In this regard it is reassuring that the recently concluded IMF/World Bank FSAP exercise found Malta’s financial system to be healthy and well supervised, with a comprehensive legal framework and strong adherence to most international standards and codes. An issue of special significance for central bankers is the need to preserve the integrity of their institutions. Although the experience of current euro area Member States already provides useful insights into the appropriate exchange rate strategies to be pursued prior to, and during ERM II, the acceding countries will have to arrive at this judgment on the basis of expectations of the future path of the economy. Expectations, however, are just that. This means having to stand ready to give satisfactory accounts of the rationale for the policy choices made, to explain deviations from targets and to ensure that governments introduce corrective measures without undue delay. Unfortunately, however, the information reaching economic operators, and financial markets in particular, is not always accurate. And yet, with only a few months to go to EU accession, the markets will be looking out for indications regarding the strategies we intend to pursue with respect to ERM II and entry in the euro area. It will be important, therefore, to be constantly on guard against any imprecise information which could provoke untoward market reactions. This highlights the importance of an effective communications strategy and of appropriate coordination between central banks and governments. In Malta the joint working committee established to elaborate the strategy for adopting the euro fulfils this role.

Consequently, CCPs registered record volumes, in March 2020, in some case for more than 15 trillions of euros, reflecting both cash raising transactions but also special collateral borrowing transactions (notably for French and German securities), leading for the former to temporary wider rates and for the latter to tighter repo rates. Of note also, despite increase in margins demands (associated with higher volumes), breaches and fails have also remained very low. The structure of repo clearing in Europe, significantly changed since the migration in 2018–2019 of all euro-denominated sovereign debt transactions from CCP LCH Ltd to the Paris-based LCH SA. With this migration, around 700 billion euros have been transferred to LCH SA and hence to an EU-based CCP. Today, the European repo clearing sector is largely conducted in two European CCPs, LCH SA which has a dominant market share and Eurex Clearing. From a financial stability perspective, this relocation of euro-denominated repos within the euro zone is welcome, in particular given the key role of these instruments, essential for government funding. It ensures that this activity is subject to the stringent requirements set by EMIR, under the close and integrated supervision of national and European authorities through EMIR Colleges, and shields this important funding market from any potential regulatory divergence or supervisory conflicting interest between UK and EU competent authorities. This successful migration of repo activity could serve as a reference to shape future evolutions on other clearing segments that are systemic to EU’s financial stability.