Duisenberg advises candidates to focus on structural reform, not inflation

Malta and the nine other countries approved to join the EU in 2004 should be given more time to fight inflation in order to better focus on structural reforms, European Central Bank President Wim Duisenberg said Monday.

Duisenberg backed away from the bank's previous insistence that the EU candidates focus almost exclusively on inflation.

He said, "Bearing in mind the potential inflationary pressures that might arise from completing structural reforms, the conduct of a monetary policy in the accession countries aiming at price stability should be seen as a medium-term objective rather than as a short-term target.

"In the case of the accession countries, structural reforms are even more important because they are necessary to complete the full adjustment of the accession countries' economies toward well-functioning market economies, including the setting-up of appropriate institutions and the adoption of international best practices in a number of areas. Completing this agenda is a challenge for the accession countries, particularly because of the sheer magnitude of pending reforms.

"Moreover, structural changes may complicate the conduct of monetary policy, as structural reforms may cause structural breaks that complicate the pursuit of credible disinflationary policies.

"Also, the calendar for further price liberalisation, which has an impact on inflationary developments, is often set by each government and is thus difficult for a central bank to predict.

"In many ways, the prospect of EU accession has been instrumental in triggering reform in accession countries, and structural reforms have advanced far enough in these economies to achieve macroeconomic stability. However, there is much that remains to be done."

Duisenberg was speaking after being rewarded an honorary doctorate at Vienna's IMADEC University.