##able economic matrices. at this juncture, with the global crisis behind us and all the lessons learned, i think as policy makers we are more knowledgeable to reap the benefits of the eu entrance more wisely, and to better deal with the challenges ahead. at this point i must say, that macedonian economy is already well integrated both in terms of trade and finance with the eu. more than 70 % of the total trade is with eu countries, the foreign owned banks are mostly of eu origin, and the bulk of financial flows comes from eu. very importantly, these financial flows went in export – oriented and more productive segments, that fortified the fundaments of the economy, provided impetus to growth and did not add to inflationary pressures, or pressures on foreign reserves. and, this model should actually be the proper way to proceed after the eu entrance, as well. less reliance on short - term volatile financial flows, and import of longer term capital is the only way to enhance the productivity of the economy and improve its competitiveness. very often, the entrance on the large eu common market of goods, services, capital and labor, not only is connected to faster growth and real convergence, but also to convergence in price levels. as wages start to increase, and gradual shift towards consumption of more expensive services occurs, the price level might elevate as well, thus posing challenges for monetary policy. these price pressures can be avoided by boosting the 1 / 2 bis central bankers'speeches productivity, thus creating more favorable environment for the monetary policy, without pressures on the interest rates. the second angle that should be pinpointed is the implication that eu entrance does have on the further monetary integration, the adoption of the euro as a single currency and the role that the national central bank would have in this context. entering the eu, for the nbrm would automatically mean participation in the european system of central banks ( escb ). in this manner, we are getting much closer to europe in the field of central banking. the staff of the central bank becomes part of many committees, subcommittees and working groups of the escb, which is crucial ingredient for strengthening the institutional capacity for policy making. and this is vital for the future steps, as the eu membership, for small and open economy, with high level of euroization and fixed exchange rates would inevitable imply need for very serious preparations for the euro adoption. it requires passing the so - called test period, staying in the er

##m 2 mechanism for at least two years and delivering stable currency, inflation and long term interest rates comparable with those in the eu, and disciplined and prudent public finance. all of these are euro convergence criteria that at the end boil down to having safe and sound economy and disciplined monetary and fiscal policy, as a precondition for smooth monetary integration. hence, entering the eu not only will facilitate trade and finance, and make movement of people much easier, but it will also open the doors to gradually move towards a single currency. the benefits of adopting the euro are well known, in particular for a country that already has the exchange rate as a target, which means smoother transition. the single currency eliminates the currency risk and transaction costs, and thus facilities trade of good and services. it can also reduce the costs of financing, enabling easier access to finance and better opportunities for business decisions. the single currency and the participation in the monetary union provides the country with a backstop in case of financial difficulties and disabled access to international markets through the so - called european stability mechanism. of course, adopting the single currency would mean giving up on the monetary policy independence, which is already limited given the exchange rate peg, and would not require major adjustments. this cost is lesser compared to the benefits that the single market and single currency would bring, under the assumptions that all the policies would be in place and prudent enough to secure sound fundaments and stability of the economy. to recap, the eu integration is a process, which will provide boost and will shape reforms in many areas, underpinning the process of real, social and institutional convergence of the country. it will also impact the monetary policy making, both before and after the final stage of complete monetary integration. the challenges for the central bank are of a multidimensional nature – macroeconomic, institutional, and operational. steering the wheel properly would require strong institutional capacity and awareness of all the policy makers that smooth integration requires healthy economy, absence of imbalances and sound policies. thank you. 2 / 2 bis central bankers'speeches