s links with the western balkans, the mediterranean countries and the countries of the commonwealth of independent states, notably russia, have strengthened as well. in line with this, we have also observed significant use of the euro by public authorities and private agents in these countries. let me now turn to the ten new eu member states. for the moment, any use of the euro by authorities and private agents in these countries - as in denmark, sweden and the united kingdom continues to be an “ international ” one, as the euro is still being used there by non - euro area residents. however, unlike denmark and the united kingdom, the ten new member states have not asked to opt out of the single currency. thus, they will adopt the euro once they have fulfilled the requirements as laid down in the treaty establishing the european community. this entails that, on their road to the euro, they will, at some point, join the exchange rate mechanism ii. erm ii is a multilateral arrangement of fixed, but adjustable, exchange rates with a central rate and a standard fluctuation band of ( 15 % against the euro. thus, under erm ii, the official use of the euro in its role as an anchor currency by some non - euro area eu member states will no longer represent a unilateral decision by the respective authorities. rather, it will be based on a multilateral agreement between the member state concerned, the euro area member countries, the ecb and the other member states participating in the mechanism. this is most evident with regard to the decisions on central rates, as they are taken by mutual agreement of the various parties to erm ii. moreover, several exchange rate regimes are incompatible with erm ii participation, including pegs against anchors other than the euro. the new member states differ greatly in terms of their economic structures, current exchange rates and monetary regimes, and in the degree of nominal and real convergence already achieved. thus, no single path towards erm ii and the adoption of the euro can be identified and recommended. rather, a case - by - case approach - based on the principle of equal treatment - will be followed, in line with the stipulations laid down in the treaty. this includes the criteria concerning the sustainability of nominal convergence, better known as the “ maastricht criteria ”. there will be no additional criteria but there will be no relaxation of the criteria either. we are aware that the road to the euro will be demanding,

/ www. ecb. europa. eu / press / key / date / 2020 / html / ecb. sp201124 ~ bcaebee7c0. en. html 5 / 13 24 / 11 / 2020 covid - 19 and monetary policy : reinforcing prevailing challenges monetary policy and the interest rate hypothesis the interest rate hypothesis needs closer inspection on three grounds. first, an emerging literature suggests that monetary policy transmission may not be linear in the level of the interest rate. [ 10 ] in other words, the slope of the is curve may be different when interest rates are low, or when they have been low for a protracted period of time. evidence is too scant to draw definitive conclusions at this stage. but such non - linearities could affect the extent to which central banks can bring future activity into the present : researchers have dubbed this the “ macroeconomic reversal rate ”. second, the transmission of changes in policy rates to bank lending rates seems to weaken around the zero lower bound ( see right chart slide 5 ). [ 12 ] all else equal, the lower the pass - through of interest rate changes to bank deposit rates, the smaller the effects of monetary policy on aggregate demand. and third, people often cannot distinguish between real and nominal developments and may therefore react less to changes in real interest rates than what our models would tend to suggest. [ 14 ] although money illusion has long been recognised in the economics profession, it continues to be largely ignored in core central bank models. empirical evidence shows that money illusion affects financial decisions, particularly – but not only – those made by households, who often mistake changes in nominal interest rates for changes in real rates. recent experience suggests that money illusion may not only change the nature of the interest rate channel, it may also expose central banks to widespread criticism. the debate on the “ expropriation ” of savers is a prime example. many people may be surprised to learn that negative real interest rates are not a new phenomenon. in germany, for example, since the euro was introduced, the average real interest rate for savings and demand deposits has been roughly the same as the average over the preceding two decades ( see slide 6 ). slide 6 negative real rates are not a new phenomenon https : / / www. ecb. europa. eu / press / key / date / 2020 / html / ecb. sp201124 ~ bcaebee7c0. en. html 6 / 13 24 / 11