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However, the Danish krone was in fact pegged to the Deutsche Mark from 1982 until the end of 1998. Furthermore, since 1 January 1999 it has been participating in ERM II with a rather narrow fluctuation band of
±2.25%, and effectively has had an almost fixed exchange rate vis-а-vis the euro. Therefore, the Danish monetary policy, through this exchange rate strategy, is the monetary policy of the Eurosystem. In other words, Denmark follows "the rules of the game" almost entirely, or as the Governor of
Danmarks Nationalbank, Ms Bodil Nyboe Andersen, often says, "The Danish krone shadows the euro".

In this connection, and before the question and answer session begins, let me conclude by addressing the following key questions to you, on the understanding that this is a rhetorical way to express my ideas and that I do not necessarily expect any of you to answer them.

If Denmark already is following "the rules of the game", why, then, should you not make use of the advantages of belonging to the Eurosystem?
Why, then, should you not participate in the decisions concerning the monetary policy which, in actual fact, applies to Denmark?

______________________

(1) For a more detailed analysis, see the article entitled "The international role of the euro", in the August 1999 edition of the ECB's
Monthly Bulletin, pp. 31-35.

***

European Economic and Monetary Union - principles and perspectives

-#"+ !-+ 1999DRAFT SYLLABUS FOR THE CLASummary of a presentation by Ms

Sirkka Hдmдlдinen,

Member of the Executive Board of the European Central Bank,

The Tore Browaldh lecture 1999,

School of Economics and Commercial Law, Gцteborg University,

Gothenburg, 25 February 1999

The European integration process started shortly after the Second
World War and was, at the time, strongly motivated by political factors.
The aim was to eliminate the risk that wars and crises would once more plague the continent. The first concrete result was the establishment, in
1952, of the European Coal and Steel Community between six countries
(Belgium, France, Germany, Italy, Luxembourg and the Netherlands). This was followed by the adoption of the Treaty of Rome in 1957, laying the foundations for the European Economic Community.

The first concrete proposal for a Monetary Union was presented in the so-called Werner Report in 1970. The Report was intended to pave the way for the establishment of a Monetary Union in the early 1980s. However, the proposals of the Werner Report were never implemented - being overtaken by world events. After the break-up of the Bretton Woods system and the shock of the first oil crisis in 1973, most western European economies were contaminated by the economic sickness popularly labelled "Eurosclerosis", characterised by high inflation and persisting unemployment. At that time, the European economies were protected by regulations and financial markets were still poorly developed. In this environment, it was concluded that a
Monetary Union would not be possible and the project was postponed.

The idea of establishing Monetary Union was revived only in 1988 and a detailed proposal was presented the following year in the Delors Report, after the launch (in 1985) of the Single Market programme on the free movement of goods, services, capital and labour. Because of the single market, the Report could be more explicit and credible with regard to how best to achieve closer economic ties between the EU economies before the introduction of a single currency. Moreover, the Report was supported by a detailed description of an institutional set-up geared towards ensuring stability-oriented economic policies.

Notwithstanding the thorough work invested in the Delors Report, almost 10 years of convergence and technical preparations were required in order to ensure the successful implementation of the euro on 1 January
1999. And the project is still not over: the euro coins and banknotes will be introduced only in 2002 - 13 years after the presentation of the Delors
Report and 32 years after the presentation of the Werner Report.

Achieving a credible currency

Today, almost two months after the introduction of the euro, we can say that the technical changeover to the euro was successful. Now, the
Eurosystem (i.e. the ECB and the 11 national central banks of the participating Member States) must focus on ensuring the long-term success of the new currency. The credibility of a currency is built up by several factors, the basis of which is the central bank's commitment to price stability. Here, the Eurosystem is in the fortunate position of being assigned, through the Maastricht Treaty, the unambiguous primary objective of maintaining price stability in the euro area. Another fundamental building block of credibility is ensuring that monetary policy decisions are independent of political pressures. This building block was also laid down in the Maastricht Treaty, which ensures that the ECB and the participating national central banks enjoy a very high degree of independence, possibly more than any other central bank in the world.

The credibility of a currency also relies on the preparedness of governments to pursue stability-oriented policies of fiscal discipline and to undertake necessary structural reforms. On this point, the Stability and
Growth Pact adopted by the EU countries provides a basic framework for fiscal discipline and should enhance the governments' incentive to proceed with structural reforms.

In order to enhance credibility, it is also important that the central bank's strategy for achieving the primary objective is clear and that the link between the strategy and the central bank's policy actions is easily understood by the public. By following a transparent approach, the central bank can directly improve the efficiency of monetary policy. This contributes to achieving stable prices with the lowest possible interest rates.

Striving towards increased transparency led the Governing Council of the ECB (composed of the Governors of the 11 national central banks and the six members of the ECB's Executive Board) to establish a precise definition of price stability in order to bring about absolute clarity as regards the primary objective; price stability was defined as a year-on-year increase of the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%. This is a medium-term objective. In the short run, many factors beyond the scope of monetary policy also affect the price movements.

The adoption of the Eurosystem's monetary policy strategy also aimed at enhancing transparency in the implementation of monetary policy. The strategy is based on two key elements: First, money has been assigned a prominent role in the form of a reference value for the growth of the euro area wide monetary aggregate M3. Second, the Eurosystem carries out a broadly based assessment of the outlook for price developments and the risks to price stability in the euro area on the basis of a wide range of economic and financial indicators.

In order to explain to the public the Eurosystem's policy actions against the background of the adopted monetary policy strategy, the
Eurosystem uses several channels: the ECB's Monthly Bulletin; the issuance of a detailed press release after each Governing Council meeting, in which the decisions are explained; the organisation of a monthly press conference at the ECB; the appearances of the President at the European Parliament; and, finally, the numerous speeches and articles by the members of the
Governing Council. Taken as a whole, the Eurosystem is probably among the more active central banks when it comes to explaining its policies to the public.

A further important building block in order to establish credibility is the promotion of an efficient implementation of the monetary policy decisions. The Eurosystem has aimed to set up an operational framework which is consistent with market principles and which ensures equal treatment of counterparties and financial systems across the euro area. The
Eurosystem's operational framework is based on the principle of decentralisation in order to take advantage of the established links between the national central banks and their counterparties. The monetary policy operations will therefore be conducted by the national central banks, while decisions are taken centrally in the ECB's decision-making bodies.

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