, price differences on national interbank money markets decreased very quickly to stand at less than 5 bp. this level corresponds to the spread bid - ask currently observed on the market. • a comparable movement has occurred on european bond markets, where returns on government yields have converged. • the euro area, and more broadly the european union, now have a consistent financial architecture. the implementation of the financial services action plan defined at the lisbon european council is on the way to completion. subsequently, the lamfalussy process should provide a new institutional architecture in the fields of financial supervision and regulation and develop flexible and uniform technical rules. part 2 : the euro plays the role of an international currency and a nominal anchor the available data bear out the increase in the international role of the euro. at the regional level, it plays a significant role as an anchor and is the vector of a culture of stability. the increasing role of the euro at the international level is due to the development of its use as a financial instrument and as a medium of exchange ( a ) and of its role as an anchor for exchange rate regimes ( b ). a the euro is an essential financial instrument and a key medium of exchange · • the use of the euro as a financing and an investment currency on the capital markets has increased. in the first half of 2004, the euro accounted for almost 36 % of the gross issuance of long - term international debt securities, compared with 24 % in 2002. the share of the us dollar was down from almost 50 % in 2002 to 39 %. • another significant development is the emergence of a corporate bond market in the euro area, whose volume has increased significantly in the last few years. the outstanding amount of quoted shares issued by euro area residents was eur 4, 035 billion in 2004 as against eur 3, 118 billion in 2002. • as a settlement currency, the role of the euro is expanding. in 2003, between 50 % and 60 % of goods and services traded between the euro area countries and the rest of the world were settled in euro. this is true for both exports and imports. in countries where the use of the euro as a medium of exchange is highly significant, such as the central and eastern european countries, 60 % to 80 % of exports and imports were settled in euro. b the euro contributes to the stabilization of exchange rate regimes and financial systems the euro is an instrument for the diversification of foreign exchange reserves • according to the latest available data from

risk premium into the prices quoted to maltese businesses. the insurance provided by the discipline of emu, and the high level of intra - eu integration should reduce this perceived vulnerability and, with that, the risk premium. this is conducive to lower interest rates and to access to financing on more favourable terms. a related advantage is the improved marketability and acceptance of collateral. maltese lira assets are not considered sufficiently liquid by foreign lenders in view of the thinness of domestic financial markets. many smes are consequently either denied foreign financing altogether, or offered prohibitive rates. this constraint should ease considerably with the adoption of the euro, as the redenomination of domestic assets into euro will improve the marketability of the collateral offered by local businesses. further benefits should accrue to business from the eventual linkage of the domestic payment system to the eu ’ s target system. by linking together the national systems of member states with the payment mechanism of the ecb, target allows payments in euro to be effected much faster, potentially improving liquidity conditions in the financial sectors of participating countries while lowering the processing costs of cross - border payments in euro. the challenges posed by the single currency thus far we have reviewed the opportunities inherent in membership of the euro area. as might be expected, however, membership will also present new challenges. for example, while it places the economy in a better position to compete internationally, it exposes businesses to additional competitive pressures. for a start, customers will be better able to compare local prices with comparable prices abroad and will increasingly question price differentials. some operators will, of course, benefit from lower procurement costs, but others might find it difficult to survive. it is, therefore, advisable for pricing strategies to be reassessed well in advance of the date of the actual euro changeover, especially where price is an important variable in marketing strategies. in the same manner that the euro will facilitate price comparisons, other monetary variables such as cost per unit, average wage, annual sales volumes, administrative expenses and profits will also become easier to compare across countries. in other words, the single currency will expose the performance of maltese businesses to a much more detailed scrutiny than they are accustomed to. from a broader macroeconomic perspective, it could also be argued that just as the euro will enable domestic operators to reap the full benefits of the single market, a higher level of integration with the eu could also make the maltese economy more susceptible to developments abroad