fluctuations in the krone rate. chart 7 swedish krona and danish krone vis - a - vis the euro sek, dkk / eur 7. 0 7. 5 8. 0 8. 5 9. 0 9. 5 10. 0 10. 5 jan - 99 ju l - 99 sek jan - 00 jul - 00 jan - 01 jul - 01 jan - 02 ju l - 02 jan - 03 dkk chart 8 real effective exchange rate in sweden and denmark 1980 = 100 dkk sek note : the real effective krone rate is based on consumer prices. most recent observation is june 2002. this implies that the decision - making body should be ready to take interest - rate decisions at more or less any time, and therefore the structure of the decision - making process is quite different from that of a central bank pursuing an inflation target. moreover, the possibility of more or less real - time evaluation of the success of danmarks nationalbank ’ s monetary policy, i. e. whether the exchange rate stays within the band, implies that there is no ambiguity with regard to fulfilment of the target. accordingly the word transparency implies something different under a fixed - exchange - rate system and an inflation - targeting regime, cf. storgaard ( 2002 ). chart 9 erm ii band and the danish krone vis - a - vis the euro dkk / eur dkk / eur cent ral rat e fluct uat ion band chart 10 key monetary policy interest rates in denmark and the euro area per cent 6. 0 5. 5 5. 0 4. 5 4. 0 3. 5 3. 0 2. 5 2. 0 jan - 99 jul - 99 jan - 00 jul - 00 jan - 01 dk lending rat e jul - 01 jan - 02 jul - 02 jan - 03 euro main ref inancing / minimum bid rat e euro marginal rat e in main ref inancing operat ion it is evident from chart 8 that the exchange rate against the euro is far more stable than allowed by the fluctuation band of + / – 2. 25 per cent against the euro. in the years preceding the breakdown of erm i in 1992 - 93 many exchange rates, including the krone, fluctuated widely within the narrow band, while primarily the dutch guilder, the belgian franc and the austrian schilling generally fluctuated little within the bands. obligatory intervention at the margin was not a

##uation band of + / −2. 25 per cent around a central parity of 746. 038 kroner per 100 euro. in the vienna communique of september 1998 the danish narrow band is commented with “ the high level of economic convergence achieved by denmark in terms of the convergence criteria, including the very high degree of stability of the krone in the markets and the unchanged parity within erm i since january 1987. this is the result of sustained stability - oriented economic policies ”. the standard fluctuation band in erm ii is + / – 15 per cent. membership of erm ii was not a major change of the danish monetary regime. as a matter of fact, denmark has a very long tradition for a fixed - exchange - rate policy. the central parity vis - a - vis the euro corresponds exactly to the former central rate vis - a - vis the d - mark, which was unchanged from early 1987, cf. chart 1. furthermore, by 1982, exchange - rate realignments ceased to be a self - initiated danish policy instrument. in 1998, erm i had 12 members, the 11 countries that now form the euroarea and denmark. presently, with denmark as the only member of erm ii, there is little risk of contagion from problems originating elsewhere. however, the hubs and spokes approach in erm ii compared to the bilateral parity - grid in erm i, lowers the risk of contagion in case more countries participate. chart 1 the danish krone vis - a - vis the german mark and the euro dkk / dem 3. 0 3. 2 3. 4 3. 6 3. 8 4. 0 4. 2 dkk / dem cent ral parit y, dkk / dem note : from 1 january 1999 a conversion has been made to depict dem instead of eur. the firm commitment to a fixed - exchange - rate policy originates from very poor performance of macroeconomic policy and, consequently, poor performance of the danish economy in the 1970s. against the background of high inflation, excessive budget deficits, permanent deficits on the current account of the balance of payments, frequent devaluations of the krone and high nominal interest rates, the danish authorities in the early 1980s made a successful u - turn to a stability - oriented macroeconomic regime. the fixed - exchange - rate policy was, and still is, an important element in the macroeconomic framework