Only a stability-oriented fiscal policy allows the countries of a monetary union to fully profit from one of the major benefits of monetary integration: a low level of risk premia and therefore interest rates. Fiscal discipline will be one of the major challenges for the coming years as many acceding countries recently experienced difficulties in sticking to previously announced deficit targets.
With risks to the outlook for inflation remaining on the upside in the early months of 2006 and the latest staff projections suggesting that, at unchanged interest rates, HICP inflation would probably remain above 2 per cent both this year and next, a further increase in interest rates was recently deemed to be warranted.