compliance with the maastricht criteria will be key for joining the euro area. indeed, the eu treaty calls, as a prerequisite for adopting the euro, for a high degree of sustainable convergence in the fields of price stability, government fiscal position, stability of the exchange rate, and long - term interest - rate levels. the sustainability of nominal convergence itself presumes that sufficient preliminary progress has been made towards real and structural convergence ( and namely having set a fully - fledged market economy, catching - up in income and productivity levels, as well as economic and social infrastructures, upgrading of the legal system … ). conversely, a sustainable catching - up process requires macroeconomic stability. therefore, nominal and real convergence should be pursued in parallel, and are not antagonistic. • secondly, i noted that several accession countries have already expressed their intention to join erm ii rapidly after eu entry. this intention is to be welcomed, although it should be clear that erm ii membership needs neither to happen immediately after eu accession in all cases, nor to be limited to only two years, which is the minimum before adopting the euro. it would be totally misleading to consider erm ii as a mere “ waiting room ” before the euro. on the very contrary, erm ii membership allows countries to retain some limited exchange rate flexibility during the catching - up process and offers a meaningful, flexible and credible framework for increasing nominal and real convergence with the euro area, and for helping determine the appropriate level for the eventual irrevocable fixation of parities, in the best interest of candidate countries themselves. to enter the eurozone is a very important, very grave and irrevocable act. neither the accession country concerned nor the eurozone could afford the risks associated with a mistaken decision. • thirdly, accession countries must strengthen their fiscal and external positions. given the aim of attaining real convergence over time, accession countries will have to devote significant public resources to funding investment. however, candidate countries ’ weighted average public deficit amount to 3. 6 % of gdp in 2001. the fiscal consolidation currently planned by some accession countries is welcome and likely to require sizeable expenditure cuts or tax increases. looking ahead, accession countries will have to implement fiscal consolidation very credibly with a view to avoiding the risks associated with the existence of high “ twin deficits ”, i. e. fiscal and external. • fourthly, a sound and efficient banking and financial system is key. significant progress has

, while issuance strategies on other segments – 2, 5, 30 years – differ, some countries building up relatively larger outstanding amounts on 30 years maturities ( italy ), some on 5 years maturities ( netherlands ). only a few large countries ( germany, france for instance ) are able to provide a high level of liquidity on all the spectrum of maturities. this competition has provided market participants with a wider range of products that are also more standardised, which allowed for the development of electronic trading and enhanced the liquidity of the euro bond market. • internationalisation and competition between private issuers have been accompanied by an impressive surge in the amounts issued. issuance of euro denominated non - government bonds has more than tripled between 1998 and 2002. it is quite difficult to isolate the specific impact of european monetary union, due to the fact that large issuances during the 1999 - 2001 period were also linked to the refinancing needs arising from intense merger and acquisition activity. looking ahead over the medium - term, growth in the bond market is likely to be driven by such elements as the development of pension fund assets, while retail savers may move away from bank deposits to invest in other savings products. in turn, the design of savings products will benefit from the standardisation and diversification of fixed income issuance. the integration of interest rate markets in the euro area has been accompanied by a new phase in the development of derivative markets. the proportion of worldwide open interest contracts traded on bis and imf statistics – quoted in rajan and zingales – 2002. oecd – debt management and government securities in the 21st century – 2002. from about eur 100 bios in 1998 to about 300 bios in 2000, 2001 and 2002 – source bondware. rajan and zingales – 2002 – second ecb international banking conference. european derivative exchanges went from less than 1 % to more than 15 % in 15 years. as derivative markets enhance the ability to manage and trade risk, they are at the heart of modern finance and the backbone of financial innovation. their development has enabled market participants to hedge risk, develop arbitrage, and, therefore, enhance the efficiency of price setting in financial markets. of course, the other side of the coin is that derivatives are sometimes criticised as they may be regarded under some circumstances as a potential threat to financial stability. i will come back to this point later on. the elimination of currency risk within the