, provides accession countries with the same degree of flexibility as the ems / erm following the decision to widen the fluctuation band in 1993. this may be suitable for accession countries. given that accession countries still need to complete the process of restructuring their economies and catching up in terms of real income, the flexibility inherent in erm ii and its wider fluctuation bands provides accession countries with sufficient scope to accommodate these reforms. bearing in mind that erm ii constitutes a multilateral arrangement, and that it is consistent with the regional integration process in which all accession countries are deeply involved, erm ii is likely to have fewer potential weaknesses than other alternative exchange rate arrangements have shown over recent years. of course, as for any exchange rate arrangement, coherence between macroeconomic policies must be ensured for successful participation in erm ii. with regard to the length of the period of erm ii membership, in view of the varying degrees of convergence of the accession countries, limiting the duration of erm ii membership to the minimum permissible time to qualify for the adoption of the euro – that is, two years – may not be an optimal choice for all accession countries. longer membership of erm ii may, in some cases, be helpful since it would allow accession countries to retain the exchange rate as an instrumental policy variable during the catching - up process. indeed, this option has proven useful for most of the current euro area participants. again, it is worthwhile to recall the examples of greece, portugal and spain. in the case of greece, the final revaluation of the drachma on 17 january 2000 took place at the request of greece, with the agreement of the eu authorities, to support the country's efforts to preserve sustainable price stability and progress in real convergence without jeopardising the competitiveness of the economy. portugal and spain, which participated in the ems / erm for a longer period of time, also used the option of realigning the respective exchange rates of the escudo and the peseta at several points along the road towards entry into the euro area. participation in erm ii should, therefore, not be seen as a mere “ waiting room ” prior to the adoption of the euro. instead, it should be regarded as a meaningful and flexible framework for increasing nominal and real convergence with the euro area, and for tackling the challenges faced by the accession countries as they progress towards the adoption of the euro. indeed, the experience of current

and supervisors, and the private sector and financial industry – to proceed with the difficult, but vital, measures required to re - establish the trust on which a well - functioning market economy relies. cohesive action at a european level is essential to alleviate the current tensions. such action will also support a sound, longer - term economic recovery in the euro area and beyond. this will benefit all of us who live and work in europe. i call on euro area governments to work together. looking ahead, countries have to take up their responsibilities. major improvements need to be made to prevent bad fiscal behaviour, ensure effective implementation of the recommendations made by partners and enforce real and effective sanctions in case of breaches. it is equally decisive for the european commission and the eurogroup to engage in an effective control of the evolution of relative competitiveness inside the euro area, including of the evolution of unit labour costs. and the implementation of structural reforms, under the surveillance of the peers, is of the essence to elevate the growth potential in europe. i call on euro area governments in particular to work actively together to reach agreement on a quantum leap of the effectiveness of their collegial surveillance. thank you for your attention.