france, they managed to cater for smes as well as for other environmental and infrastructure investment through promotion or development banks. a development bank would contribute to economic growth by funding sectors and projects that are not catered for by commercial banks on their own. the central bank looks at such an initiative as a necessary diversification of our financial base. i understand that progress is being made on this initiative and i find this to be a very positive development. the road ahead against a rapidly changing economic landscape, malta needs to be attentive to take advantage of its flexibility and adaptability. in the past years, the maltese economy went through significant structural change. not only by diversifying into a number of new growth sectors such as aviation services, pharmaceuticals and internet related activity, but also by upgrading its investments in the traditional sectors. for example, the tapping of new source markets for tourists in european cities that were newly serviced by low - cost airlines allowed the hospitality sector to overcome the recession - driven weak demand in already serviced markets. similarly, the financial and other services sectors continued to expand, thanks to the right conditions for growth, including the appropriate legislative environment. there are a number of reasons for being positive and optimistic about malta ’ s potential growth in the future. in contrast to various developed countries, malta has some structural issues that, if addressed, can provide opportunities for an on - going momentum to growth. take for example the labour participation rate in malta. although it is among the lowest in the euro area ( as shown in chart 4 ), malta has gone a long way in achieving progress on this issue. over the past ten years, malta registered the largest increase, among the member states, in the female activity rate, which rose from 36 % in 2004 to over 50 % this year. the recently introduced incentives for female participation will continue to steer our labour market in the right direction, also boosting malta ’ s potential economic growth. at the same time, we also observe a higher number of foreigners who are contributing to economic activity in a variety of sectors. first, it has to be remarked that an expanding labour force through this route is in itself a sign of malta ’ s strong rate of economic growth relative to other areas of the eu. secondly, it reduces the likelihood of skill gaps in the labour market. though this added flexibility needs to be recognised for the positive effect it has on potential output, the role of retraining programmes by the etc remains of utmost importance in better matching skills with

is the appropriate time to create fiscal buffers that could act as a cushion against any future need. conclusion the single currency has proved to be a challenge to various countries in the euro area. instead of exploiting the opportunities offered by the single market, some member states have been impacted by the fixed nominal exchange rate and their inability to correct macroeconomic imbalances through internal adjustment. this made them more vulnerable in times of crisis. one fundamental lesson to be learnt is that, with a fixed exchange rate, it is of utmost importance that the rest of the economy is as flexible as possible to correct imbalances. in this regard, the maltese economy has been nimble enough to adapt to the new realities of the single currency. yet, the challenges that lie ahead will require further structural changes that increase flexibility and strengthen economic fundamentals. to this end, government has identified health and education as new sectors with growth potential that could be transformed into exportable services. malta has the ability to develop a regional cluster in these areas, attracting students and patients from the region and beyond. this year we have seen a significant correction in the exchange rate, which is expected to exert a positive influence on economic growth in the year ahead. there are other major elements that add to malta ’ s positive outlook. in addition to being an efficient and profitable international business location, malta is a meeting point of cultures and languages at the centre of the mediterranean. there is, therefore, potential for further development of economic activities that exploit our location, our strengths in doing business from malta that add value to current activities, such as, for example, developing further cultural niches in the tourism sector so as to maintain a vibrant and evolving economy. thank you bis central bankers ’ speeches