##ing upward pressures on inflation. 2. co - operation between the central bank of malta and the ecb the ecb has very much appreciated the fruitful cooperation with the central bank of malta in the preparations for malta ’ s entry in the euro area, be it at the technical level or through the i should like to thank fabrice orlandi and olivier radelet for their input into this speech, as well as martin bijsterbosch, hans - joachim klockers and nick vidalis for their helpful comments. participation of governor bonello in the general council since may 2004, and more recently, as an observer in the governing council since last july. practical preparations of the cash changeover were remarkably well organised and the euro campaign organised by the maltese authorities has very well prepared the maltese population to allow a smooth changeover. 3. how to ensure the sustainability of convergence once the euro has been adopted for the proper functioning of the single monetary policy in the euro area all participating countries are required to exhibit a high degree of convergence and, importantly, to do this on a sustainable basis. for all enlargement decisions for the euro area, we refer to clearly defined convergence criteria and apply them in a strict manner. sustainability is key in this respect. once the euro is adopted, there is no return. sustainability has been key in our past convergence assessments and will remain so in the future. the entry of malta in the euro area implies that the benefits of the single market will be further enhanced by the single currency. the euro offers a credible framework for price stability in an environment characterised by the absence of exchange rate uncertainty within the euro area. malta will also benefit from the stability oriented policy of the ecb, which will help anchor inflation expectations. furthermore, as malta is a small open economy, adopting the euro provides protection against international financial disturbances, which often have a disproportional effect on smaller economies. i should underline, however, that these benefits do not come automatically. they depend to an important degree on the economic policies pursued by euro area countries themselves. for malta, it is particularly important to continue on a sustainable and credible path of fiscal consolidation and to improve its fiscal performance by tangibly reducing its high debt ratio. it will be important, in both the public and the private sector, to maintain moderate labour costs developments that take into account labour productivity growth, labour market conditions and developments in competitor countries. it is particularly crucial for the competitiveness of the maltese

economy that the current one - off shocks to inflation do not lead to second round effect in prices and wage settings. attention must also focus on overcoming the structural constraints on economic growth and job creation, notably by fostering labour participation. the strengthening of competition in product markets and improvements in the functioning of the labour market are key elements in this regard. ladies and gentlemen, let me again congratulate you for all the achievements of the process of euro adoption and give my warmest welcome to the new member in the family of the eurosystem. welcome malta!