two - year reference period the bulgarian lev did not exhibit any deviation from its central rate due to its currency board arrangement, while the croatian kuna displayed a low degree of volatility and traded close to its central rate. third, all countries, with the exception of croatia, need to adjust their legal framework to comply with the requirements under union law. they must address issues relating to central bank independence and the prohibition on monetary financing. moreover, let me reiterate what i said here in 2020 when i presented our previous ecb convergence report. in the interest of the euro area as a whole and of each euro area accession country, convergence has to be reached on a lasting basis, and not just at a given point in time. this requires ongoing attention, also through our economic governance mechanisms and sound financial sector supervision. in order to achieve a high level of sustainable convergence, our convergence report emphasises the need for lasting policy adjustments in many of the countries under review. specifically, we emphasise that the next generation eu ( ngeu ) package represents a unique opportunity to accelerate the process of euro area convergence, with swift and effective implementation being crucial for its success. the state of economic and legal convergence in croatia let me now focus on croatia, which is the only country that fulfils all economic and legal requirements for adopting the euro and has expressed the wish to do so on 1 january 2023. with regard to price stability, the 12 - month average rate of hicp inflation in croatia was 4. 7 %, which is below the reference value of 4. 9 %. in terms of fiscal sustainability, croatia ’ s general government budget balance was just below the 3 % deficit reference value in 2021, while its debt ratio was above the 60 % reference value but on a downward trajectory. since the inclusion of the croatian kuna in erm ii, its deviations from the agreed central rate have been significantly smaller than the standard fluctuation band of erm ii. long - term interest rates stood at 0. 8 % on average and thus remained below the 2. 6 % reference value for the interest rate convergence criterion. from a legal perspective, croatian law is compatible with the treaties and the statute of the european system of central banks and of the european central bank. what is key is the amendment to the law on croatia ’ s central bank, which prohibits the croatian government from seeking to influence the members of its decision - making bodies. with the entry into force of the close cooperation

must be careful not to disturb this balance. and here is where i see some cause for concern. regulators might be tempted to lay down rules to cover every eventuality – think of the example i just gave you. and their motivation would certainly be laudable. but their goal would be unattainable. it is just not possible to cater for every potential situation. there are too many possibilities, most of which we cannot anticipate. no one knows what financial innovations might emerge ; no one knows where technological change will lead us ; and no one knows how the economy will evolve over the coming decades. if we try to cover everything, the rulebook will, at some point, become too detailed, too big and too complex. from that point onwards it will stop making the banking sector a safer place and instead create new problems. first, overly complex rules facilitate regulatory arbitrage. yes, we could add page after page to the rulebook, setting out detailed rules, definitions and thresholds governing how banks should deal with risks and specifying, for instance, which tools supervisors should use in certain situations, and when. but with each new page, more loopholes open up. it becomes easier for 2 / 4 bis central bankers'speeches banks to game the system. this defeats the purpose of a rulebook and poses a threat to stability. second, there is the problem of interaction. the more rules there are, the more they can interact and interfere with each other. if there are two rules, there is just one way in which they can interact. if there are 1, 000 rules, they can, in theory, interact in at least 500, 000 ways. it becomes ever more difficult to foresee the overall effect of the rules, and the danger of unintended sideeffects increases. and third, there is the issue of costs. the thicker the rulebook, the more expensive it becomes for banks to comply with it and for supervisors to do their jobs. these costs are justifiable if each additional rule reduces the risk of another crisis. however, at a certain point the costs of the rules begin to outweigh the benefits. so, instead of having overly detailed rules, we should have a strong basic set of rules that allows supervisors some discretion.. supervisors have the relevant skills and experience, and in - depth knowledge of the banks they supervise. we should ensure that supervisors can continue to apply their judgement. they should be empowered to assess the