for an economy, with large losses in welfare. indeed, i think that the global financial crisis has once again demonstrated the sound economic logic which underlies the convergence process as laid down in the treaty. this convergence process builds first of all on sustainability as evidenced by sound macroeconomic fundamentals, in particular the absence of any major imbalances which may threaten sustainability. it is not surprising to see that the countries which have been hit hardest by the crisis in the central and eastern european region are those that built up large imbalances and vulnerabilities in the past. these imbalances and vulnerabilities were, in turn, often the result of unsustainable policies and lack of progress with respect to structural reforms. when talking about unsustainable policies, it is straightforward to point to significant fiscal imbalances which have been accumulated in some countries. however, several countries also suffered from an overheating of the economy, fuelled by too low real interest rates, strong credit growth fuelling private consumption and investment, and local asset price bubbles. as a consequence of excessive domestic demand, several countries recorded very high current account deficits and were dependent on strong inflows of foreign capital. at the same time, due to the overheating of the domestic economy and associated pressures on wages and prices, countries operating under fixed exchange rate regimes underwent strong losses in external competitiveness. countries with flexible exchange rates, such as poland, were in a better position to avoid such imbalances in the past and they also seemed to have absorbed the crisis shocks better than others. a further vulnerability that has been built up in many countries over recent years stems from the existence of high levels of foreign currency loans extended by the financial system to unhedged borrowers, thereby giving rise to significant currency and maturity mismatches. it should be clear to everyone that having achieved sustainable convergence before euro adoption is very much in the interest of the country concerned. without such convergence the monetary policy stance of the ecb is likely to be inappropriate for the country, and it may face a risk of excessive output volatility leading potentially to a series of boom - bust cycles as the country lacks important tools to stabilise economic conditions at home. therefore, it is crucial that euro adoption only takes place after the elimination of major imbalances in the country and when sufficient convergence has been achieved and a high likelihood exists that the economy of the country will be in a position to reap

the key ecb interest rates and is determined with a view to achieving the primary objective of preserving price stability over the medium term. liquidity management aims at ensuring the orderly functioning of money markets and at mitigating financial stability risks. the provision and management of liquidity by central banks has alleviated pressures in the money markets and has kept spill - over effects on the credit markets and the real economy contained. in particular, the provision of unlimited liquidity by the ecb to the euro area banking system against an expanded list of eligible collateral since mid - october should effectively eliminate concerns about liquidity risk and further reduce pressures in the term money market. central banks, however, cannot address some of the underlying causes of money market tensions, such as concerns about counterparty credit risk and the continuing uncertainty regarding banks ’ other funding sources and capital positions. the measures being taken by governments should address these problems over time. the separation principle that guides the conduct of monetary policy and the management of liquidity during a financial market correction implies that the policy interest rate is not employed to alleviate stresses in the financial system if upside risks to price stability prevail. only if the preservation of price stability is secured over the medium term, and will not be jeopardised by a change in the monetary policy stance, can the policy interest rate be employed to mitigate the impact of financial market stresses in the economy, including their potential effects on medium - term price developments. finally, i would like to stress that the financial crisis has underscored the importance of international cooperation and concerted action in addressing the liquidity needs of crossborder financial institutions and ensuring the efficient distribution of liquidity at a global level. in particular, the federal reserve, the ecb and other major central banks cooperated closely and their concerted liquidity provision enhanced the effectiveness of liquidity management globally. there is an emerging consensus on the need to strengthen cooperation between the supervisory authorities responsible for major cross - border institutions and to promote a more convergent and consistent application of regulations. in the european union, the implementation of measures to improve supervisory cooperation, and to accelerate the convergence of supervisory rules and practices, has gained momentum. and there is a growing understanding of the need to strengthen the paneuropean character of financial stability arrangements for crisis prevention and crisis management. regardless of the institutional framework that may be adopted, what is essential is to ensure the effective cooperation and the sharing of relevant information between central banks and supervisors in a timely and