here we drew some inspiration from our monetary policy set - up. fiscal policy could be guided by clear targets that are defined in terms of countries ’ output gaps. alternatively, national inflation targets could be introduced. in combination with transparent processes, including recurrent evaluations by national parliaments or in other arenas, this could put pressure on politicians to act. is the stability and growth pact not sufficient in itself? after all, it is designed to ensure fiscal discipline in the member countries. the answer here is clear ; it could have been had the pact only been followed. but now the situation is different. as the pact has not been followed by the larger euro countries, there is a risk that the newcomers will take the same attitude. however, this could be a dangerous conclusion. it would be wiser to look at the issue the other way round. both germany and france attained the 3 per cent mark for the public deficit criterion by the narrowest of margins despite what was a global upturn. but they clearly did not do enough afterwards in terms of consolidation, despite intense pressure from many of the smaller countries. today, this is a significant problem not only for the euro area as a whole ; the countries themselves are also paying the price in terms of a deeper and longer downturn. this, if anything, is a warning to new euro adopters. conclusions having raised these complex issues, let me be very clear about my sentiments. i do not wish to see any new obstacles or separate rules for the new member states ; equal treatment is essential. no other rules for convergence should apply to the new euro adopters than those that have applied to present euro area participants or that would have applied to sweden if we had voted “ yes ” to adopting the euro. indeed, early euro adoption may be entirely beneficial for those new member states that have sufficiently stable and flexible economies and that have followed a course of fiscal prudence for a long time, just as i personally would have considered it beneficial for sweden had we joined in 2006. rather, it is in the euro adopters ’ own interests to independently consider the risks. countries that have used exchange rate flexibility should not rush into a system of fixed exchange rates before the conditions are right. if you have not already achieved fiscal discipline, do not enter erm ii nor opt for early euro adoption as leverage on the politicians to bring about such discipline. it is not only a matter of meeting the 3 per cent convergence criterion but also of reaching a maturity in fiscal

: integration of trade and capital markets stimulates growth for both the euro adopter and the euro area. in the case of acceding countries, there are probably additional advantages of monetary integration ; it gives added stability after the difficult years of transition and is important for their underdeveloped financial sectors. so the issue is not really euro area enlargement as such, but rather its timing and preconditions. second, from the perspective of the euro area itself it is hard to see how acceding countries could pose any major risks to price stability. the sum of the economies of all the new member states does not presently amount to more than the gdp of the netherlands. furthermore, historically high inflation rates in the acceding countries have been reduced through reinforced macroeconomic discipline ( which in turn owes much to the enlargement process ). a simple calculation shows that even if growth in the acceding countries averages some 4 per cent more than the euro area, and this catch - up, according to most estimates, generates balassa - samuelson price convergence with 2 - 3 percentage points higher inflation than euro economies, their inclusion in the euro area would still only add some 0. 2 percentage points to area - wide inflation. instead, it is the perspective of the acceding countries themselves that is crucial. risks with erm ii the one risk with erm ii that has been discussed at length in recent years is the potential conflict between a pegged exchange rate and an inflation target. both exchange rate stability and low inflation are necessary to fulfil the conversion criteria, but in some cases it may be difficult for monetary policy alone to meet two targets at the same time. one possible situation is that the central parity has been set too low and that real appreciation pressures, due to catching up, are so strong that the upper band comes into question. this can result in large - scale speculative currency flows and unnecessary turbulence, as demonstrated by the attack on the forint at the beginning of this year. the obvious solution to speculation against the upper band is to reach an agreement in erm ii to revalue. but this is often difficult in practice. when political decision - makers are forced to choose between the inflation and exchange rate targets, it takes courage - and good analyses - to give priority to low inflation and opt for revaluation. as the case of ireland has demonstrated, this does not exclusively apply to acceding countries. in the end, the result can be inflationary pressures