##ness could be deprived of the benefits it should enjoy, in terms of increased market share, because of currency depreciation in competing countries. and if some countries were prepared to practice such “ beggar thy neighbour ” behaviour, why should others permanently open their borders to them? the point was not that the single market could not tolerate small exchange rate adjustments among a few of its members. it was that major currency volatility, of the type we had seen in the 1980s, would severely test the willingness of all to keep their markets open. and we can only imagine how, without the euro, currency markets would have reacted to shocks we have seen since its launch – the dotcom crash, the lehman bankruptcy, the sovereign debt crisis. the conditions for success in emu however, the case for the euro was always based on a trade - off. by reinforcing the single market in this way, it would lock - in the gains of economic integration and thereby benefit the whole union. but it would also deprive individual countries of adjustment tools for short - term shocks, notably their own exchange rate. thus for the trade - off to be beneficial, it was essential that those short - term costs were reduced as much as possible. this depended on certain conditions being fulfilled, which were established by mundell and later authors as part of the theory of optimum currency areas. they included : trade integration, to reduce the incidence of asymmetric shocks ; factor mobility and wage and price flexibility, to accelerate adjustment when shocks did hit ; and a system of risk - sharing, to reduce the costs of that adjustment process for individual members. but, in the euro area, it was clear that the importance attached to each of those conditions would not be the same. large - scale labour mobility was always unlikely, given cultural and linguistic barriers. it was also improbable that fiscal risk - sharing would reach u. s. levels, not least owing to the relatively larger role for national budgets as fiscal stabilisers. hence it was essential that euro area countries substituted for lower integration in these areas with stronger commitments in others. this meant four things in particular. the first was avoiding policy mistakes, such as boom - bust cycles emanating from weak prudential supervision. the second was building resilience to shocks through structural reforms and the continued deepening of the single market. the third was sound fiscal policies to provide sufficient fiscal buffers over the cycle. and the fourth was

two notches even before croatia actually joined the euro area. thus croatia's credit rating, which before the decision was one notch lower than bulgaria's, now is one notch higher than bulgaria. for comparison, before receiving an invitation for euro area membership, croatia's government bonds were bearing higher yields than those of bulgaria. at present, the yield on croatia's government bonds is, on average, about 100 basis points lower than that on the bulgarian government bonds. on the other hand, according to credit rating agencies, the key factor for bulgaria to get a rating downgrade, i. e. for deteriorating terms of its funding, is the delayed or halted process of joining the euro area. therefore, the political decision about the euro area will come with a price and it will not be small. finally, please allow me to address an appeal and a request to the members of parliament : please, get focused on dealing with the political crisis and answering the pending questions with a direct bearing on the matter at hand, specifically : will there will be a regular government and when? because, as i was told only a few days ago by one of the central actors, including on the euro area matters, over the last year or a year and a half he has been constantly meeting with new people representing the executive, and this is a serious challenge, especially when long - term projects are involved. will there be an efficiently working parliament capable of passing the large number of legal acts needed for bulgaria's accession to the euro area? will there be a budget, a macroeconomic forecast and a medium - term fiscal programme and what will be the parameters, a question that has a direct bearing on the maastricht criteria? will there be a decision about the mandate and horizon for action of the central bank's governor and management? because, and let me finish with this, with a caretaker government and an'acting'management of the central bank the entry into the euro area is just not going to happen. mr. speaker, i and my colleagues in the governing council are available to answer the questions that the members of parliament may have. 4 / 5 bis - central bankers'speeches 5 / 5 bis - central bankers'speeches