BIS central bankers’ speeches  1  Most of the aforementioned features were shared with other economies, such as US and Japan. The balance sheet recession they describe remains tractable, at least in theory, with a combination of short term economic stimulus, long term commitment to macroeconomic stability, structural reforms, and patience. However, there have been several idiosyncratic issues which set the European experience apart from the other economies. They were manifested into severe public sector problems in several Eurozone countries, widespread lack of trust in institutions and authorities, and the strengthening of centrifugal forces which risked breaking the euro apart. What were the factors that exacerbated the crisis in the Eurozone? While an exhaustive list would be long, I would like to highlight three of them. -  First, the inter-dependence between sovereign credit rating, financial sector risk premia and the real economy was exacerbated by incomplete financial market integration. While the region as a whole suffered from capital outflows, financial integration within EU went in reverse during the past four years. The repatriation of cross-border financial flows created further problems in the Eurozone economies and neighboring region. In fact, the subsequent cross-border deleveraging and derisking has been one of the main crisis propagation channels that has affected eastern European countries, Albania included. -  Second, the divergence in intra-regional economic policies resulted in a divergence of competitiveness within the EU and Eurozone. This accentuated existing intraregional balance of payments issues during the crisis, highlighting the need for long overdue economic and fiscal reforms.

At this point, the Bank would practically act as an interface between those parties eligible to participate in the euro area’s open-market operations and foreign exchange transactions and the ECB. This function has implications for both the Bank’s institutional set-up and its operational framework. First, the Bank must have the necessary legal power to carry out these tasks. In this regard, the Central Bank of Malta Act already permits the Bank to hold and exchange virtually any financial instrument and foreign asset. Additionally, however, it requires a good understanding of the operational framework governing such transactions, including the financial instruments and legal documentation that apply to transactions with eligible counterparties, the criteria which determine a counterparty’s eligibility to participate in these transactions and those that determine whether a particular asset can be used as collateral. Whereas most of the instruments currently used by the Central Bank are already in line with those of the European System of Central Banks (ESCB), further adjustments are necessary to achieve full compliance. To this end, the Bank has set up a Monetary Operations Committee and a Foreign Reserves Operations Committee to identify the appropriate additional adjustments to the Bank’s operational framework. The ability to interface with the ECB also requires that the systems which each Member State uses for the settlement of cross-border payments and the transfer of assets – in other words, the payment system and the securities settlement system – are somehow linked with those of the other members.