zdenek tuma : europe's club of nations needs a rule change comment by mr zdenek tuma, governor of the czech national bank, in the published financial times ( london, england ), 4 january 2007. * * * the european union is a pretty big club and it will only get bigger. the rules and institutional framework used by the 27 members to make decisions are, however, much the same as they were when there were six or 15 members. the process of enlargement poses a dilemma : with the number of members growing we need rules respected by everyone more than ever before, but at the same time such rules can be a straitjacket, especially given that the present rules were designed for a very different club. one example is monetary policy and the process of adopting the euro. policymakers designed a set of rules 15 years ago that are applied any time a country wants to join the single currency. the country is required to comply with the maastricht criteria and also to stay for at least two years within the exchange rate mechanism - 2 framework. back then, these rules might have been perfectly legitimate, but today they are outdated and - counter - productive. the erm - 2 might have made sense in a situation where monetary policies around western europe were based primarily on fixed exchange rates explicitly or implicitly pegged to the d - mark. then, the erm - 2 framework worked as a platform for co - operation among countries with interlocked currencies. today, such a system does not generate any benefits for most eu members. there now exists a wide range of monetary policy frameworks, running from currency boards and hard pegs ( used by denmark and the baltic states ) to inflation - targeting economies with floating exchange rates ( the uk, sweden, the czech republic, poland ), with other countries lying somewhere in between. countries with currency boards have been allowed to pursue their original policy within the erm - 2, meaning that fulfilling the condition of staying inside this system is a formality. but what is the sense in asking countries that already use inflation targets and floating rates to enter the erm - 2? the step is simply counter - productive. it implies switching from a regime that is perfectly compatible with the european central bank framework to a semi - fixed exchange rate, which is incompatible. we certainly do not need any exchange rate band to assess whether a currency is stable as determined by the market - we can just take a look

christine lagarde : imfc statement statement by ms christine lagarde, president of the european central bank, at the forty - second meeting of the international monetary and financial committee, virtual imf annual meetings, washington dc, 15 october 2020. * * * the coronavirus ( covid - 19 ) pandemic continues to be a truly global challenge. countries all around the world are facing severe human and economic consequences. in the euro area, we have taken decisive action to mitigate the impact of the crisis, both at the national and european levels. however, a global challenge of this nature also requires global solutions and strong international cooperation. at the global level, it will be crucial not to withdraw the policy support prematurely, including on both the monetary and fiscal sides, as reducing support too soon would risk delaying the economic rebound. at the same time, well - tailored structural measures facilitating the reallocation of resources over time to more viable sectors will be instrumental in minimising permanent damage to our economies and thus key for medium - term growth and the inflation outlook. euro area developments and outlook following the unprecedented fall in output in the first half of the year, economic indicators are pointing to a strong rebound in activity in the third quarter. this rebound is nevertheless uneven across sectors and regions, and a further sustained recovery remains highly dependent on how the pandemic will affect consumption, savings and investment decisions. while uncertainty about the path the pandemic will take is likely to dampen the strength of the recovery and affect the resilience of the labour market, the euro area economy will continue to be supported by very accommodative monetary and fiscal policies along with an expected gradual resumption in global activity. inflation has been in negative territory since august, largely reflecting the sharp decline in energy prices earlier this year and the mid - year temporary cut in german vat rates. these factors, combined with the impact of weak demand, downward pressure on wages and the euro ’ s appreciation weighted on inflation although there was also some upward pressure related to supply constraints. on the basis of current and futures prices for oil and taking into account the temporary reduction in the german vat rate, headline inflation is likely to remain negative over the coming months before turning positive again in early 2021. over the medium term, a recovery in demand, supported by accommodative monetary and fiscal policies, will put upward pressure on inflation. monetary policy since our last imfc meeting in april, the