offers speculators a one - way bet. experience has indeed shown that crawling peg regimes have often ended in crisis. the lessons of recent economic history should not be ignored. changes in the exchange rate should only be resorted to when everything else has failed. they should be a measure of last resort. besides, they only produce the desired results if they are accompanied by a comprehensive set of complementary policies implemented in a controlled environment. speculating about the exchange rate without producing conclusive proof that it is the root cause of the economy ’ s difficulties is, therefore, inappropriate and can have serious repercussions. the national interest requires all of us to concentrate rather on the more immediate, and well documented, reasons for the economy ’ s slow growth. i have elaborated on this aspect in a recent interview carried by another local newspaper. 1 / 1

michael c bonello : the adoption of the euro by new member states challenges and vulnerabilities speech by mr michael c bonello, governor of the central bank of malta, at the suerf seminar organised by the central bank of malta, valletta, 4 may 2006. the references for the speech can be found on the central bank of malta ’ s website. * * * distinguished guests, ladies and gentlemen i would first like to welcome you all to this seminar which has been jointly organised by the european money and finance forum ( suerf ) and the central bank of malta. a special greeting goes to our foreign participants and guests, including some fifty members of suerf from twenty - three countries. the topic chosen for the seminar is particularly appropriate at a time when the ten nms have just entered their third year of eu membership and are increasingly focusing their attention on monetary union. in these introductory comments i shall, therefore, attempt to highlight some key issues which must be dealt with on the path towards the adoption of the euro. as our policy makers have become acutely aware during the past two years, this path is characterised by manifold challenges and vulnerabilities, not least those associated with real convergence, fiscal consolidation and capital account volatility. the orientation of economic policy in these areas will have to focus strongly, at the level of both national authorities and european institutions, on consistency, flexibility and credibility if we are to extract the maximum gains for all out of this next step in european integration. long run net benefits of euro adoption in order to place this topic in its proper context it is first important to recall that the adoption of the euro is expected to produce significant net benefits for the nms in the long run. a consistent body of literature points to the likelihood of substantial output growth arising out of increased external trade in countries forming currency unions. recent studies suggest trade gains of between 6 % and 15 % from the creation of the euro after five years of its existence. 1 on the basis of these estimates, euro adoption could raise gdp by at least 1 % to 2 % over 20 years in the nms. 2 these gains arise from the elimination of exchange rate volatility and risk, lower transaction costs, increased competition and price transparency, all of which lead to trade creation. lower risk premia on borrowing costs and the stronger frameworks for policy discipline prevailing within the euro area are other potential sources of economic growth. such considerations will no doubt have played a part in the recent