##isation of the financial sector on account of the introduction of the euro, there could be a more rapid credit expansion through bank borrowing from abroad, with the attendant dangers of overheating and the formation of asset price bubbles. schadler et al begg et al for example cipriani ( 2000 ), kovacs ( 2002 ) and mihaljek and klau schadler et al these considerations have important implications for the maintenance of financial stability in the nms. while the regulatory and supervisory frameworks are generally recognised to be strong in these countries, 8 they will have to withstand increasing stress over the next few years arising from the growing internationalisation of financial markets and the complexity of the global financial architecture, as well as from domestic macroeconomic dynamics. in the run - up to the adoption of the euro, most nms will also continue to face the challenge of maintaining acceptable fiscal positions. current expenditures in many of these countries are high relative to gdp, and in a number of them demographic profiles are casting doubts on the mediumterm sustainability of public finance. this is a concern not only from the viewpoint of nominal convergence in terms of the maastricht criteria, but also from the perspective of the need for flexibility in the area of fiscal policy in order to be able to counter the effects of asymmetric shocks. requisites for the successful adoption of the euro in this scenario, the successful adoption of the euro by the nms requires efforts on two fronts, namely the implementation of economic policies designed to meet the maastricht criteria on a sustainable basis, and the mobilisation of strong support for euro adoption so as to endow the project with the necessary credibility. with regard to the former, a continued emphasis on fiscal consolidation, with deficit and debt levels that would be even lower than the threshold values of the maastricht criteria, would seem to be called for. in addition, reforms aimed at removing rigidities and expenditure trigger effects in social welfare transfers would also be appropriate in some countries. the capacity of economies to respond successfully to the challenge of euro adoption would be further enhanced by a greater degree of price and wage flexibility. generally speaking, the nms have a satisfactory track record on this count, at least compared with the non - core euro area countries, but the extent to which the existing flexibility is enough to enable a sufficiently rapid catching up process in the context of an increasingly competitive global trading environment is yet to be assessed. an overriding

strong human networks that thrive among central bankers are becoming ever more important. in addition, i would like to express our sincere gratitude for the heartwarming support from the bundesbank a year and a half ago. as you know, on march 11, 2011, japan was hit by the great east japan earthquake. the president of the bundesbank regional office in hesse arranged a charity concert to be held in the office ’ s auditorium. furthermore, a large number of german people donated a great deal of money to japan through the international red cross. such generous and heartfelt support proved once again that germany is indeed our good friend, as they say in germany, “ in der not erkennt man den wahren freund ( a friend in need is a friend indeed ) ”. expansion of tokyo representative office the bank of japan would like to congratulate the bundesbank in tokyo on its 25th anniversary and on the opening of its new enlarged office. the bundesbank chose tokyo as the home for one of its two overseas representative offices, together with new york. in addition, the bundesbank made the decision to establish a trading office in tokyo this september. the decision shows that the bundesbank recognizes the importance of the japanese economy as well as the role of the tokyo financial market in the asia - pacific region. the bank of japan greatly appreciates the bundesbank ’ s decision, which i believe will be highly welcomed by all the people involved in the tokyo financial market. let me say in closing, that i strongly believe the enhancement of the new tokyo office will deepen the friendship and cooperation, not only between the deutsche bundesbank and the bank of japan, but also between germany and japan. congratulations. japan ; 2 - 8 shin - shihei note ( meiji tsuho note ) ”. http : / / www. imes. boj. or. jp / cm / english _ htmls / feature _ gra28. htm. bis central bankers ’ speeches