not sufficient for ensuring a successful monetary union. the ecb must also be in a position to conduct a coherent monetary policy for all participating countries. there will no longer be a german monetary policy and there will no longer be a french monetary policy : there will only be a european monetary policy. it will thus no longer be possible to conduct a monetary policy that is in tune solely with the economic situation in a specific country. for a european monetary policy to be successful, the economic situation in the member states of emu must therefore be comparable. to put it another way : the economic situation in the participating countries should converge before emu starts. the eu tries to achieve convergence by making membership of the emu subject to a country ’ s ability to satisfy so - called convergence criteria. inflation and interest rates should be low and in line with those in the other participating countries. the exchange rate should be stable. last, but certainly not least, the budget deficit should be under control and the level of official debt sustainable. over the last five to ten years, most member states of the eu have come a long way towards fulfilling these criteria. inflation rates are at or close to historical lows in various countries. the same is true for interest rates, where differentials have diminished considerably. much less successful was the quest for fiscal stability. budget deficits in most countries are still too high and debt levels have often, instead of falling, risen over the last years. without any doubt, the pursuit of the convergence criteria with a view to joining the emu has been instrumental in improving economic policies in various member states of the eu. who, for instance, would have thought ten years ago that italy would today post an inflation rate lower than the one in germany? yet, despite the progress achieved over the last decade, two problems remain : first, convergence in important areas is still far from being satisfactory. second, the convergence criteria require the aspiring members of the emu to achieve certain goals by spring 1998. but what about their future policies? there is a widespread belief in the economics profession that nominal convergence - - as expressed by the convergence criteria - - is less important for a successful monetary union than real convergence. real convergence encompasses factors such as labor mobility, price and wage flexibility, exposure towards external shocks, industrial structures, and so on. judged by these factors, convergence among future members of the emu still has a long way to go. this is important because to be successful a european monetary policy depends

central banks involved than exists today. all the competent bodies in the eu have to make sure this cooperation is put in place. otherwise, market turbulence, exchange rate fluctuations and a heavy burden on the new ecb would result. neither the eu, nor, as a matter of fact, switzerland can be interested in such a development. like any other country in europe, switzerland has a vital interest in emu becoming a success. switzerland ’ s economy is closely linked to the economy of the eu. high growth in europe is essential for a sound economic development in switzerland, whereas a lackluster economic situation in the eu contributes to sluggish economic growth in our country. the success or failure of emu will thus directly affect our economic well - being. in fact, not only our economic well - being, but also our ability to conduct a relatively autonomous monetary policy will be affected. market turbulence during the transition period, uncertainties about the future monetary policy of the ecb and unfulfilled expectations about the stability of the new currency and the degree of political independence of the ecb all have the potential to create an upward pressure on the swiss franc. an appreciating currency would make it more difficult for our export - oriented companies to compete on the world market and would increase the competition faced domestically from abroad. should the swiss franc appreciate to an extent that economic activities in switzerland were severely disrupted, we would have several courses of action open to us. the swiss national bank ( snb ) could relax monetary policy in an effort to counteract the effects of the strong swiss franc on the domestic economy. attractive as this response may be, its major drawback is that we would have to walk a tight rope. relaxing monetary policy too little might not be enough to break the upward pressure on the franc ; relaxing monetary policy too much might lead to inflationary tendencies later on. the dilemma faced by the snb would become even greater should the pressure on the swiss franc to appreciate become more pronounced. in such a situation, we could react by pegging the exchange rate of the franc to the euro. a peg could either be temporary or the swiss authorities could decide to link the swiss franc permanently to the new single currency through a fixed exchange rate. a permanent peg could do away with the problem of an appreciating currency. it would, however, have major drawbacks : first, we would give up our relative autonomy in setting the course of monetary