Efforts to strengthen the financial and banking systems need to be made in the next years, also for the fulfilment of the so-called "economic" Copenhagen criterion, which requires the existence of functioning market economies and the ability to cope with competitive pressures. Compliance with this criterion for EU accession will require the adoption of EU legislation in the area of financial services, including those related to banking, insurance and investment firms, as I have mentioned before. All in all, in order to fully comply with the acquis communautaire, it would be necessary to further advance institutional reforms related to the applicability and enforcement of laws, in particular as regards the enhancement of corporate governance and legal frameworks. Finally the development of a stable and well-functioning financial sector in the accession countries is also key to the smooth conduct of monetary policy in an enlarged euro area. Efficient and competitive banking sectors as well as smooth functioning capital markets are needed to ensure macroeconomic and financial stability in the accession countries and to support the convergence process of these economies. They are also needed for the proper conduct of monetary policy and, thus, for the successful participation of accession countries in the euro area. Indeed, deep and liquid capital markets are key to enabling an efficient use to be made of monetary policy instruments, since structural weaknesses in the banking sector could have severe implications for the monetary policy transmission mechanism and could affect the responsiveness of banks to changes in the monetary policy stance.

Hence, although the process of EU accession consists of three different phases, namely EU accession, ERM II membership and the adoption of the euro, a single common trajectory cannot be prescribed for all countries. BIS Review 84/2001  1  Such a plurality of approaches also applies to the economic experiences of accession countries over the past decade. After the rather abrupt developments at the beginning of the transition, the accession countries have generally attained macroeconomic stabilisation, and they have done so despite pursuing different policies and strategies. A remarkable process of disinflation, structural reforms and relatively sound fiscal policies have supported positive growth – which is still moderate in some cases. Despite the worldwide economic slowdown, GDP in accession countries is expected to grow at, on average, around 3.2% this year. The stabilisation success has been confirmed by the accession countries' resilience to the Asian and Russian crises in the past and, more recently, to the developments in Turkey and Argentina. No doubt, the prospect of EU accession has helped to trigger reform in the accession countries and provided an umbrella to shield them from financial turmoil. The challenges ahead, however, are still formidable: the transition agenda has not yet been completed, reforms have seen major setbacks and substantial structural differences with the euro area remain both in the real economy and in the financial sector. Today, I would like to highlight three of these challenges, which are of particular relevance to the ECB.