Challenges for nominal and real convergence

This article addresses the issue of macroeconomic policies in the pre-accession period. The key theme is an assessment of the relationship between the real and nominal convergence of the candidate countries towards the EU. Support for real convergence cannot proceed on a long-term basis in contradiction to the nominal convergence criteria. Despite a renewal of growth in 1999, a whole range of persisting structural problems, chiefly in the fiscal area, confirm the benefit of "voluntary" pursuance of the nominal convergence criteria. For the central bank, the inflation criterion is particularly relevant. The issue of "catching-up with the EU price level" is discussed from this point of view. Neither the theoretical models (the law of one price and the Balassa-Samuelson effect) nor the empirical evidence provide arguments for abandoning the efforts for price stability. The most appropriate monetary policy regime linking the interests of monetary policy and government economic policy is inflation targeting.