider their progress towards adopting the euro as part of a continuum, encompassing three distinct stages and crucial steps. these are : eu membership, participation in erm ii, and eventual adoption of the euro. the first of these steps requires implementation of the emu - related acquis communautaire. then, on the date of accession, new member states will join emu with the status of “ countries with a derogation ”. from this point onwards, they will be expected not only to treat their economic policies as a matter of common concern, but also to be committed to