for an economy, with large losses in welfare. indeed, i think that the global financial crisis has once again demonstrated the sound economic logic which underlies the convergence process as laid down in the treaty. this convergence process builds first of all on sustainability as evidenced by sound macroeconomic fundamentals, in particular the absence of any major imbalances which may threaten sustainability. it is not surprising to see that the countries which have been hit hardest by the crisis in the central and eastern european region are those that built up large imbalances and vulnerabilities in the past. these imbalances and vulnerabilities were, in turn, often the result of unsustainable policies and lack of progress with respect to structural reforms. when talking about unsustainable policies, it is straightforward to point to significant fiscal imbalances which have been accumulated in some countries. however, several countries also suffered from an overheating of the economy, fuelled by too low real interest rates, strong credit growth fuelling private consumption and investment, and local asset price bubbles. as a consequence of excessive domestic demand, several countries recorded very high current account deficits and were dependent on strong inflows of foreign capital. at the same time, due to the overheating of the domestic economy and associated pressures on wages and prices, countries operating under fixed exchange rate regimes underwent strong losses in external competitiveness. countries with flexible exchange rates, such as poland, were in a better position to avoid such imbalances in the past and they also seemed to have absorbed the crisis shocks better than others. a further vulnerability that has been built up in many countries over recent years stems from the existence of high levels of foreign currency loans extended by the financial system to unhedged borrowers, thereby giving rise to significant currency and maturity mismatches. it should be clear to everyone that having achieved sustainable convergence before euro adoption is very much in the interest of the country concerned. without such convergence the monetary policy stance of the ecb is likely to be inappropriate for the country, and it may face a risk of excessive output volatility leading potentially to a series of boom - bust cycles as the country lacks important tools to stabilise economic conditions at home. therefore, it is crucial that euro adoption only takes place after the elimination of major imbalances in the country and when sufficient convergence has been achieved and a high likelihood exists that the economy of the country will be in a position to reap

wages, which have not always adjusted smoothly across countries, regions and sectors. essentially, this protracted adjustment reflects the fact that national macroeconomic policies and structural reforms have not been ambitious enough to avoid the build - up of imbalances or to provide the economy with sufficient flexibility to deal with the necessary adjustment. without having achieved a sufficient degree of sustainable convergence, the risk of such undesirable boom - bust cycles is particularly high. to conclude, we can indeed be proud of the achievements of the euro. however, there is still scope to draw greater benefits from it. the build - up of macroeconomic imbalances, inside but especially outside the euro area, shows that the surveillance framework in the eu should be strengthened. strengthened surveillance could provide early warnings to policy markers, thereby allowing them to adjust policies early enough. sound macroeconomic policies coupled with a targeted and ambitious structural reform agenda are key in this regard. such policies should be implemented very forcefully, both by countries that participate in the euro area as well as those that are preparing for it.