economic policies of these member states become subject to coordination and surveillance at the eu level. this is an essential preparation for the monetary union. members that once adopted the single currency have to put more emphasis on coordinating economic policies because monetary policy is no longer under national responsibility. iii but policy coordination is not sufficient. to join the euro area, member states must fulfil a number of legal and economic convergence criteria. the legal convergence criteria oblige the euro area applicant countries to put in place the legal foundations for participation in the monetary union, of which central bank independence is a cornerstone. the economic convergence criteria ensure that the applicant countries have established economic conditions that are conducive to the maintenance of price stability and the coherence of the euro area. the framework of analysis comprises developments in prices, fiscal balances and debt ratios, exchange rates and long - term interest rates, together with other factors. a number of general rules are used in the application of these criteria. 1. the individual criteria are interpreted and applied in a strict manner. 2. the criteria constitute a coherent and integrated approach. they must all be satisfied. the treaty lists the criteria on an equal footing and does not suggest a hierarchy. 3. the criteria must be met on the basis of actual data. 4. the application of the criteria should be consistent, transparent and simple. 5. convergence must be achieved on a sustainable basis and not at a given point in time only. this approach is firmly based on economic arguments. it is generally recognised that a monetary union requires sustainable macro - economic convergence among the participating countries. once a country joins a monetary union, it loses the possibility to use the nominal exchange rate as an instrument to correct a loss in competitiveness. as monetary policy decisions in the emu are taken in the light of the economic conditions prevailing in the entire area, economic convergence is required to ensure that a country ’ s economy is sufficiently prepared for the monetary union. in other words, fulfilling the convergence criteria in a sustainable way ensures that the country can integrate smoothly into the monetary union, without a risk of disruption for the member state itself or the euro area as a whole. the convergence process and the fulfillment of the criteria are therefore • not used to exclude countries by putting up extra hurdles for them to pass ; • they are used to ensure that their inclusion occurs smoothly and to the mutual benefit of the country in question and the euro area as a whole. iv once a country is able to fulfil

the potential benefits are more limited, whereas some of the costs may be less acute. similar experiences with dollarisation in some countries show, however, that such a partial euroisation entails some serious risks for citizens, business, banks and the government alike. conclusion let me conclude. 1. as i explained, the structured convergence process towards the adoption of the euro which is laid down in the treaty provides the best guarantee for a smooth inclusion and a mutually beneficial life in the monetary union. against this background, unilateral euroisation is something which we would not support because this would be a way circumventing the stages foreseen by the treaty. 2. i would like to point out that the house of emu is built upon solid foundations. the house of emu is open to newcomers ; it is not a “ closed shop ”. however, we would like to welcome the newcomers through the front entrance, and not via the backdoor. 3. since iceland is a european state, it is of course entitled to apply for eu and subsequently euro area membership. i was asked to provide you with some more information about the time frame of this latter scenario. as iceland is a member of the european economic area, its accession to the eu could proceed relatively smoothly. as for accession to the euro area, the minimum time between joining the eu and joining the euro area is two years. this is because the exchange rate convergence criterion foresees that an applicant euro area country must participate for at least two years – without severe tensions – in the exchange rate mechanism ii. this should allow the applicant country to demonstrate that it can manage its economy without recourse to excessive currency fluctuations, thus mimicking somewhat the conditions under a monetary union. 4. iceland would join the euro area once it fulfils all the convergence criteria. at that point, the central bank of iceland would become part of the eurosystem, its governor would have a seat at the table of the ecb ’ s governing council, and iceland ’ s economy would be considered in taking monetary policy decisions for the enlarged euro area as a whole. thank you very much for your attention.