General remarks
Let me, at the outset, make some general remarks. Firstly, the points I am going to make represent my personal views - this is not an official position of the Polish Government. Secondlys the basic question is not whether Poland (and other accession countries) will adopt the euro, provided that they first enter the EU. Rather, it needs to be highlighted that enlargement of the EU also automatically means enlargement of EMU in the longer perspective. The present candidate countries are certain future participants in monetary union. There will be no more exceptions o f the "opt-out clause" kind offered to Britain and Denmark. So the issue under discussion is not "if', but "when?" and "how?". This is thus a crucial difference between Britain and, for example, Poland.

Another difference is that the idea of introducing the euro is very popular in Poland. According to a recent opinion poil, 64 % of Polish citizens are in favour of quick introduction of the single currency into Poland, while only 22% are against such a substitution of the zloty. Interestingly, this result is much better than that from a recent poll concerning support for Polish membership of the EU as such (showing 55% in favour, 29% against).
Nevertheless, when considering the optimal path to EMU, we must obviously focus beyond public opinion, to the financial and economic positions candidate countries have found themselves in. The countries concerned can basically be divided into two groups - those which have launched a euro-based currency board (like Estonia, Lithuania and Bulgaria), and those with flexible exchange-rate regimes (like Poland, the Czech Republic, Hungary, Slovakia, Slovenia and Romania). The task for the first group is much simpler. Their national currencies have already been fixed against the euro, ensuring that the passage into the euro area will be a smooth one. Indeed, we could go as far as to say that they are "almost in it". In conseauence, it is the countries from the second group upon which I shall focus.

However, let me limit my remarks to what one may call the classical way to EMU. This is divided into three stages: the pre-accession period; the period after accession but prior to entry into ERM II; and the actual membership of ERM II (after at least two years, to allow for entry into EMU and the adoption of the euro).

I will discuss two possible strategies with respect to the targeted timing of the entry into EMU:

• targeting for the earliest possible entry,
• a "wait and see" policy

I would argue that early entry into EMU is possible, and that it is preferable to a delayed entry. By an early entry I mean one that is close to the earliest possible data, Le. 2006, provided that accession to the European Union takes place in 2004.

The first strategy is thus airned at meeting all the necessary reauirements and completing all the rekted reforms in the near future. In other circumstances, a targeting of the entry for 2006 would be an empty gesture. Overall, we know that adoption of the euro is dependent upon fulfilment of the Maastricht convergence criteria, which include:

• a high degree of price stability -- something that will be apparent from a rate of inflation close to that of the three best performing member states in terms of price stability and does not exceed it by more than 1.5 percentage points;
• the convergence of long-term interest rates -- which should not exceed that of the three best-performing member states by more than 2 percentage points in terms of price stability;
• sustainability of the government's financial position -- meaning a figures of no more than 3% for the ratio between planned or actual government deficit to gross domestic product at market prices, and 60% for the ratio of government debt to gross domestic product at market prices;
• exchange rate stability - meaning compliance with the normal fluctuation margins provided for by the exchange-rate mechanism of the European Monetary System, for at least two years, without any devaluing against the currency of any other Member State;
• independence of the central bank (personal, financial and institutional).

Meeting of the Maastricht criteria, especially the fiscal ones, requires structural reforms in public finances and in the enterprise sector. In addition, resignation from flexibility of the exchange rate calls for the deregulation of the labour market, if this is too rigid. Ali of these rneasures are conduciye to long-term economic growth. Thus, preparation for early entry into EMU in fact means an early launching of reforms which will enhance the candidate countries' prospects for catching-up with the existing member states.

The economic feasibility of rapid entry into EMU
Let us first approach this problem empirically, by checking the macroeconomic figures for Spain, Portugal and Greece in the four years before their entry into EMU, with the respective years being 1994 for Spain and Portugal and 1996 for Greece. Interestingly, a brief inspection of the data reveals that the macroeconomic stance of these countries was not better, but was rather worse, than that to be noted for the leading accession countries in 2001, especially with regard to inflation rates, budget deficits and public debt.

* Preliminary

Source: European Commission for EU members and fiscal data; national central banks data for accession countries

As can be seen, the 1994 CPI inflation rates were: 4.7% for Spain, and 5.2% for Portugal, while the 1996 figure for Greece was 8.2%. By contrast, the inflation rate recorded by Poland in 2001 was 3.6%. In tum, the 1994 budget deficit to GDP ratio in Spain was of 6.1%, and that in Portugal 5.9%, while the figure for 1996 for Greece was of 7.5%. Compare this with the figure of 5.4% noted in Poland in 2001. Public debt in Spain and Portugal 4 years before entry into EMU exceeded 60%, while in Greece the rate was almost twice the specified Maastricht level. In Poland the corresponding figure remains below 43%.

So, put simply, if Spain, Portugal and Greece managed to meet the Maastricht criteria moving from worse macroeconomic positions than those of the present leading accession countries, why shouldn't the same be possible in the latters' case?

If we leave the empirical considerations aside, and employ more theoretical ones instead, we should basically concern ourselves most with the Maastricht inflation criterion, as it is the meeting of this that focuses most attention.

Let us note that Poland has akeady achieved a tremendous amount of disinflation. The rate in the country is of 3.5% nów (as of the end of February 2002), and similar figures will apply to the other leading candidate countries. In such a situation, the inflation rates in some of the EU countries are not seen to differ greatly.

Poland had managed to achieve this Iow level of inflation after extensive price liberalization, so there would only seem to be limited scope for further corrective inflation.

