compliance with the maastricht criteria will be key for joining the euro area. indeed, the eu treaty calls, as a prerequisite for adopting the euro, for a high degree of sustainable convergence in the fields of price stability, government fiscal position, stability of the exchange rate, and long - term interest - rate levels. the sustainability of nominal convergence itself presumes that sufficient preliminary progress has been made towards real and structural convergence ( and namely having set a fully - fledged market economy, catching - up in income and productivity levels, as well as economic and social infrastructures, upgrading of the legal system … ). conversely, a sustainable catching - up process requires macroeconomic stability. therefore, nominal and real convergence should be pursued in parallel, and are not antagonistic. • secondly, i noted that several accession countries have already expressed their intention to join erm ii rapidly after eu entry. this intention is to be welcomed, although it should be clear that erm ii membership needs neither to happen immediately after eu accession in all cases, nor to be limited to only two years, which is the minimum before adopting the euro. it would be totally misleading to consider erm ii as a mere “ waiting room ” before the euro. on the very contrary, erm ii membership allows countries to retain some limited exchange rate flexibility during the catching - up process and offers a meaningful, flexible and credible framework for increasing nominal and real convergence with the euro area, and for helping determine the appropriate level for the eventual irrevocable fixation of parities, in the best interest of candidate countries themselves. to enter the eurozone is a very important, very grave and irrevocable act. neither the accession country concerned nor the eurozone could afford the risks associated with a mistaken decision. • thirdly, accession countries must strengthen their fiscal and external positions. given the aim of attaining real convergence over time, accession countries will have to devote significant public resources to funding investment. however, candidate countries ’ weighted average public deficit amount to 3. 6 % of gdp in 2001. the fiscal consolidation currently planned by some accession countries is welcome and likely to require sizeable expenditure cuts or tax increases. looking ahead, accession countries will have to implement fiscal consolidation very credibly with a view to avoiding the risks associated with the existence of high “ twin deficits ”, i. e. fiscal and external. • fourthly, a sound and efficient banking and financial system is key. significant progress has

within a framework characterised by three features : • firstly, reducing inflation expectations depends on compliance with a number of rules that have been clearly defined in advance. consequently, this policy can only be effective if the authority responsible for defining and implementing it is credible. the conjunction of a clear, overriding objective of price stability ( which has been explicitly laid down in the statute of the ecb ), with well - established institutional independence ensures the continuity of the monetary policy decisions made by the authorities. • secondly, the emergence of a globalised market has quite naturally led to new developments in monetary policy instruments. the interest - rate instrument is overwhelmingly used to the detriment of quantitative and regulatory instruments. • lastly, these instruments serve converging strategies. the ecb ’ s monetary policy framework, for instance, is based on an analysis of growth in the monetary aggregate – the emu reference value for m3 growth is 4. 5 % – combined with a wide range of economic and financial indicators to monitor inflationary risks. in such a context, monetary policy acts as a stabiliser. monetary policy alone cannot guarantee the stability of financial systems, which may be jeopardised by shocks from both the financial and the real economies. however, it must be stressed that an adequate monetary policy is a fundamental prerequisite to a smooth functioning of the financial cycles. an appropriate monetary stance – both in terms of interest rate and money supply – is crucial for banks and monetary participants to base their decisions on solid ground. the objective of price stability lowers economic agents ’ uncertainty regarding future price developments. in addition, by committing itself to a long - term objective, the central bank reduces market uncertainty, which can be a source of disruption to the financial economy. interest rates and money supply are less volatile as a result, which is of benefit to the long - term growth of the economy. however, for financial systems to be stable, monetary policy must be consistent with the other aspects of economic policy, that is, fiscal policy and structural programmes. the policy mix must be well - balanced at the international as well as the domestic levels. placing too heavy a burden on monetary policy in terms of achieving the main economic and financial balances is detrimental to its effectiveness. in particular, it diminishes its ability to maintain and consolidate financial market stability. this concern underlies the implementation of the growth and stability pact in economic and monetary union. by obliging fiscal policies to commit to stability, the pact allows the