Euro having positive impetus in economies

"We look forward to welcoming you wholeheartedly into the euro area. "And when I say wholeheartedly, I mean it."

That was the message delivered yesterday by the President of the European Central Bank, Jean-Claude Trichet, speaking at the conference just three months before Malta adopts the euro.

The Maltese, he said, should be very proud of the country's convergence progress.

"We are very pleased about the fruitful cooperation between the European Central Bank and the Central Bank of Malta in the preparations for the changeover, be it at the technical level or through the participation of Governor Michael Bonello as observer in the Governing Council since last July," he said.

Mr Trichet noted that preparations for EU membership and the adoption of the euro had spurred a broad-based reform process. This led to the restructuring of the public sector and the liberalisation of the trade regime.

"These reforms have helped Malta to gradually reduce inflation and significantly shrink the fiscal deficit. Moreover, the exchange rate of the Maltese lira has been maintained at the central rate since the currency joined ERM II in May 2005, and long-term interest rates have declined."

Mr Trichet said he was convinced about the benefits the island would reap as a result of adopting the euro. "The adoption of the euro will enhance your integration with all EU partners."

Looking at some of the effects that the euro had already had on euro area countries, Mr Trichet said the currency was providing a positive impetus in their economies.

"The economic and financial environment of the euro area is changing in many ways and the euro is having a beneficial impact. Euro area economies are gradually becoming more interdependent.

"Exports and imports of goods within the euro area rose from about 26 per cent of GDP in 1998 to around 32 per cent last year. The introduction of the single currency, as well as greater price and cost transparency, has promoted cross-border trade."

The completion of a single market for services would also further facilitate trade in services.

Foreign direct investment within the euro zone had grown considerably and was catching up with foreign direct investment from outside.

The euro was also acting as a catalyst towards a single market in financial services.

Furthermore, there was significant evidence that euro area corporations were taking advantage of the possibility to appeal to a broader universe of investors in order to raise funds. As a result, the euro corporate bond market has grown significantly since 1999, and had the potential to grow even further, he said.

Mr Trichet said that before the launch of the euro, some experts feared that a single monetary policy would not suit a group of countries that were still diverse. But, after nearly a decade, the euro area has proved to be a success. The degree of synchronisation of business cycles across euro area countries had grown since the 1990s and remained high.

"The euro area has become more resilient to external developments than its individual member countries ever were before the launch of the euro. National economic policies have become better coordinated and the intra-European impact of external exchange rate turbulences has been totally removed."

The euro area was experiencing low inflation and low macroeconomic volatility, both in historical terms and compared with other single currency areas, such as the United States.

"Over the eight-and-a-half years since the creation of the euro, employment in the euro area has risen by almost 15 million people, compared with a rise of around three million in the eight-and-a-half years preceding the adoption of the euro.

"We are also reaping the benefits of a highly credible monetary policy strategy that is anchoring long-term inflation expectations at low levels".