( see buiter et al., 2002 ). see buiter and grafe ( 2002 ) and begg et al. ( 2002 ). ( iv ) the bank of albania approach to eu accession the monetary policy of the bank of albania focuses on maintaining price stability through the control of monetary aggregates which are used as intermediate target. indirect instruments are used to transmit interest rate and liquidity signals to the market. repo rate is the leading indicator for short term interest rates while repo and reverse - repo operations are used to manage liquidity. over the last five years the bank of albania stability oriented monetary policy has generated low and stable inflation ; it has also ensured that medium and long run inflation expectations have been well contained. the economic growth has been robust at around 5 - 6 percent of gdp, while enjoying a high degree of financial stability. ( in other words, it seems like we are already close to the erm ii standards. ) such results reflect the opinion that economic convergence should not be held back by the political one. political processes dictate that erm ii and emu should be preceded by entry into the eu. the bank of albania has a clear view of the eu accession process. the design of the current and future monetary policy strategies is in line with the ultimate objective of eu accession. - on the policy side, it is striving to maintain monetary conditions in line with the maastricht criteria. in this respect, bank of albania is carefully considering all available alternatives of monetary policy regimes, among which priority is given to fully fledged inflation targeting strategy. this framework will provide a more sophisticated approach to decision - making and will create a better platform for communicating our commitment to price stability, ultimately leading to a better anchoring of inflation expectations. however, the choice of the new regime will be a conditional decision based upon results of current ongoing research, evaluation of the preconditions and building up of capacities. to this end, we are carefully refining our technical capacities and decision - making processes, following the necessary preconditions, working to achieve real independence for the monetary policy, upgrading our analytical capacities and designing appropriate internal processes. - on the structural side, the bank of albania is also pushing the reform agenda in the financial sector. the reform agenda in the albanian financial sector aims at gradual implementation of the acquis communnautaire standards in banking legislation. we are revising the legal infrastructure. in this regard, a new draft banking

or lower economic growth until the real exchange rate returns to equilibrium. in the absence of a nominal exchange rate channel the adjustment process would tend to be slow. now let me briefly turn to the policy implications the aforementioned issues pose. the ecb policy stance on erm ii ( ecb, 2003 ) emphasizes the primacy of the inflation objective over the exchange rate stability. approaching the emu in the context of an it regime seems quite a plausible option, and one which is even encouraged by the ecb. the period of residence in the erm ii needs however to be as short as possible, so as to avoid the inherent incompatibility of these two targets in the face of the balassa - samuelson effects and increased capital inflows. the countries approaching the emu from a fixed exchange rate regime might have a different perspective on the subject. however, even these countries will experience the balassa - samuelson effects, facing a difficulty to reconcile the fulfilment of the exchange rate and price stability criteria. at the same time, given the wide fluctuation bands that are foreseen by the erm ii template, the credibility gain is likely to be marginal. ( iii ) policy implications as a conclusion, let me re - emphasize the need for a careful approach to the emu in that a certain degree of real economic and structural convergence is needed. the emu membership can not be delayed by much however. first, a really high degree of economic convergence might require a lengthy period of time to be achieved and people could perceive an enlargement without emu as incomplete. second, in adopting the single currency the exchange rate risk will be eliminated, resulting in positive impulses to the financial market development. thirdly, the endogeneity forces of trade and financial integration discussed in the literature might be an additional driver of real convergence that is worth exploring. neither economic theory nor central banking practices offer an optimal approach to erm ii from the point of view of the monetary regime. the alternative theories agree however, on the need to stay there for the shortest time possible * * * to conclude my speech, let me briefly say a few words on the albanian case. see begg et al., ( 2002 ). it is worth remembering that the maastricht criteria were designed to ensure the nominal convergence of industrial economies with roughly similar economic structures. their validity in ensuring the convergence of transition economies is an issue that is hotly contested by several economists