million people, will increase the eu population by about 20 %, to more than 450 million people. the economic weight of the new member states is lower. their total gdp represents, at market exchange rates, around 5 % of that of the current eu. looking beyond these numbers, the largest ever expansion of the union in terms of new countries will bring important economic benefits. both new and current member states alike will be able to enjoy the mutual benefits of a wider union, in particular from the expanded internal market, as the cases of past enlargements showed. trade integration has already reached a high level in the acceding countries, where 67 % of the total exports and 60 % of total import stems from the eu. both the current and new member states have prepared intensively for enlargement. let me first focus on the situation in the new member states and then in the present union members. i will concentrate on the ultimate objective of enlargement from the monetary standpoint, namely the future adoption of the euro by the new eu member states. the acceding countries have made remarkable progress in recent years. they significantly advanced macroeconomic stabilisation and structural reforms. moreover, the former centrally planned economies have been able to establish functioning market economies. overall, the progress they have made so far is encouraging. there remain, however, great challenges. the key ones are to advance real convergence while safeguarding and, where necessary, enhancing macroeconomic and financial stability. locking in inflation at low levels, preserving the soundness of the financial sector, correcting of unsustainable external imbalances in a few cases and renewing efforts towards fiscal consolidation are all of the utmost importance. moreover, the gap in per capita income between the current and most of the new member states remains large. and in some countries, the process of catching - up in real incomes has been slower than expected at the start of transition. for acceding countries as a whole, per capita income today is less than half of the average of the eu. given the low starting point for most countries, increasing prosperity and living standards will be a major policy objective for quite some time. in view of that strategic objective, one has to underline that prudent macroeconomic policies are key to support and facilitate progress towards higher gdp - per - capita levels. accession to the eu is expected to have positive effects on the countries'prospects for convergence. the full integration into the internal market will increase growth prospects and thus

mar guðmundsson : preserving the credit of the sovereign through a financial sector meltdown – the case of iceland speech by mr mar guðmundsson, governor of the central bank of iceland, at the international monetary seminar 2013 “ sovereign risk, bank risk and central banking ”, organised by the bank of france, paris, 8 july 2013. * * * i would like to thank banque de france for inviting me to speak at this interesting seminar. this session is on resolving sovereign debt crises and the relative roles of the public and private sectors in that process. my comments will obviously be based on my own country ’ s experience during the financial crisis, which is a case of a sovereign debt crisis being avoided in spite of the meltdown of a large part of the financial sector and the country ’ s deepest recession since the interwar period. that result was achieved by relatively good fiscal position prior to the crisis, by a refusal – based on need rather than stubbornness – to rescue private cross - border banks with public money, and by on - going medium - term fiscal consolidation that was an important part of the economic programme developed in cooperation with the imf. the bottom line is that all sovereign obligations have been honoured ; the sovereign has maintained investment - grade credit ratings and market access. in order to distinguish between the parts of this story that provide lessons that are applicable to the rest of the world and those that do not, we need to get some of the facts straight, because to this day there are still several misconceptions floating around about what was done in iceland during the crisis. the collapse of iceland ’ s three cross - border banks in early october 2008 was the most noticeable event in the unfolding of the financial crisis. the combined balance sheet of these banks was 10 times iceland ’ s gdp ( see figure 1 ), and their combined bankruptcy, measured in terms of balance sheets, ranks second in size in the international history of corporate failures, only after lehman brothers. and this happened in a country that ranks among the smallest in the world! we are still dealing with the complications that this entails, as can be seen in our overblown and unbalanced iip and the controls on capital outflows. figure 1 source : central bank of iceland. bis central bankers ’ speeches before the collapse, the banking system had expanded very rapidly, growing in just five years from a combined balance sheet of less than 2 times gdp at the end of 2003 ( see figure