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,

, annual hicp inflation was 2. 2 % in december, down from 2. 3 % in november and 2. 5 % in october. over the short term, annual inflation rates may again increase somewhat, reflecting in particular renewed increases in energy prices and some base effects. looking further ahead, indirect effects of past oil price rises on other components of the price index may gradually materialise, and already announced changes to administered prices and indirect taxes can be expected to have an upward impact on hicp inflation. meanwhile, wage dynamics have remained moderate over recent quarters and are assumed to remain so for the time being, reflecting, in particular, global competitive pressure. all in all, currently available information is broadly in line with the scenario embodied in the december 2005 eurosystem staff projections for hicp inflation over this year and next. risks to this outlook for price developments remain on the upside and include further rises in oil prices, a pass - through of oil prices into consumer prices stronger than currently envisaged, additional increases in administered prices and indirect taxes, and – more fundamentally – potential secondround effects on wage and price - setting behaviour. it is therefore crucial that the social partners continue to meet their responsibilities also in the context of a more favourable economic environment. turning to the monetary analysis, the annual growth rate of m3 remains robust, even though it moderated further in december. this moderation can be explained in part by an apparent resumption of the unwinding of past portfolio shifts, which exerts a dampening effect on headline m3 growth. however, the trend rate of monetary expansion remains strong, reflecting the stimulative impact of the prevailing low level of interest rates. in particular, growth in the most liquid components of m3 continues to be very robust and the annual growth rate of loans to the private sector has increased further. mortgage borrowing is particularly buoyant, implying a need to monitor developments in the housing market closely. overall, strong monetary and credit growth in a context of already ample liquidity in the euro area points to risks to price stability over the medium to longer term. to sum up, the economic analysis suggests that indirect effects stemming from past oil price rises and already announced changes to administered prices and indirect taxes can be expected to have an upward impact on annual hicp inflation over the coming years. it also indicates that risks to price stability over the medium term remain on the upside. cross - checking the outcome of our economic analysis with that of our monetary analysis