On the one hand, inflation differences can be considered a normal adjustment mechanism in a monetary union. Given that, by definition, the nominal exchange rate instrument is no longer available for national purposes, required national adjustments in a monetary union fall on relative price and wage movements.

Inflation divergences within the euro area has widened with the outbreak of the economic and financial crisis.

Persistent inflation differentials may pose a risk to fixed exchange rate regimes.

The elimination of the inflation differential remains more than ever an important part of the overall convergence strategy, especially since without it nominal interest rates would not fall sufficiently and budgetary adjustment would become more difficult".

- 7 - 3 Agrimonetary measures (see Annex IV) Taking account of previous undertakings, the current monetary situation, the general objective of the price policy and the special case of the cereals sector in the Federal Republic of Germany, the following dismantlement schedule is proposed: - complete dismantlement of the existing real monetary gaps for France, Ireland, Italy, Portugal, the Netherlands and the Federal Republic of Germany, with the exception of the cereals sector in the latter Member State, for which the real monetary gap will be reduced to 0.684 points; - for the United Kingdom and Spain, dismantlement of one third of the real monetary gaps applicable at the time when the Council decides on prices for 1990/91; - for Greece, ...[+++]however, the Commission is proposing to dismantle the gaps existing at the time of the Council decision by the rate of inflation minus 5 %.

This would result from a reduction of two points in the real monetary gap: - in Denmark for the sheep and goat sector - in France for all sectors except pigmeat - in Ireland for all sectors (c) For Italy, the UK and Spain the Commission proposes dismantling one-third of the real monetary gap on January 1, 1989 in those sectors where MCAs are actually applied and those sectors without MCAs where the gap is larger than 1.5 points (d) For Greece the proposed dismantling is carried out in order to obtain on average a price increase close to the target inflation rate for 1989 (12 to 13%) and to reduce the number of agricultural conversion rat ...[+++]es which have to be taken into consideration (e) For Portugal all that is needed is to eliminate the slight negative monetary gaps which have been created/.