At this stage, the relevant question for the new EU member states (NMS) is thus not whether but when to join the euro area. Entry is subordinated to the so called Maastricht criteria whose economic rationale is very strong. These criteria encompass: limited inflation differential vis-à-vis the best performing EU member; stability of the nominal exchange rate with the euro; sound fiscal accounts; and low long term interest rate spread vis-à-vis the best performing EU member states in terms of price stability. They must be satisfied simultaneously for the country to be able to join the EMU. The economic rationale is clear: membership of a monetary union entails the absence of monetary policy as a domestic adjustment tool. Diverging inflation rates become quickly unsustainable both because they create strong real exchange rates movements and within the area and different real interest rates at the national level. In this context more inflation-prone countries would have too low real interest rates leading eventually to credit booms, domestic demand overheating, and loss in competitiveness and current account deficits. Furthermore, in the absence of an independent monetary policy at the national level, fiscal policy becomes the main adjustment tool. In this context, fiscal criteria were designed in order to assess the ability of the government to conduct sound fiscal policies. Is the euro a model of monetary cooperation for other regions in the world? What is happening in Europe is triggering a lot of interest in other parts of the world.
In such circumstances, it would be extremely penalizing to give up the possibility of real exchange rate adjustments. This shows that there is no single model of monetary cooperation which could be duplicated around the world. It is up to each group of countries to find their own sustainable path to economic integration. Will monetary union evolve towards closer political union? As you well know, these are difficult times for European political integration. The Treaty creating a Constitution for Europe was not ratified by two founding members of the European Community. As a consequence, the future of political integration is fraught with uncertainties. These raise several important questions for the future. Has the process of political integration stalled or just paused? What is the appropriate institutional framework for an enlarged Europe? These are questions best left for the historians and political scientists to answer. But one question is essential: can monetary union progress and survive without a full fledged political union? Can we – to quote, Otmar Issing, my former colleague in the ECB's Executive Board – have "a currency without a state"? For me, like for Otmar Issing, the answer is clear: yes, we can. From the start, the European project has ventured into unchartered territory. We have created an institutional framework without any historical precedent and model. This is especially true for monetary policy,  BIS Review 43/2007  3  where we have transferred the decision making powers to a supra national entity.