because of the feared negative impact on the economy. 2. as countries show hesitation in addressing their budgetary problems, access to financial markets tends to become more difficult. 3. when market access deteriorates, the budgetary measures required to restore confidence are much more drastic and painful. some observers, especially outside europe, have suggested that european democracies are not able to deal with such a vicious circle. they consider that the only way out of the dilemma is a default, or a partial default. some have – even recently – voiced openly this view, maybe with the intent to influence financial markets and increase the probability of such an event to occur ; an event from which they would presumably take profit. this view, however, does not take into consideration that in advanced economies a sovereign default is very damaging for the citizens of the country concerned, as it would drastically affect their wealth. increasing the primary surplus, either by cutting expenditure or by increasing – in certain cases by starting to pay – taxes, has in most cases less damaging effects on the economy and on citizens ’ well - being than a cut in the value of their financial assets. to sum up, consolidating public finances is painful economically and politically, but the alternative is worse. governments in europe are fully aware of this. let me move to the second issue, which concerns the strengthening of the institutional framework underlying the single currency. to understand the issue one should first consider what did not work as expected during the first ten years of the euro. two main things did not work. first, in some countries the behaviour of the private and public sector was not fully consistent with the long run requirements of a single currency area. divergences may occur in currency unions, or even within countries, as some regions may grow more than others and experience booms which then burst. in the euro area, the lack of a federal budget transforms country - specific shocks into public finance shocks and thus financial stability shocks. this is why a currency union like the euro area needs a system of discipline for both the public and the private sector, to be exercised at the level of the member states. the euro area had a system aimed at disciplining the public sector, i. e. the stability and growth pact ( sgp ), with rules and procedures aimed at avoiding excessive deficits. the pact worked in some cases, but not all. the main reason has been that the eurogroup, which comprises the finance ministers of the euro area and

framework on 1 october 2020, the ecb gained responsibility for directly supervising eight significant institutions and for overseeing 15 less significant institutions in croatia. [ 8 ] the convergence in banking supervision ensures the application of uniform supervisory standards and thus contributes to safeguarding financial stability. moreover, the agreement on croatia ’ s participation in erm ii was based on several policy commitments which i discussed with you two years ago. although the anti - money laundering ( aml ) commitments have been fulfilled formally, there are still several shortcomings in this respect which must be addressed, as identified in the recent moneyval report. [ 10 ] this is also key from a prudential perspective. we therefore urge the croatian government to deliver on its commitment to fully implement a new aml action plan by 2023, when the first year of moneyval ’ s enhanced follow - up procedure ends. finally, our assessment stresses that, in view of the subdued growth potential, it is crucial to strengthen croatia ’ s institutional capacity to ensure effective and efficient implementation of the structural reforms that can lift its growth path. conclusion let me conclude. the convergence assessments by the commission and the ecb are paving the way for another euro area enlargement. two decades after the introduction of the single currency, euro area membership remains an attractive prospect. the euro area is facing challenges on many fronts which are mainly of a global nature, like the russian invasion of ukraine and persistent supply chain disruptions. but the size of our economic and monetary union gives us the economic firepower and policy autonomy to respond to these adverse external shocks. and the euro buttresses our supply chains, increasing their resilience. supply chain integration in europe is better than in any other continent, and continues to increase. we appreciate that countries make every effort to prepare themselves for adopting the euro. and they do so under challenging economic conditions. i am convinced that the recent eu initiatives such as the recovery and resilience facility and the repowereu plan will help our economies stay on the path towards reforms and investment. croatia ’ s progress demonstrates its commitment to adopting the euro. most importantly, it is another step towards economic and monetary integration in europe. it further underpins our collective economic strength and our sovereignty. 1. ecb convergence report 2022 2. article 140 of the treaty on the functioning of the european union. 3. denmark has notified the council of the european union ( eu council ) of its intention not to participate in stage three of economic and monetary union