sportsperson to want to join the champion ’ s league as soon as possible, this person might sometimes be better off taking a bit more time for training in order to further develop and strengthen his talents in a favourable environment. when he joins the champions league team, the rules are strict and the flexibility for playing one ’ s own strategy is limited. this might dampen his performance. coming back to the euro area, i am convinced that the various stages of the road to the euro as stipulated by the maastricht treaty can offer talented aspirants excellent “ training opportunities ” to perform even better at a later stage. experience with the new member states on their way to adopting the euro let me now turn to the experience that the new member states have made so far on their way to the euro and look at whether any lessons can be drawn from them for bulgaria. i would like to touch upon basically three issues that in my view are of key importance for the new member states with respect to their euro adoption plans, namely to preserve price stability, to advance with real convergence and to conduct sound fiscal policies. • let me start with the need to achieve and maintain price stability. price stability is an essential requirement for a successful monetary integration process. at the same time, it could contribute to a more rapid catching - up process in real income levels by fostering trade and investment. where do countries currently stand with respect to price stability? the new member states have made significant progress in terms of disinflation in the past years, by bringing their average inflation rates close to that of the euro area. yet, inflation developments in the new member states continue to be rather volatile and diverse across countries. following a substantial rise in inflation in the course of 2004, from on average 1. 9 % in 2003 to 4. 1 %, inflation moderated again to 2. 5 % in 2005. the pick - up in 2004 was mainly driven by factors related to eu accession [ such as higher food prices and increases in indirect taxes and administered prices ] and the strong increase in world energy prices. looking ahead, while in some countries inflation is currently below the euro area level, inflation dynamics require high vigilance in some of the fastest growing countries. this brings me to the issue of real convergence. the process of real economic convergence of the new and future member states such as bulgaria to the euro area, i. e. their catching - up in standards of living with those of the euro area,

credit risk – either by securitisation or credit derivatives – started to grow rapidly. the chance to sell or buy credit risk, instead of holding loans until maturity, placed banks under increased pressure to know the present values of their assets well before maturity. this posed a challenge to risk modeling as present values depend in a complex way on market factors like interest rates or exchange rates. therefore, it is not surprising that the growth of credit trade was accompanied by rapid technological progress, for instance, by the development of new credit portfolio models. it is difficult to say which came first or – in other words – whether these new risk measurement techniques were the egg and the increased credit trade the hen or vice versa. technological progress has continued up to the present day. the interaction of market and credit risk is being taken into account by more and more sophisticated models. the increased trade of credit on the one hand offers an opportunity to further diversification of credit risk over the whole financial system and to contribute to financial stability. on the other hand, it can also be seen as a development incurring new risks, be it by an inadequate recognition of risks inside a single bank, be it by new adverse risk - taking incentives or by the imperfection of hedges, be it, finally, by new effects that no one had discovered before. these developments are a first reason for bank managers, regulators and central bankers to improve their understanding of the interaction of market and credit risk. in addition to these developments, some industry representatives were concerned that diversification effects between market risk and credit risk were being ignored by regulators, which could lead to too high minimum capital requirements. a deeper understanding of diversification effects and their relevance for risk aggregation in banks is a second reason to have a conference on the interaction of market and credit risk. at the end of 2005, the research task force project group on the interaction of market and credit risk received the mandate, first, to collect and summarise information on the state of the art of measuring the interaction of market and credit risk, and second, to set up and to conduct its own research projects in a rather broad field. as this was a vastly unexplored research area, the new working group has become one of the most research - oriented groups of the research task force. ladies and gentlemen, this conference contributes to bringing together three groups involved with the interaction of market and credit risk : bank practitioners, regulators, and researchers. the need to make them exchange their ideas and