on economic reform. during such a period, monetary and exchange rate policies should provide for sufficient flexibility and should take account of the specific circumstances of the country concerned. for instance, given the current levels of inflation, it may be wise for some countries to maintain a crawling currency peg for the time being. for other countries a stronger commitment – a fixed peg or a currency board – may be more appropriate. before accession, this can only be a unilateral decision. only after joining the european union can new member states participate in erm - ii, as indeed they are expected to, assuming that a credible peg against the euro can be established at that time. preconditions for stable monetary relations of course, linking the currency to the euro cannot be a substitute for conducting stability - oriented macroeconomic and structural policies. rather, any formal link to the euro should be preceded by policy measures which make the intended currency link a credible one. given today ’ s importance – 4 – of capital flows to exchange rates, such policy measures should also cover areas that are important to capital flows. allow me to say a few words on the approach towards capital movements. undoubtedly, hot money is a hot issue at the moment. restrictions on capital flows have proven less than effective in times when investor confidence turns sour. introducing controls to limit capital outflows in the middle of a crisis is doomed to fail. they may afford some temporary relief, but when people want to get their money out of the country, they will succeed in doing so in the end. what remains is long - term damage to investor confidence. liberalizing the capital account further is the more promising route. adequate sequencing of short - term capital inflows may be required in order to gain time for adjusting the domestic financial sector to the competitive pressures that follow from capital liberalization. it should be realized, though, that such an approach should go hand in hand with an improvement of supervision and a strengthening of the financial sector. this should be high on the policy agenda in eastern europe. there has been considerable progress on capital liberalization in these countries and it is expected that, under oecd rules, capital movements will be free of restrictions pretty soon. the major challenge now is to ensure that the restructuring of the financial sector keeps pace, an area where there is still much to be done. it is well - known that in the communist past many banks used to be a part of, or closely related to, the central bank. in

##bs ) of all eu member states. the eurosystem is composed of the ecb and the 11 ncbs of those member states which have adopted the euro. the six members of the ecb ’ s executive board and the governors of these 11 ncbs together form the governing council. this is the eurosystem ’ s highest decision - making body, which, among other things, has adopted the eurosystem ’ s regulatory framework. in my speech today, i will elaborate upon how the ecb, but also the community legislator, national legislators and market participants have struggled with the same question which hugo de groot already addressed in his days in another context : in view of the introduction of the euro, where is, on the one hand, unification of law desirable and where may, on the other hand, national differences continue to exist? or, to remain closer to the title of my speech : where, and to what extent, has the euro acted as a catalyst for legal convergence, and where is further convergence appropriate? as a preliminary remark, the introduction of the euro and the globalisation of the world ’ s financial markets are clear incentives for a development towards “ one market, one currency, one law ”. there are, however, at least two important impediments for such law to emerge in the near future. first, there are the community law principles of subsidiarity and proportionality. subsidiarity requires that the community legislator only adopts legislation if this is necessary to achieve the community ’ s objectives. proportionality requires that the type of legal act to be adopted be proportionate, ie not too heavy, in relation to the objectives to be achieved. second, the eu consists of as many different legal systems as there are member states, although there are, of course, similar types of legal systems of common orientation ( roman law, anglo - saxon law or the scandinavian systems ). recognition of the peculiarities of such legal systems in accordance with the principles of subsidiarity and proportionality leads automatically to legal diversity. in addition, for the eurosystem it is also important to mention that system - related tasks are executed in a decentralised fashion through the ncbs in their respective jurisdictions. for example, with regard to the eurosystem ’ s single monetary policy, the ecb ’ s decision - making bodies decide on such policy, but the ncbs execute monetary policy operations in their respective jurisdictions. all in all, a system