Some considerations about the impact of monetary policy on economic convergence

The Maastricht Treaty explicitly stipulates that ‘a high degree of sustainable convergence’ is needed for euro adoption. Practical experience acquired over time has proved that - even in the absence of a clear definition of this concept and a consensus on numerical benchmarks - a high-enough level of real convergence is a prerequisite for minimizing the costs associated with losing monetary policy independence after joining the single currency area. Based on, amongst other things, the lessons learned from the developments in Romania, the purpose of this chapter is to highlight how the catching-up process can unfold smoothly and how monetary policy can support the two dimensions (real and nominal) of this process. In both cases, consistency and sustainability are at least as important as the numerical levels of the relevant indicators to achieve both convergence and price stability. Moreover, from the perspective of ensuring an adequate convergence path, monetary policy should not only act in a countercyclical manner, but also display a certain degree of flexibility. On the one hand, it should not ignore, in any way, the threat of inflation for the sake of fast and easily gained (and therefore illusory) prosperity. On the other hand, however, monetary policy should avoid focusing strictly on the achievement of the annual inflation target at any cost when, in fact, the commitment to maintain relatively low and stable inflation rates in the medium and long run is of the essence.