of monetary policy. in albania and serbia, for instance, where central banks have adopted inflation - targeting frameworks, exchange rate flexibility remains relatively limited as policymakers are mindful of adverse balance sheet effects resulting from sudden and substantial exchange rate fluctuations. in countries that have opted to stabilise the exchange rate in the first place, such as bosnia and herzegovina, maintaining the credibility of the framework remains central to keeping financial stability risks contained. prospective eu countries that have their own legal tender and monetary policy have recognised these risks and constraints, and are thus making efforts to promote the use of the local currency, 3 / 4 bis central bankers'speeches in line with the ecb ’ s recommendations. this is certainly not an easy task. success crucially hinges upon the track record of the domestic monetary authority in maintaining monetary stability. to this end, central banks in the region have made laudable progress in recent years. efforts need to be channelled towards extending this track record. history teaches us that central banks ’ success in sustainably maintaining confidence in the currency critically hinges on two elements : political independence and a clear mandate. the ecb was successfully built on these principles. independence and a clear stability - oriented mandate ensure that central banks are not overburdened with pursuing other, potentially conflicting objectives, and that monetary policy makes the best possible contribution to growth and employment. they are therefore also a necessary condition for strengthening the use of local currencies. experience in other regions of the world – in latin america, for example – suggests that targeted prudential measures as well as deeper local capital markets in domestic currency can reinforce the use of local currencies. 4 windischbauer, u. ( 2016 ), “ strengthening the role of local currencies in eu candidate and potential candidate countries ”, occasional paper series, no 170, ecb, april. such advances should ideally be embedded in a carefully designed comprehensive strategy involving all relevant stakeholders. serbia adopted such strategies in 2012, and albania has done so more recently, while other countries have started to put in place measures of this nature or are considering designing similar strategies. so progress is clearly visible, in particular on the lending side, but more remains to be done. there are certainly no quick fixes, as currency substitution tends to be a sticky phenomenon. but the drawbacks of unofficial euroisation deserve policymakers ’ attention. the expectation that countries will at some point join the eu, and eventually also the euro area, should not divert

made over time to implement countercyclical fiscal and macroprudential measures, proper debt management, sound banking supervision and growthenhancing structural policies. there will be neither resilience nor convergence unless national and eu authorities give the utmost priority to enhancing their institutions and governance. in the words of the eu treaties, we need “ sustained convergence ”. 9 it is in the interest of all member states to avoid time inconsistency, that is frontloading the economic benefits of joining the euro area whilst incurring the cost of insufficient convergence at a later stage. the launch of monetary union was accompanied by a pronounced convergence of long - term interest rates, but many countries failed to use the resulting boost to public and private finances to address existing imbalances or increase productive investment. many of the countries that joined later have performed more positively. this was true of the baltic states, for example, and also of slovakia, which, since adopting the euro, has seen its gdp grow each year by around 0. 9 percentage points more than its immediate neighbour, the czech republic. 10 this shows that it is possible to capitalise on the higher trade and investment that come with joining the euro area. 11 and the process of adopting the euro has itself evolved. in particular, any country that wishes to join the euro area must now be sufficiently ready not only for the single currency, but also for the banking union. a prospective member has to request close cooperation between its national banking supervisor and the ecb, meaning that its banking sector undergoes a comprehensive assessment, potential weaknesses are addressed and the banking sector is supervised by the ecb. this aims to mitigate the risk, to the extent possible, of banks failing in the future, thereby weakening the economy and the public finances of one country with negative spillovers across the entire euro area. the question of whether to expand the euro area is and should remain a political decision to be taken by citizens and their elected representatives. at the same time, the economic and legal conditions for successful participation require careful scrutiny in the interest of all parties. conclusion let me conclude. rather than arguing about whether it is more important to widen or to deepen the union, i have made the case today that any expansion of the euro area must be accompanied by measures to deepen it, both politically and economically. deepening emu also hinges on the ambition of national governments in the council. we have the concepts for how to deepen the union, but we also