: integration of trade and capital markets stimulates growth for both the euro adopter and the euro area. in the case of acceding countries, there are probably additional advantages of monetary integration ; it gives added stability after the difficult years of transition and is important for their underdeveloped financial sectors. so the issue is not really euro area enlargement as such, but rather its timing and preconditions. second, from the perspective of the euro area itself it is hard to see how acceding countries could pose any major risks to price stability. the sum of the economies of all the new member states does not presently amount to more than the gdp of the netherlands. furthermore, historically high inflation rates in the acceding countries have been reduced through reinforced macroeconomic discipline ( which in turn owes much to the enlargement process ). a simple calculation shows that even if growth in the acceding countries averages some 4 per cent more than the euro area, and this catch - up, according to most estimates, generates balassa - samuelson price convergence with 2 - 3 percentage points higher inflation than euro economies, their inclusion in the euro area would still only add some 0. 2 percentage points to area - wide inflation. instead, it is the perspective of the acceding countries themselves that is crucial. risks with erm ii the one risk with erm ii that has been discussed at length in recent years is the potential conflict between a pegged exchange rate and an inflation target. both exchange rate stability and low inflation are necessary to fulfil the conversion criteria, but in some cases it may be difficult for monetary policy alone to meet two targets at the same time. one possible situation is that the central parity has been set too low and that real appreciation pressures, due to catching up, are so strong that the upper band comes into question. this can result in large - scale speculative currency flows and unnecessary turbulence, as demonstrated by the attack on the forint at the beginning of this year. the obvious solution to speculation against the upper band is to reach an agreement in erm ii to revalue. but this is often difficult in practice. when political decision - makers are forced to choose between the inflation and exchange rate targets, it takes courage - and good analyses - to give priority to low inflation and opt for revaluation. as the case of ireland has demonstrated, this does not exclusively apply to acceding countries. in the end, the result can be inflationary pressures

william c dudley : the national and regional economy remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at queens college, flushing, new york, 18 november 2013. * * * good afternoon. it is always a pleasure to speak with the different communities that make up our region, and it is especially gratifying to have the opportunity to speak with you, our future leaders. so thank you for inviting me. i am especially pleased to be here at cuny ( city university of new york ) queens college, given the relationship that we have developed with cuny through our educational and regional outreach. this academic year we are hosting, at the bank, a queens college student participating in the cuny service corps which is a program to provide students with work experiences in regional and economic outreach. we also collaborated with cuny for this year ’ s college fed challenge, our yearly competition where teams of students from area universities take on the roles of the members of the federal open market committee ( fomc ) and debate the appropriate next step for u. s. monetary policy. a number of cuny schools competed and professors served as judges, including your own professor thom thurston. my meeting with you today is part of our continuing efforts to understand what is going on at the grassroots level of our economy and to share what we are seeing. earlier today, i met with a number of queens business leaders, and the leadership of hanac, the hellenic american action committee. following this visit to queens college, i ’ m headed to the queens chamber of commerce to meet with others in the business community. subsequently, i ’ ll tour the manufacturing floor of steinway & sons piano factory. the agenda for these visits is always packed, but that ’ s part of the point – to meet with a diverse array of people in order to get a comprehensive picture of economic conditions and issues in the regions we serve and a fuller understanding of the major concerns. this is our second trip to the borough of queens in the past few years and recent trips have also taken us throughout our district, to upstate new york, northern new jersey, long island, fairfield county, staten island, brooklyn and the bronx. these outreach trips complement the ongoing efforts of the new york fed to assess conditions in our region, which i will discuss shortly. among our activities, we monitor economic performance on a monthly basis, we tap into the insights of the members of our small business and