were to be intermediated by a weak domestic financial sector. further improvements in the legal and regulatory framework are thus very important. we must also strengthen our capacities in macroprudential analysis, as early identification can help prevent financial vulnerabilities from building up further. on the supervisory front, we need to address the cross - border as well as growing cross - sector integration in our financial systems. finally, sound fiscal policies also play a significant role in maintaining financial stability. i am glad that this conference provides a good opportunity to discuss these policy challenges and their implications in more depth. thank you for your attention.

stability. fortunately, this has not happened so far in reality. the economic cycle experienced by portugal in recent years has, nonetheless, been a challenging experience. i do not want to suggest that the materialisation of such, or even more severe, financial stability challenges linked to euro adoption is the most likely future scenario for the acceding countries. there may be many country - specific characteristics influencing the balance of risks in a favourable way. for example, countries that have operated currency board regimes for many years have got used to living without their own monetary policies and with low interest rates ahead of euro area accession. the acceding countries have in general made substantial progress with nominal convergence by now. it is also important to stress that the future development of the financial systems in acceding countries may be strongly influenced by the large presence of foreign capital in both their financial and corporate sectors. i also do not mean to say that the challenges of euro adoption outweigh the benefits in terms of financial stability. first, the challenges are linked to scenarios which may have rather low probability and are at this stage being discussed only as part of prudential analyses. second, the actual comparison of the benefits and challenges may differ from one acceding country to another. for instance, countries with currency boards or other fixed exchange rates are likely to face more serious currency mismatches in their financial sectors and economies, as hard peg regimes discourage hedging against exchange rate fluctuations. this residual risk can be eliminated by euro adoption, and fasttrack entry into euro area thus seems to be an optimal exit strategy from the current regime. in the case of countries with floating exchange rates, on the other hand, the direct exchange rate risk may be much smaller. the debate may therefore pay more attention to preconditions that should be met before entry to minimise the risks of excessive credit booms with undesirable consequences. let me conclude by saying that central bankers in acceding economies should focus on two issues in the period ahead. we should aim to meet the nominal convergence criteria in a sustainable manner and we should also provide good guidance in the area of financial stability. and we certainly need much more discussion to find ways in which central banks, fiscal authorities and financial system regulators can foster financial stability in the monetary union. the balance of risks will depend very much on the particular legal and regulatory framework of each economy and the quality of corporate governance in financial institutions. the risks could become serious only if the inflow of external funds