All the models the Riksbank has used suggest that the real exchange rate will appreciate in the coming years. So to that extent the conclusion is clear. But the size of the calculated appreciation varies a good deal; in our calculations it ranges from a few per cent up to 10 per cent from the current level. Given the reasonable assessment that the level of inflation will be much the same in Sweden and the euro area in the years ahead, this real range implies an interval for the nominal SEK/EUR rate that extends from approximately 8.20 to a little more than 9 kronor. Take the next few years into account as well  The assessment of the real exchange rate in the longer run is thus an important component when considering an appropriate central rate. It is a matter of arriving at a rate that results in a balanced economic development in the long term. But it is not just the long term that is relevant here. In practice it is highly important that the chosen rate is perceived by the market as credible in the shorter run, too. That is a prerequisite for a stable development during the period in ERM2. That in turn presupposes, for example, that the rate functions properly in relation to the prevailing level of economic activity, the current fiscal policy and so on. The underlying inflationary tendencies that are discernible in labour costs, for instance, also play a part.
Decisions about ERM2 participation and the exchange rate on entry are made jointly by the finance ministers of the euro countries, the ECB and the central bank governors and finance ministers of other ERM2 participants (at present Denmark). The first step is taken in practice in the framework of the EU's  BIS Review 65/2002  1  Economic and Financial Committee. It is only if this Committee fails to reach a consensus that the central bank governors and finance ministers concerned engage in direct negotiations. When the time comes - in the event of full participation in the monetary union - for the conversion rate with the euro to be locked irrevocably, this is decided unanimously by the euro-country members of the Ecofin Council together with Sweden. On every previous occasion, these decisions have been based on the central rates in ERM/ERM2. The choice of a central rate and a conversion rate A premise when setting the Swedish krona's central rate in ERM2 is that this will also be the conversion rate for joining the monetary union. Having said that, I want to emphasise that there are no absolute criteria for which central rate or final conversion rate that is most appropriate. What we can do is use various models, expert knowledge and common-sense to try to narrow down a reasonable interval and analyse the consequences of different choices. The real exchange rate is a natural starting point A central concept in this context is the real exchange rate.