or the curve of bananas. that is of course both incorrect and unfortunate. the union should be seen as an arena or, if you like, a playing field. for some years now sweden has been a player, which involves learning the rules and taking initiatives for the development of europe in concert with other countries. but this presupposes that, instead of again remaining outside, we participate in the contexts where developments are constructed. opportunities and risks the idea behind a single currency in europe is simple. one currency is better than many - it makes things work more efficiently. eliminating the need to exchange currencies reduces transaction costs. the exchange rate stability facilitates trade and investment. a single currency makes price comparisons and economic estimates easier, not least for small and medium - sized companies. more direct price comparisons should lead in turn to stronger competition and downward pressure on prices, to the benefit of consumers. but risks are also involved when a single currency is introduced in so many countries with geographical, cultural and institutional differences. the calmfors report has highlighted the insurance argument. i agree that this is an important point against emu and therefore warrants particular attention. monetary and exchange rate policy can be used as a kind of insurance against major, unforeseeable shocks in a single country. without it, large adjustments may be required in other parts of the economy. however, when calmfors and others claim that country - specific shocks have been more frequent in the swedish economy than in the eu ’ s core countries, they are on uncertain ground. there are many indications that the shocks in sweden have been occasioned above all by domestic economic policy and other institutional conditions, in the labour market and in wage formation. wage costs in sweden rose considerably faster than in other countries in the 1970s and 1980s ; competitiveness was restored by resorting to devaluations. it is not self - evident that shocks generated externally would hit sweden more seriously than countries which are currently taken as given for emu. so the risk of what economists call asymmetric shocks in sweden should not be exaggerated. moreover, when it comes to influencing production and employment in the event of major shocks, monetary policy has a limited capability. it may even be the case that independence in monetary policy increases the risk of self - inflicted shocks. in the longer run, monetary policy is not a substitute for the changes that need to be made, for instance to improve wage formation and the workings of the labour market. the governing board of

established. it remains to draw up specific rules about, for example, the monitoring of exchange rate stability, the construction of the stability programme and the legal framework. finally it may be worth mentioning that the monitoring routine and the excessive deficit procedure will be essentially the same for countries outside the euro area, except in one respect - the sanctions. 2. erm 2 the dublin meeting also decided that a new exchange rate arrangement, erm 2, is to be set up as the dominant mechanism for the coordination of monetary policy and other economic policies between the member states in the euro area and those that remain outside. the system will resemble the existing erm except that this is a multilateral system of rates for conversion between all the member currencies, while in erm 2 the currencies of nonparticipating countries will be linked directly to the euro. the risk of systemic tensions with erm 2 will probably be smaller than it has been earlier with erm because the degree of convergence in the eu area is now greater. moreover, the band on either side of the central rates will probably be relatively broad. the experience gained in 1992 - 93 has also resulted in a greater readiness to adjust rates when this is considered necessary. but of course speculative situations cannot be ruled out either in the present erm or in erm 2, as is clear from developments in finland in recent months. the swedish position has been to avoid making the new exchange rate arrangement mandatory. basically, we consider it would be better to achieve coordination in europe with a single inflation target. we find the present construction of swedish monetary policy satisfactory. but we can get along with the system that has been chosen. cooperation will not be mandatory, which means that monetary policy can be conducted with an inflation target as well as with a fixed exchange rate with the euro. still it is clear that there will be strong pressure on us to participate in erm 2. it is also conceivable that a period of participation in the exchange rate mechanism will prove to be a condition for emu membership. in any event, as a eu member state we have undertaken to conduct exchange rate policy as “ a matter of common interest ”. changeover plan for the financial sector it is the riksdag ( sweden ’ s parliament ) that decides if sweden should join emu. the riksbank has the task of helping to ensure that sweden does in fact have a choice when the time comes to decide, so that sweden is ready