A tolerance interval of 1 percentage point on either side of the target was included mainly to make it clear that deviations would probably occur but also that they should be limited. The target was tied to the consumer price index, the measure of inflation that was most familiar and reliable, besides being published regularly. There is a great deal to say about this — the choice of the target’s level and the choice of index — in the light of our experience and the academic literature that accumulated in the 1990s. I shall have to be brief, however, because otherwise there will be no time for the more practical issues about our procedures, which is today’s theme. So here are three short comments: •  The appropriate level of inflation is one debatable point. There are arguments for a somewhat higher level as well as a somewhat lower. With our present knowledge, this is ultimately a matter of judgement and so far there has been nothing to persuade me that there are any grounds at present for changing our target. As I see it, the most important thing is to set up a distinct target so that a given rate of inflation is anchored among all economic agents, be they households or firms, employers or employees. In this we have been very successful. •  The choice of an index is a complicated matter.
Over the last 6 years the cumulative productivity growth in Estonia, relative to its main trading partners, has amounted to 25 per cent. The corresponding CPI-based real exchange rate appreciation amounts to 22 per cent. The share of current and future EU member states in Estonian exports is about 80%. By now, Estonian economy is strongly integrated into the European economic area. Can we say that the restructuring of our economy has been completed? III. On the way to Europe  What are the challenges ahead? For Estonia, like for all new member states, the only possible way to join the euro system is to do it in full compliance with the letter and spirit of the EU Treaty. Speaking about the present accession countries as a group, it can be said that the key challenge of the policy maker is similar everywhere - to foster real convergence and at the same time maintain macroeconomic stability. But although the underlying processes are the same for all, earlier national economic policy choices - and also the size of the country in question - play a very significant role. Thus, the optimal approach to euro area membership can in no case be a uniform one suitable for one and everybody. ERM II provides, in principle, a much-needed buffer zone before a country's EMU entry. However, there are obvious risks involved.