cautious timescale are - in all cases fiscal developments. in the pre - emu period, we will continue targeting inflation. this strategy has gained a substantial degree of credibility in the czech republic since its introduction in 1997. our inflation target for the period beyond january 2006 is set at 3 % ( for cpi ), which should allow us to fulfil the monetary side of maastricht convergence criteria, and at the same time to reflect the long - term real convergence needs of the czech economy. in our experience, inflation targeting is capable of producing a sufficiently strong nominal anchor for the economy, and consequently also of stabilising the exchange rate, obviously in the absence of large external shocks. hence, in favourable circumstances, inflation targeting will allow us to achieve price and exchange - rate stability simultaneously. should circumstances become less favourable, the simultaneous achievement of both will be difficult no matter which monetary strategy is adopted. that is why we do not consider erm2 to be a policy regime superior to the current regime. in line with this stance, we have agreed with the government to stay out of the erm2 mechanism for the time being. we plan to introduce erm2 after conditions for meeting all maastricht criteria within a two - year timeframe have been established. there is still a number of issues to be discussed, let me address two of them. first, is inflation targeting compatible with erm2? second, what is the impact of policy debate about the modifications to the sgp on our forthcoming effort to meet the maastricht criteria? as far as the compatibility of the two regimes is concerned, namely inflation targeting and erm2, the specific arrangements have not yet emerged from our ongoing debate. we believe that relying on the economic analysis and intuition rather than on background legal documents as a guide, there is no need to modify the current strategy significantly. it will be able to deliver both price and exchange - rate stability. however, monetary policy alone cannot guarantee the smooth progress of adopting the euro. it is of crucial importance that the whole policy mix is supportive of this goal. the recent failure to enforce sgp rules in the existing euro area should not be taken as an excuse for postponing fiscal reforms in the new eu member states. on the contrary, it should be interpreted as a warning signal that the maastricht criteria should be met by a sufficient margin prior to euro adoption in order to create an adequate buffer for difficult periods. having

daily starbucks ) and as a store of value ( making sure you can still afford a starbucks in old age ). historically, those two functions have been in conflict ; … broadly speaking, the money expanders have been debtors and the money restricters have been creditors. ” as my last speech here at the omfif was motivated by the anniversary of the bretton woods collapse, i am particularly fond of this observation : “ over history, creditors have tended to impose systems that control the supply of money – the gold standard, the bretton woods system of fixed exchange rates, the euro – that prevent borrowers from repaying their debts in debased currencies. the strain of keeping up this discipline is intense in democracies where more people are debtors. the gold standard broke down in the 1930s, bretton woods in the 1970s and the euro is struggling today, as is what might be called the post - bretton woods system of independent central banks and inflation targets. ” 4. and now a few humble observations of my own : bis central bankers ’ speeches a. beginning with the fiscal solutions story, this crisis is a deep crisis of the market economy and of financial systems as managed, regulated, and supervised in just a minority of market economies, most of which can now be found in the eu. the usa might have contained the source of the fire, but for three years it has not played a major role in the eurozone and its main role has turned out to be a stabilizing one. thanks mainly to fed swaps, eu savers and investors do not have to worry about the general liquidity position of the eurozone. i almost pray that forthcoming political events in the u. s. do not alter this situation. b. the solution to this crisis involves controlled de - leveraging and the restoration of european and eurozone competitiveness in the developed world. the need for deleveraging is clear, but the restoration of competitiveness in europe is also a must, despite the fact that the ca of the eurozone and / or the eu is roughly balanced. otherwise, the eu will not be able to restore the real growth rates necessary to stabilize eurozone sovereigns in the context of the chief mandate of the ecb, i. e., in a non - inflationary context. i am afraid this may involve quite a few of my fellow european citizens engaging in a bit of metaphorical trench - digging. hopefully, they will also try