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

mr. tietmeyer considers the challenge of the euro for europe special address by the president of the deutsche bundesbank, prof. hans tietmeyer, at the conference on “ the challenge of the euro for emerging markets ”, convened jointly by the national bank of poland and the european economics and financial centre in warsaw on 12 / 2 / 98. europe is facing major challenges. not only will it have to take important decisions affecting the course of future integration. above all, europe must also stand up to the test of global competition while preserving its basic values of freedom and solidarity. the immediate task facing the countries of central and eastern europe is economic transformation - making their economies internationally competitive and open on a sustainable basis. jumping into the “ deep water ” of international competition with privatised enterprises and banks has set off radical reforms having far - reaching implications. one of the great thinkers of the enlightenment, immanuel kant, said that the true philosophers are those who carry conviction through their teachings and by setting an example. poland may be said to be one of the most successful countries in transition so far. for years now, it has been achieving notable rates of growth. the central bank is doing a good job under its president. it is universally recognised that the rate of inflation has been brought down sharply and that this has been a crucial factor underpinning the restructuring of the economy. furthermore, important steps have now been taken towards autonomy for the polish central bank ; they are reflected in the central bank act which recently came into force. germany congratulates poland on the progress that has been achieved. and we are pleased that many different contacts exist at all levels - including, of course, the field of central banking. i should also like to mention the notable scale of direct investment in poland by german enterprises. it is gratifying to see that particularly small and medium - sized enterprises are involved in that area. but, where there are many points of light, some things inevitably cast a shadow. according to the oecd, one of the major risks is that the expansion of the current account deficit cannot be sustained at a manageable level. furthermore, the oecd experts are calling for the acceleration of restructuring, especially in the areas of privatisation and pension reform. i am certain that the responsible decision - makers in poland are taking that advice seriously. ii the eu countries are also facing a problem of transformation. increasingly fierce worldwide competition is setting great challenges for most of the eu