The Governor examines the question of European exchange rate stability in the context of the Community's internal market programme and discussions about European economic and monetary union. He argues that the internal market programme should not be incompatible with the stability of the exchange rate mechanism, but concludes also that it cannot realistically be predicated on complete currency stability. The exchange rate can be an important adjustment mechanism and, until significant inflation differentials between member countries have been eliminated and a much greater degree of economic integration and policy co-ordination achieved, periodic changes in exchange parities will remain necessary. Major political and institutional adjustments would also be needed before economic and monetary union could become a reality, and the Governor argues there is little evidence yet of any readiness to accept the fundamental changes involved in the immediate future. He suggests, therefore, that it would be more profitable to concentrate on immediate practical steps towards the long-term goal-promoting the real economic integration of the Community, increasing economic policy co-ordination and taking other measures such as greater use of EMS currencies in intervention within the Community.