dr. liebscher talks about european economic and monetary union – chances and challenges for europe address by the governor of the oesterreichische nationalbank, dr. klaus liebscher, to the eurogiro central and eastern european conference at the sas palais hotel in vienna on 9 april, 1999 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ladies and gentlemen, it is a great pleasure for me to share a few thoughts with you on the chances and challenges for europe that arise from european economic and monetary union. as you may know, the oesterreichische nationalbank has a long tradition of close co - operation with central and eastern european countries and central banks. it is therefore quite natural - for historical, geographical and economic reasons that, within the newly established european system of central banks, the oenb sees itself as a kind of interface between the escb, on the one hand, and central and eastern european countries and central banks, on the other. this is particularly relevant at the present juncture : eu accession negotiations with central and eastern european countries are in full swing. the escb needs to build up expertise on the prospective new eu member countries. at the same time, central and eastern european candidate countries might benefit from the oenb ’ s practical experience with its own – still quite recent - accession to the eu and its integration into the euro area and the escb. all those who have been following eu politics, eu economic developments and the establishment of economic and monetary union, know that there are, indeed, many chances and challenges arising from emu, which could easily provide material for discussion for a whole series of conferences. let me therefore focus on just four areas which i believe might be of particular interest to you. the first area concerns the eurosystem ’ s monetary policy. the second area deals with the economic impact of emu on the euro area and the interplay between the eurosystem ’ s monetary policy and the other areas of economic policy. the third area relates to the chances and challenges emu holds for banks. the fourth area, finally, concerns the consequences of emu

##ecd. all these institutions boast a track record of training and cooperation initiatives and have played a major role in supporting the acceding countries during the transition process. while the formal enlargement of the european union is scheduled for may 2004, an “ enlarged europe ” has already become reality for all of us in many respects. preparations for the final step have been progressing steadily and i can imagine that many representatives from the acceding countries feel as if they were part of the european union already. to mention just one example : delegates from the acceding countries have observer status in all escb and eu committees and thus closely follow the discussions about the future challenges of economic and monetary policy. we appreciate the medium - term prospect of a number of new members joining the euro area. of course, they will have to fulfill the same conditions for emu accession as earlier members did, which are : european union membership, participation in erm ii for at least two years without severe tensions and sustainable compliance with the maastricht criteria. these are sensible and sound milestones on the route to full monetary integration. as to the single monetary policy, sticking to the primary objective of maintaining price stability remains a key factor for the credibility of both emu and the euro. by maintaining price stability, monetary policymakers optimally contribute to enhancing the long - term prospects for economic growth and thus also employment in the euro area. even though the short - term nominal interest rates are at the lowest level in 50 years, inflationary expectations are in line with our definition of price stability. at this juncture, it may, however, be particularly warranted to stress that monetary policy cannot by itself generate lasting and sustainable growth and employment in the euro area. to stimulate the economy and employment, economic policymakers are called upon to devise adequate structural measures that tackle the fundamental weaknesses and set off pressing adjustments. whereas emu entails a common monetary policy for all of its members, fiscal policy is formulated and executed at the national level. fiscal policy must be part of a comprehensive and growth - oriented strategy that focuses on improving the structure of public expenditures. besides, we must continue to credibly meet the provisions of the stability and growth pact, which is crucial for the smooth functioning of emu. let me emphasize that in a monetary union we need fiscal policy rules to prevent one country ’ s unsound fiscal policy from negatively impacting on other members of the monetary union. what is more, our complying with