is because the euro offers the prospect of being anchored in the relative safety of the world's largest economy. this would not only mean reduced exchange rate risks and less uncertainty for maltese economic agents and their foreign business partners but it would also eliminate the need to maintain higher interest rates to compensate for the element of risk associated with the small size of the maltese economy. the latter, moreover, would be of direct benefit in terms of price competitiveness, as would be the reduction in currency conversion costs and the increased price transparency. our assessment also shows that malta is well suited to participate in the euro area. its economic structure bears a fair degree of similarity with the euro area and both trade and financial linkages are substantial. furthermore, the lira is already closely linked with the euro so that joining the euro area does not entail a radical change in the parameters applicable to macroeconomic policy setting in malta. at the same time, most of the formal requirements for entry, with the exception of the criteria on public finances, have been, or stand a good chance of being met on a sustainable basis. as far as public finances are concerned, moreover, the fiscal consolidation process is on schedule, as the eu council has acknowledged, with the target deficit / gdp ratio for 2004 achieved. a positive track record of exchange rate stability has meanwhile cultivated expectations abroad that malta will not remain outside the euro area more than is necessary. a delay would thus send the wrong signals to international investors and could well reverse the upgrade in malta's credit rating as this was partly a response to expectations that malta would proceed with economic reform at a steady pace to adopt the euro as soon as conditions allowed. delaying euro adoption would thus not only postpone the benefits of the single currency but could also place malta further behind the other new member states, many of whom are expected to have adopted the single currency by 2008. three of them, in fact, have already joined erm ii and could be candidates for euro adoption as early as 2007. what is erm ii and what is the rationale behind it? erm ii is an arrangement in which a formal rate of exchange is established between the euro and the national currency of each participant in the mechanism. this rate is called the central parity rate. the rules require that at the time of entry, the lira is fully pegged to the euro. this means that the current peg to a three - currency basket, in which the euro carries a 70 per cent weight, will

way. increased competition does not result from just adding more firms with the same business model, but also, indeed perhaps more, by adding firms with different business models. where there is more diversity, and where there are more alternatives to choose from, competition is enhanced and its benefits increased. perhaps i should point out that several decades ago there were many people, including many of the local business community, who were afraid to approach a bank for a loan. they were prepared to give and receive credit directly to and from each other, believing they were neither charging nor being charged interest, but not to borrow from a bank that explicitly charged interest and made a profit “ at their expense ”. never mind that the implicit rate of interest in the credit being given and received in this way was probably higher than that being charged by the banks. i should not be at all surprised if there were still people around, potential entrepreneurs, who still reasoned that way, and who therefore may be “ financially bis central bankers ’ speeches excluded ” from the economy. might this perhaps be a niche which a cooperative bank, setting up shop here, might be able to exploit? furthermore, i think that perhaps i should modify an observation i made earlier : namely, that the need to set up a cooperative bank in malta has never so far been felt. on second thoughts, perhaps, this is not entirely true. for one of our smaller banks, one that, not surprisingly, was founded by a jesuit priest in 1910, actually did begin life as a cooperative society. it was originally called the lega dell ’ apostolato della preghiera, and its main aims were the setting up of a number of initiatives, all with an underlying social purpose. these included : a savings bank, intended to instil habits of thrift among the working classes ; a mutual benefit society ; a printing press ; the publication of a maltese language periodical ; an evening school for the teaching of languages, music and crafts ; an emigration bureau to help maltese citizens wishing to settle in other countries ; schemes for the free provision of food, medicines and medical care to the needy ; a public lotto office ; and a recreational club for members. it – or at least the savings bank part of its operations – only became a private limited company as recently as 1970, just before malta ’ s first banking act was enacted. and this, perhaps, should give us a clue as to why we do not have a maltese cooperative bank today. perhaps it is