Finally, there is the so-called Balassa-Samuelson effect, whereby rapid productivity growth in the tradable sector of the accession countries would lead -- via accelerated wage dynamics -- to higher inflation in the remaining sectors with a lower potential for productivity growth. However, what counts is the magnitude of this effect, and that has in fact been estimated to be rather modest. Empirical research in respect to Poland has, for example, shown that the impact of the Bakssa-Samuelson effect upon the overall inflation rate to date has been in the 1.2% -1.5% range. As a matter of fact, the Balassa-Samuelson effect is also present in the Eurozone, in countries like Greece and Portugal.

Summing up, the Iow inflation, limited scope for future corrective inflation, and manageable level of the Balassa-Samuelson effect combine to leave the Maastricht inflation criterion achievable. Furthermore, the meeting of the fiscal criteria is clearly in the interest of the countries concerned, as it would contribute to their economic growth.

Why targeting earliest possible entry into EMU might be better than a "wait and see" policy
First and foremost, the setting of an early date of entry would mobilize candidate countries to complete their structural reforms so as to be able to meet the fiscal criteria and make their economies more flexible - as was the case in Spain, Portugal and Greece.

With respect to the fiscal criteria, it is reforms in the public sector that are of crucial importance. They should focus on the spending side, and on public enterprises. After enterprises are privatised, they become more efficient and profitable, start paying income taxes on their revenues, and do not reauire subsidies, as is often the case with state enterprises. All this improves the budgetary situation. In addition, privatisation revenues limit the governments borrowing reauirements, thus constraining the growth of public debt and the related public debt service.

Another necessary reform in Poland is that of labour market; and this is the main way to solve the painful social problem of high unemployment. Simulations made at the NBP have shown that, if a full reform of the labour market had been carried out in 1993, the unemployment rate in Poland last year would have stood at 7%, instead of 18,0%. Labour market reform, leading to higher employment and lower unemployment would also help to consolidate the public finance by increasing tax revenues and reducing expenditures on unemployment benefits.

The above reforms are necessary for rapid and sustained growth and their linkage to early adoption of the euro would tend to make them more acceptable politically. Such a strategy obviously reauires mission-oriented poUticians. The strategy of "wait and see" might in contrast signal a lack of determination to carry out reforms which are necessary, not only for early entry into EMU, but also for a rapid and sustained catching-up.

Secondly, as was mentioned above, there is an interim period between the date of candidate countries' entry into the EU and their membership of monetary union (i.e. ERM II). A question as to the optimal length of this period then arises, and I would like to point out that, in what might be a rather turbulent time, especially for small and open economies of the kind the candidate countries possess, with large inflows and outflows of capital capable of causing significant exchange-rate volatility. It would be advisable to shorten this potentially turbulent period as far as is possible. A flexible exchange rate may be a mixed blessing under certain conditions.

Thirdly, the risks of giving up independent monetary policy and a flexible exchange rate need not be very large and, more importantly, are not reduced with the passage of time. Thus any delay with entry into EMU will bring little reduction in the costs of adopting the euro. Accession countries have achieved a high level of economic integration with the EU, as can be measured, for example, by the share of all exports going to the Union. In fact, the present volume recorded in Poland is actually higher than that noted in Greece, Portugal and Spain prior to their respective accessions to the EU and EMU. Currently about 71% of our export is shipped to the EU, while 61% of our import comes from there. The corresponding respective figures for the above Member States in the 1980s were of 48% and 41% (Greece), 50% and 37% (Spain), and 58% and 46% (Portugal). Poland has also achieved a high degree of cyclical convergence with the EU-15. Together, these two points combined suggest that asymmetric shocks would not present a serious danger to the present accession countries after their entry into EMU. For this reason, a single monetary policy for the whole euro area would not be hugely inappropriate for the present accession countries in comparison with their independent monetary policies, even if some new members might need a stricter monetary policy. This is one of the issues which requires further research.

With respect to the exchange rate, I have assumed that increased flexibility of the labour market would to some extent substitute for the lost exchange-rate flexibility.

Fourthly, a more rapid adoption of the euro would allow the present accession countries to reap the related benefits of an earlier date. What I have in mind here are such advantages as a strengthened framework for macroeconomic discipline, elimination of foreign exchange risks, a reduction of transaction costs, etc.

Finally, permit me to address fears among certain EU member states regarding a weakening of the euro following EMU entry on the part of Poland, Hungary, Slovakia or Latvia. To be honest, I do not find any rational argument supporting this view. Firstly, as I have pointed out, the earlier date of entry would mobilize the candidate countries to complete their structural reforms. Secondly, the candidate countries taken together, account for only around 6% of GDP in the enlarged EU. Any negative impact on entry into EMU, which I personally consider unlikely, will in any case be highly subdued. Thirdly, I think the reasons behind the relative weakness of the euro do not lie in any structural problems of Greece or Portugal, but rather in those of the larger EMU member states. Finally, as there are currently differences in the rate of inflation given the Balassa-Samuelson effect in the EMU countries, why should it be considered problematic for others, recording inflation only marginally different from the EU average, to join the euro area?

Conclusion
In conclusion, it should be stressed that real convergence is as important as that of the nominal one, and it should not be assumed to be an unavoidable conflict between them. Firstly, the results of nominal convergence, especially a low inflation, are among the foundation stones of long-term economic growth. Secondly, it is structural reforms that bring the real and nominal convergence into agreement. The more such reforms one has implemented, the less costly the disinflation is, and the stronger the longer-term economic growth. In my view, the setting of an early date for adoption of the euro is a better way to accelerate these reforms than a strategy based on "wait and see".
I would like to finish with the following main point. The European Union should not discourage early entry of the candidate countries into EMU, but should rather encourage them to complete structural reforms. The cost of disinflation would be lowered in this way, and long-term economic growth facilitated. This is a "win-win" strategy, as it assists the candidate countries, while at the same time convincing the existing EU member states of the economic stability and dynamism of the new entrants.