is externally oriented, growth has picked up smartly. in peripheral europe, where households and governments are extremely leveraged and economies have been domestically focused, growth is slowing rapidly. similar forces threaten renewed weakness in the united states. for canada, this prospect is of concern. financial markets are currently constructive but remain vulnerable to event risk. renewed pessimism over the u. s. outlook has sharply reduced global bond yields. in effect, there has been a goldilocks deterioration in the macro - financial environment as major government bond yields have fallen sharply but corporate spreads have not increased ( chart 2 ). for large corporations who want it, finance is readily available at historically low all - in costs. in emerging economies, growth has persistently surprised on the upside. healthy financial sectors and very stimulative monetary and fiscal policies have overcome the drag from weaker export markets. however, with the limits to non - inflationary growth approaching and the challenges of shadowing u. s. monetary policy increasing, this above trend growth is likely to come to an end. in sum, there are several reasons to expect a modest and uneven global recovery. not all countries can simultaneously export their way to growth. the ongoing process of balance sheet repair in major industrialised countries will restrain household consumption and business investment. the ability of some major emerging markets to maintain persistently higher domestic demand remains unproven. finally, necessary real exchange rate adjustment threatens to come through inflationary pressures in emerging economies and deflationary pressures in major advanced economies rather than ( far easier ) changes in nominal exchange rates. these forces make the economic outlook and policy environment unusually challenging for countries caught in the middle, like canada. the u. s. economic outlook when faced with a potential collapse in private demand in the wake of the financial panic, u. s. authorities instituted massive and timely monetary and fiscal stimulus. this bought time for the necessary adjustments in the economy to begin. with u. s. fiscal policy transitioning from expansion to contraction, that time is now coming to an end. the success of the necessary handoff of growth from the public to the private sector is still in question ( chart 3 ). the u. s. housing sector remains very weak, despite substantial falls in prices and housing starts. valuations are more in line with historical averages, and inventories of unsold new homes have reached their lowest level since 1968. however, effective supply is much larger, given the overhang of distressed properties and the

the eurosystem for shaping monetary policy in the best interest of 320 million people in fifteen countries. this is a task which my colleagues at the bank and i approach with confidence and enthusiasm. from a national perspective, the challenge now is to maximize the benefits of participation in monetary union by making further progress on the path of reform. three conditions in particular need to be met : fiscal policy must remain supportive of macroeconomic stability ; wage increases must be justified by productivity gains ; and our product and labour markets must become more flexible and competitive. the new phase in malta ’ s economic history which was ushered in on 1 january, therefore, promises to be a challenging one, but it should also be an exciting time. for a country with a population of 400, 000, having a major reserve unit as its domestic currency is indeed a significant advantage. we thus have good reason to feel reassured now that we are about to reinforce our integration in europe with full economic and monetary union. for, while the eu has for fifty years brought peace and stability to the peoples of europe, the single market and emu have created a congenial environment in which economies can grow and people prosper. on another, but no less important level, the euro is also a symbol of a common identity and of shared values and, therefore, a potential instrument for bringing peoples closer together.