with a standard fluctuation band of ±15 % around their central rates against the euro, while estonia and lithuania kept their currency boards as a unilateral commitment. in order to ensure a smooth participation in erm ii, countries have firmly committed to take the necessary measures to preserve macroeconomic and exchange rate stability. participation in erm ii has been smooth. the four currencies in the erm ii have traded continuously at or close to their central rates, while short - term interest rate differentials vis - a - vis the euro area have been small. beyond erm ii membership lies the adoption of the euro, the crowning achievement of the monetary integration process. in order to adopt the euro, non - participating eu member states have to achieve a high degree of sustainable economic and legal convergence. every country will be assessed on its own merits and its own particular situation, on the basis of a strict analysis of the performance relating to the maastricht convergence criteria. let me stress that there is no pre - set timetable for the enlargement of the euro area. economic challenges for the new member states how far are the new member states on this road towards the euro? the countries that joined the eu this year have shown impressive economic growth rates and have made great strides in reducing inflation. they belong to the most dynamic economies in the eu, having gone through profound structural changes. for example, they have taken thorough measures to reform their product and labour markets, and some new member states, in some respects, may be even more advanced than other, existing eu countries. they have become more integrated with the euro area, with the major part of their trade now occurring with the euro area and tight financial links : as a matter of fact, the share of the new 10 member states in the total external trade of the euro area stands around 11 %, compared with around 14 % for the us and 3 % for japan. in addition, the transition process has brought their economic structures closer to those of the euro area. at the same time, while remaining a diverse group in many respects, the new member states still display distinct economic characteristics that differ from the euro area. their income - per - capita and productivity levels are still low relative to the euro area, which may have an impact on their inflation rates. let me mention two particularly important economic challenges that the new member states are confronted with on the road to the euro : price stability and fiscal policy. price stability is an essential

fernandez - arias ( 2001 ), “ foreign direct investment : good cholesterol? ”, in “ foreign direct investments versus other flows to latin america ”, edited by de macedo, j. b., and e. v. iglesias. see n. halov and f. heider ( 2011 ), “ capital structure, risk, and asymmetric information ”, quarterly journal of finance, 1, 767 – 809. see committee on international economic policy and reform ( 2012 ). “ banks and cross - border capital flows : policy challenges and regulatory responses ”, published online at http : / / www. brookings. edu / research / reports / 2012 / 09 / ciepr - banks - capital - flows. see a. popov, “ does private equity investment spur innovation? evidence from europe ”, ecb working paper, 1063, and “ on the real effects of private equity investment : evidence from new business creation ”, ecb working paper, 1078. see r. lucas ( 1990 ), “ why doesn ’ t capital flow from rich to poor countries? ”, american economic review, 80, 92 – 96, and p. o. gourinchas and o. jeanne ( 2007 ), “ capital flows to developing countries : the allocation puzzle ”, nber working paper, 13602. bis central bankers ’ speeches with a stringent enforcement of the macroeconomic imbalance procedure, 14 can help to alleviate such cross - border misallocations in the future. 5. conclusion let me conclude. although still preliminary, the recent signs of financial re - integration across several financial market segments have the potential to be self - reinforcing and unleash virtuous dynamics. the creation of a fully - fledged banking union can set incentives for more and better financial integration, in a way that will make the euro area banking sector less vulnerable to fragmentation along national borders and reduce pro - cyclicality in euro area economies. on top of being conducive to a more stable financial system, it will thereby be conducive to a more efficient allocation of resources. for once, there is no trade - off between efficiency and stability. see online : european commission > economic and financial affairs > eu economic governance > macroeconomic imbalance procedure. bis central bankers ’ speeches