By Marta Vilar – MADRID (Econostream) – European Central Bank Vice President Boris Vujčić said on Tuesday that successful participation in a monetary union required durable convergence and policy credibility over time, noting that monetary integration could not be achieved through a single policy decision or a temporary alignment of economic indicators.
In a speech online at a conference on Iceland’s currency options, Vujčić said that “[t]he idea that monetary integration could only succeed if the participating economies entered the union with a sufficient degree of convergence and proven policy discipline lies at the heart of the convergence criteria.”
He said the criteria reflected the principle that a common currency could only function effectively if participating economies shared a common culture of stability and maintained sustainable public finances. He also pointed to the importance of market confidence and exchange-rate stability in supporting convergence.
Vujčić said that participation in the Exchange Rate Mechanism II was a framework for policy coordination, institutional readiness and confidence-building rather than merely a waiting period before euro adoption.
“The requirement to participate in ERM II for at least two years before adopting the euro reflects a key insight of the architects of EMU: successful integration within a monetary union cannot be achieved through a single policy decision or a short-lived statistical alignment of macroeconomic indicators,” he said. “It calls for durability, consistency and credibility over time.”
The ERM II framework had worked “remarkably well” during its almost three decades of existence, he said.
He noted that the convergence framework had proven capable of accommodating countries with widely differing economic structures and levels of development while maintaining common standards, and pointed to the Baltic states, Slovakia, Croatia and Bulgaria as evidence of the framework’s resilience and flexibility.
Vujčić said that the lessons of the global financial crisis had shown that sustainable monetary integration required more than nominal convergence, prompting Europe to strengthen banking supervision, crisis-management mechanisms and economic governance.
“From an economic perspective, this evolution reflects a broader lesson: sustainable participation in a monetary union requires not only nominal convergence at the point of entry, but also sufficient institutional capacity to absorb shocks once inside the union,” he said.
Related articles: