the euro once they fulfil the convergence criteria. it is no one ’ s intention in the euro area and certainly not in the ecb to bar the euro adoption in eu member states outside the euro area. what is fundamental – and we stick to that position - is the fulfilment of the convergence criteria as specified in the eu treaty. we examine the sustainability of the convergence process on the basis of a coherent analytical framework specified in our convergence reports. this framework has been used consistently across time and for all examined countries and we will continue to use this framework for the analysis in the future. the notion of sustainability implies for us that the convergence criteria must be fulfilled on a lasting basis and not only at the time of the convergence examination. a lack of sustainability would result in serious economic problems for the newcomer with maintaining economic and financial stability. in addition economic problems in an individual euro area country might also have negative consequences for the entire euro area. thus, a thorough and rigorous approach to fulfilling the convergence criteria on a sustainable basis is in the interest of all current and prospective euro area members. looking to the euro area since its inception of 1 january 1999, one is impressed by its success. not only the success of the single currency itself which has gained the same level of monetary stability and confidence that was the privilege only of the best previous national currencies. not only the fact that inflation over the last eight years has been in the euro area significantly lower than in the eight years before the euro. price stability is a necessary condition for growth and job creation. so it is not surprising that growth has been higher in the euro area since january 1999 than in the eight years before and that in the same period of eight years job creation has been significantly higher : 12 million jobs created since 1 january 1999 compared to less than 3 million during the eight years before. but this does not mean that the euro area should not strive to do even much better, taking into account in particular the present level of unemployment and the low level of yearly labour productivity increases. more flexibility of all markets is of the essence. we must continue to strive for the full liberalisation of the markets of goods and services, for further significant progress in financial integration and for flexibility in the labour markets including free movement of workers. this free movement of workers within the monetary union is not only important for its proper functioning but it also symbolises the depth of the economic integration achieved between euro area countries. thus, let me repeat here my

the process of price formation has changed. the most important change since the 1970s and 1980s is probably the change in the target for monetary policy and the support and credibility attained by the inflation target. i am convinced that the riksbank ’ s inflation target is understood and accepted by trade union members, officials and leaders. knowledge about the inflation target and the role of monetary policy has become widespread in a quite different way to the fixed exchange rate norm. the fixed exchange rate regime basically required that wage cost increases should be adapted to the surrounding world in order not to affect employment negatively. when, despite this, wages rose more than in our competitor countries, employment was saved by recurrent devaluations. the high level of activity in the swedish economy during the latter half of the 1980s also played an important role. no wage formation system would have coped with the overheating that existed at the end of the 1980s. the insight that excessively high wage increases rather quickly lead to growth being dampened and an increase in unemployment with a monetary policy focused on an inflation target, probably serves to have a restraining effect on wage formation. large increases in real wages with low inflation have probably increased insight into the value of price stability. during the past four - year period, real wages have increased on average by almost 4 % per year despite low nominal wage increases. this is to be compared with the fact that real wages only increased by a half per cent per year during the period of high inflation from 1975 to 1995 despite nominal wage increases during these years totalling 8 % on average. the development clearly indicates that there has not been a positive correlation between high nominal wage increases and the development of real wages. high credibility for the goals of monetary policy has led to a reduction in inflation expectations. and stable inflation expectations per se reduce the risk for pay negotiations leading to higher wage increases than there is room for. stable inflation expectations reduce the uncertainty of the parties as to what a nominal wage demand means for the real wage. this can in turn reduce the risk for wage spirals. increased competition in globalised markets could also contribute to increased flexibility in wage formation. globalised highly competitive commodity markets probably reduce the ability of businesses to compensate high wages by price increases. at the same time, it is probable that the strongly globalised capital market makes it more difficult for businesses to press down profit margins even in the short run. a conclusion is that businesses ’ opposition to wage costs increases that cannot be sustained by productivity increases may