A European perspective on currency and convergence

Boris Vujčić, Vice-President of the European Central Bank, delivered a keynote speech at the conference on Iceland’s Currency Options, providing a European perspective on currency and convergence.

He noted that today is his second day in his new role, drawing a thematic connection to the challenges of transition and adaptation.

He reviewed the origins of the euro, highlighting that the EMU was initially seen as ambitious and uncertain, with skepticism about the success of a shared currency among diverse economies. Over more than 25 years, the euro has expanded to 21 countries, with over 350 million Europeans using it daily, making it the second most important currency in international trade and finance.

He emphasized that the euro’s success depended on a shared framework fostering stability and convergence, not just political commitment. The convergence criteria—price stability, sound public finances, long-term interest rate alignment, and exchange rate stability—are safeguards for the euro’s long-term stability.

Regarding exchange rate stability, participation in the European Exchange Rate Mechanism (ERM II) for at least two years is required before adopting the euro. ERM II acts as a ‘waiting room’ and an ‘exercise room’ for countries to demonstrate readiness for euro adoption through policy coordination, institutional readiness, and confidence-building.

He highlighted the successful participation of diverse countries in ERM II, including the Baltic states, Slovakia, Croatia, and Bulgaria, despite economic challenges and crises, demonstrating the framework’s flexibility and robustness.

He discussed the evolution of the convergence framework, including reforms after the 2008 financial crisis, such as the Single Supervisory and Resolution Mechanisms, and strengthened macroeconomic surveillance. These measures ensure that monetary union participation is sustainable and resilient to shocks.

He noted the euro’s role in facilitating trade, investment, tourism, and financial integration within Europe, with public support remaining high, even strengthening after crises.

Vujčić concluded that the EMU will continue to evolve with improved governance, financial integration, and fiscal coordination. The euro’s development exemplifies successful European integration, offering a strong foundation amid geopolitical uncertainty and economic fragmentation.

He affirmed that stable institutions, credible rules, and economic integration are essential for Europe’s future.