the maastricht treaty. they quite deliberately included in the treaty the famous convergence criteria in order to ensure that countries wanting to participate in the euro - area should have to demonstrate, before they were allowed to join, at least a minimum degree of sustainable economic convergence precisely in order to reduce the risk of divergent national monetary policy needs once the single currency is introduced. without that, the potential problems could be serious. the euro - member countries would have no possibility of adjusting either interest rates or their exchange rate independently, and they would have somewhat limited scope for independent fiscal adjustment because the stability and growth pact would constrain the size of overall public sector deficits. and alternative adjustment mechanisms - - such as the labour migration or fiscal redistribution that helps to alleviate similar regional problems within individual countries - - are not well developed at the level of europe as a whole - - nor are they likely to be, at least in the near future. so the risk is that the one size - fits - all interest rate could result in economic weakness and unemployment in some areas if the european central bank pursued a firm monetary policy or unwanted inflation in others if it were more accommodating. such divergent national monetary policy needs within the euro - area could result from differences in the cyclical position as between one country and another ; or from different fiscal positions, - 2although these, as i say, should be constrained by the stability pact ; or they could result from external shocks which had disproportionate effects on some countries as against others. they may be the more likely because europe starts from a position of generally very high levels of unemployment [ ranging from around 7 % in the uk, to around 10 % in germany, over 12 % in france and italy, and even more in spain on a consistent basis ]. i do not suggest that this urgent problem of unemployment can be directly addressed by differential macro - economic stimulus - - most commentators agree that it is rather the result of structural, supply - side rigidities and can only be effectively tackled by greater labour market flexibility. the worry is that the necessary structural changes will occur to varying degrees and at a different pace in different countries itself, resulting in different macroeconomic policy needs. this is why meeting the convergence criteria, in economic substance not just in some formal accounting sense, are crucially important. without genuinely sustainable convergence - - and i emphasise the word sustainable! - - serious tensions could emerge between different countries living with the single monetary

policy. it is true that the prospect of emu has had a powerful effect on countries ’ behaviour - - causing some of them, for example, to address fiscal problems to a degree that might well not have happened without the external incentive of the maastricht timetable. and some argue that the disciplines of emu itself will enforce convergent behaviour, including structural adjustment, so that the regional tensions which i have described will not in practice materialise. i am not convinced that one can simply rely upon that happening - - and the longstanding weakness of the economy in the south of italy, despite a single currency with the north, or the continuing weakness of the east german economy since currency reunification with western germany suggest that such behaviour is by no means certain. there are then real economic risks in the emu project to be weighed against the potential economic benefits, and striking the balance between them is the task of the european heads of state as they face their historic decision next may - - just over seven months from now. there is no doubting the political determination of most of europe ’ s leaders to press ahead. but unless, in any particular case, they are convinced that genuine, sustainable, convergence has indeed been achieved, it is difficult to see why the country in question should want to adopt the euro or indeed why it should be permitted to join, putting others at risk. emu is, after all, forever - - and that seems a very long time to me. i don ’ t really understand the hurry. the prudent planning assumption is, nonetheless, that emu will go ahead next spring among at least a core group of countries, and possibly rather more. that certainly is the assumption being made in the financial markets. what it would mean in practical terms is that in early may next year the decision will be made to go ahead and agreement reached on the participating countries. at the same time, the bilateral conversion rates between the participating currencies that will apply irrevocably from 1 january, 1999 will be announced. on that date, the conversion rates between the participating currencies and the new, single currency, the euro, will be fixed such that the value of the euro will equal the then prevailing value of the official ecu. and short - term interest rates throughout the euro - area would be set, identically, by the ecb, that will have been established in the early summer of next year. from 1 january, 1999 the participating central