to comply with ecb and eurostat requirements. this committee, which includes representatives of all the interested institutions, has already agreed on the necessary changes to the reporting forms through which credit and financial institutions submit data to the central bank and the malta financial services authority. monetary and financial data are in fact already being reported to the ecb and eurostat. in the meantime, significant progress has also been made with respect to the establishment of a common direct reporting database between the central bank and the national statistics office for the dissemination to the ecb and eurostat of balance of payments data and data relating to malta ’ s investment position. in the area of payments, a new settlement system has been established for the handling of large inter - bank payments in line with eu and other international standards. this system, called the malta real - time inter - bank settlement system ( maris ), provides for the immediate delivery and settlement of wholesale financial payments in line with the principle of finality adopted in the acquis and will eventually be integrated with the eu ’ s target system. in the meantime, the central bank has already set up two committees to identify the changes which need to be made to the instruments, contracts and control procedures which the bank uses for monetary and foreign exchange operations. in both cases the necessary changes have been identified and are in the course of implementation. with the cooperation of the malta police, the central bank is also strengthening its capacity to detect cases involving counterfeit notes and to report such cases to the ecb and europol. finally, the bank is analysing ways in which the composition of its official reserves could be revised as malta progresses towards emu membership. as noted above, a key aspect of the smooth operation of emu is fiscal discipline. earlier on, i made reference to the stability and growth pact. this, however, is but one element in the framework which applies to the co - ordination of economic policy and fiscal surveillance in the euro area. in particular, euro area members are also required to submit reports outlining their policy intentions over the medium - term. as part of the preparations for their eventual participation in eu surveillance efforts in this area, accession countries have already started to submit pre - accession economic programmes ( pep ). the central bank of malta has been collaborating with the ministry of finance and the ministry of economic services in the preparation of the necessary documentation. to date, like all other accession countries, malta has submitted two peps. conclusion the road to emu is

and diminishing budget deficit and debt ratios. over the medium term, this performance has resulted in the convergence of malta ’ s real per capita income with the eu average. real gdp per head went up from 81 % of the eu average in 2004 to 89 % in 2015. the conditions that determine performance : it is worth examining the conditions that have made this performance possible to ascertain the extent to which it is sustainable or otherwise. some of the growth can be attributed to cyclical factors. for example, malta is benefiting from the european central bank ’ s accommodative monetary policy stance. for reasons unrelated to the domestic situation, but reflecting a prolonged period of low inflation in the euro area, the ecb is using both conventional and unconventional measures to stimulate aggregate demand. hence interest rates are extremely low : consider that the domestic 10 - year bond yield is now below 1 %. such low rates stimulate aggregate demand. one could also argue that, in the absence of the ecb ’ s monetary policy measures, the euro would also be much stronger than it is today. this would have had adverse implications for external competitiveness and, hence, maltese exports. over the last two years, the economy also benefited from exceptionally strong government investment - with a key role played by eu funds - as the administration made sure that available entitlements were absorbed to the fullest extent possible. this capital spending has both a temporary and a permanent effect. while the projects themselves are under way, investment boosts aggregate demand as seen in the levels of activity in the construction sector. once the projects are completed, the additional capital stock that has been put in place enhances efficiency and allows the economy to continue growing into the future. this brings me to a crucial concept in the analysis of malta ’ s underlying economic performance : potential output. potential output can be understood in many ways. intuitively page 3 of 8 it can be seen as the maximum output an economy can produce without generating imbalances that show up in inflation. potential output is a conceptual measure. it can be estimated, but not observed. the central bank devotes much effort to estimating malta ’ s potential output growth and its underlying determinants. growth in potential output can be largely ascribed to structural reform measures that bring about changes in the factors of production, namely labour and capital, and the way they are combined, or productivity. we estimate that the potential growth rate of the maltese economy has more than doubled from below