zloty would be a potential candidate. in principle, all eu countries have the right to participate in erm ii if they fulfil the necessary economic conditions - in particular, full currency convertibility, application of the relevant single market legislation, and stability - conscious monetary, fiscal and economic policies. given successful monetary and economic policies, many people will perhaps ask whether unilaterally pegging the exchange rate to the euro in advance might not be a sensible strategy for advanced emerging economies - which would be more ambitious and demanding than the crawling peg strategy which is being pursued here at present. 1 however, a strategy of this kind initially presupposes that the euro will indeed be a stable, and internationally attractive, investment and reserve currency, and hence a serious competitor for the us dollar. if that is the case, emerging economies can, of course, use exchange rate pegging to import credibility for an anti - inflationary stance which has yet to be established. nevertheless, as was shown by the erm in 1992 - 93 and latterly by developments in south - east asia, this kind of pegging must not be too rigid, especially if there are the polish zloty is currently linked to a basket of five currencies ( including, primarily, the us dollar and the d - mark ) in the form of a crawling peg. shortcomings in economic policy and economic divergence from the anchor currency. exchange rate pegging which has become obsolete can be made worthless overnight by the financial markets. importing credibility by means of pegging exchange rates must be underpinned by a corresponding domestic policy. if that is not achieved, pegging the exchange rate can become very dangerous. far - reaching and sustained anti - inflationary and institutional convergence should therefore come before an exchange rate pegging of this kind, and not the other way round. that is especially true for later entry into monetary union. sustained convergence towards a european stability union is the stated objective of the central and east european countries in transition. in this regard, i share the view of the oecd that poland has decidedly good prospects of converging over time with western europe. we in germany would very much welcome a sustained stability convergence. i am certain that this would be an advantage for both countries in the long run. important as the political will to become more closely involved in the process of european integration may be, the key to its success will be a permanently sustainable economic base. good politics needs good

to ensure that risks to price stability do not materialise, thereby making an ongoing contribution to sustainable economic growth and job creation. as regards fiscal policies, while the budgetary results reported for 2005 are mostly better than anticipated a few months ago, the budget balances planned for 2006 imply no significant progress in fiscal consolidation for the euro area as a whole. given the economic outlook, a faster pace of deficit reduction is necessary. delaying fiscal consolidation in times of improving economic activity implies risks for the medium term, as has been observed in the past. speeding up deficit reduction on the basis of credible and fully specified measures as part of a comprehensive reform programme would help to enhance confidence in the medium - term prospects of the euro area and prevent a repeat of past experiences, when complacency in good times contributed to persistent budgetary disequilibria. as regards structural reforms, the governing council welcomes the call by the european council, which met in brussels on 23 - 24 march 2006, to maintain the momentum of the re - launched lisbon strategy for growth and employment. as emphasised by the european council, the focus should now be on ensuring the effective, timely and comprehensive implementation of the measures agreed in the national reform programmes presented by member states and, if necessary, on strengthening them. these measures are designed to, among other things, enhance the sustainability and quality of public finances, promote flexible labour and product markets, support a favourable business environment, and ensure a fully operational eu internal market, including the markets for energy and services. applying comprehensive structural reforms is of particular importance for the euro area countries, in order to increase wage and price flexibility and the resilience to shocks, facilitate structural adjustment, raise potential output growth and job creation, and reduce price pressures, thereby facilitating the task of the single monetary policy. we are now at your disposal for questions.