andres sutt : macroeconomic co - ordination and fiscal policy in the expanding eurozone statement by mr andres sutt, deputy governor of eesti pank ( bank of estonia ), at the conference “ thinking euconomy - wirtschaftspolitik europaisch denken ”, berlin, 3 may 2006. * * * the enlargement of the european union with the clear message that all countries without an opt - out clause will, in the future, be also members of the emu, is a most welcome and forward - looking approach in view of an ongoing globalisation and integration processes in the world. eventually, the adoption of the single currency by all member states provides clear benefits for the union as a whole. from the macroeconomic point of view it would support further economic integration and higher growth rates by fostering trade and investments. therefore, euro area enlargement will provide tangible benefits for all european citizens over time. the main policy challenge for both the current and prospective euro area members is to ensure that the best use is made of the monetary stability provided by the framework of the european system of central banks ( escb ). from the perspective of the new member states, the issue at stake is how to maintain the economic structure supportive for sustained growth and rapid real convergence. strong fiscal stance is instrumental in this regard. convergence programs of the new member states should include ambitious medium term objectives to ensure that not only the maastricht criteria are met, but most importantly, the emergence of excessive deficit situations is avoided and the risks of taking recourse to exchange rate adjustments after joining the erm2 ( and, eventually, the euro area ) are minimized. the well functioning single market for all goods and services, including infrastructure networks, as well as pursuing the national reform programmes in the context of the reinforced lisbon agenda is the other pillar for the success of the euro area and for the new member states in particular. estonia has been a de facto member of the euro area since the inception of its independent currency in 1992. fixing the local currency to d - mark, and later to the euro meant that the monetary policy decisions were not made in estonia. estonia's currency board regime implies prudent fiscal stance that has been largely adhered to since 1992, resulting in our general government having accumulated a relatively large net asset position of around 10 percent of gdp. a solid budgetary position and early deregulation of product and capital markets implies that estonia has been

but ultimately that underlying trend is determined by factors outside of our ability to influence, that rely instead upon the age and skills of the population, the efficiency with which jobs are matched to available workers, and the nature of employment regulation. conclusion i would like to conclude by reiterating that new zealand ’ s experience with inflation targeting has been one of evolution. the reserve bank act ( 1989 ) provided the supports that enabled us to establish credibility in our intent to meet our objective of price stability. as we lowered inflation, and anchored expectations within the target range, we could implement an increasingly flexible approach to monetary policy that has been reflected in successive ptas. this flexible approach means that we have long had regard to the real economy, including employment. that the bank has operational independence and is transparent in meeting our objective is as important for credibility today as it was in 1989. but the framework and the specific targets that we operate within and towards are for the public, via the political process, to determine. the government is currently in the process of changing the framework, to assign monetary policy responsibility to a committee with external members and add employment to the bank ’ s current mandate of price stability. ref # 7482042 v2. 2 i see the inclusion of ( maximum sustainable ) employment into our mandate as reinforcing the flexibility of inflation targeting. that said, it is still too early to determine what effect these changes will have on the conduct and communication of monetary policy. i expect that in five or ten years ’ time someone from the reserve bank of new zealand will be back at a similar conference, to explain how it all went. ref # 7482042 v2. 2 references barro, robert and david gordon ( 1983 ), “ rules, discretion and reputation in a model of monetary policy ”, journal of monetary economics, 12 ( 1 ), pp. 101 - 121. bernanke, ben and ilian mihov ( 1997 ), “ what does the bundesbank target? ”, european economic review, 41 ( 1997 ), pp. 1025 - 1053. bernanke, ben, thomas laubach, frederic mishkin and adam posen ( 1999 ), inflation targeting : lessons from the international experience, princeton university press, princeton, new jersey. blinder, alan ( 1998 ), central banking in theory and practice, the mit press, cambridge, massachusetts. bollard, alan ( 2004 ), “ asset prices and monetary policy