monetary union is a crucial step for the estonian economy, which will secure the sustainability of a favourable investment climate and strengthen the prerequisites for a continued long - term and balanced economic growth ; • the estimates by foreign investors and rating agencies on the reliability of estonian economy have already taken into account the imminent membership of the emu, which is evidenced by the interest margins and credit ratings that are already on the levels comparable to the old member states ; • a prerequisite for sustaining the outstanding reliability achieved to date is as fast as possible changeover to the euro, i. e. becoming a full member of the economic and monetary union. an important argument in favour of a comparatively swift changeover to the euro is estonia ’ s current economic situation. what are the grounds for such a claim? in order to evaluate the broader economic impact of joining the euro system and choose the right accession moment, the uk has adopted five'euro tests '. these are the following : 1. have the economic structures and cycles of the accession country and the euro zone converged sufficiently for a successful application of the common monetary policy? 2. is the economy flexible enough to accommodate country - specific economic problems and unexpected shocks that do not affect the whole euro zone? 3. will joining the euro zone create better long - term investment conditions for companies? 4. how would joining the euro zone affect the financial sector? 5. will joining the euro zone promote economic growth, economic stability, and long - term employment? estonia scores five out of five on these tests. the european union gauges an applicant country's readiness for successful participation in emu according to the maastricht criteria ( inflation, interest rates, exchange rate, budget balance, and public debt criteria ). • the estonian economic situation today is in many ways unique compared to the other accession countries : the inflation rate is low - 1. 3 % in 2003 ; estonia is one of the few new members states where the state budget balance is under control ; public debt is one of the smallest in the eu ; and the exchange rate of the estonian kroon has been fixed against the euro for some time already. • still, meeting all the maastricht criteria requires major efforts also from estonia. difficulties might arise both from the ideosyncrasies of the estonian economy as well as from the results of economic policy decisions. • from the standpoint of the maastricht criteria, the greatest peculiarity of the estonian economy

yields to the same requirements as high - risk business activities, thereby making the former uneconomical. in my view, that would be creating the wrong incentive. • we need a shrewd supervisory authority that monitors compliance with the rules and supervises banks in a consistent and tough but fair way. it needs to be shrewd because it must be able to use its discretionary powers correctly when regulating matters and weigh different arguments on a case - by - case basis. in this role, supervision must be able to act across national borders, because that is the only way to ensure that large, internationally active institutions, too, are subject to consistent and comprehensive control. • these are stringent requirements which we can only honour with a consistent focus on the ultimate goal of regulation and supervision, namely a stable financial system. i would therefore like to end my list of requirements with a warning. under no circumstances should regulation be misused to support economic development. that would blur responsibilities and shift tasks from the political domain to supervision. new rules for the banking industry go hand in hand with burdens. with a multitude of new rules, the sum of those burdens can impair the banking industry ’ s ability to function properly. this must be taken into account and solutions must be found, but this cannot be done by ignoring risks. the past has shown us far too often that there is no point in ignoring risks to banks – in the medium and long term, they always come back like a boomerang. 4. current status and further need for improvement where do we currently stand in europe in this respect? do we need more regulation, or do we need less? since 2009, the regulatory framework has undergone further extensive development and has been decisively improved upon at both the international and the european level. let me mention just a few elements by way of a reminder : • considerably more and higher - quality capital for banks ; • new standards for liquidity reserves and indebtedness in banks ; • considerably stricter risk management and governance requirements ; • the bank recovery and resolution directive ( brrd ) that marks significant progress in dealing with distressed institutions. thanks to these reforms, the regulatory network within europe has become considerably tighter and more balanced in recent years. it has developed from a purely capital - based system into a set of diversified standards. this has made it more difficult to circumvent individual regulations. it requires banks to give due consideration to a broad range of relevant factors ( capital