We managed to survive this strain by taking, on the one hand, unconventional and controversial measures to prevent market dislocation that could have been very destabilising, and, on the other hand, belt and brace measures to strengthen the defence mechanism of our financial system. I am pleased to say that these actions have been successful, as reflected in the marked change in sentiment in our markets and the sharp fall in the interest rate premium for our currency over the US dollar. Although we continue to endure what has become a very painful economic adjustment, we can now work through this adjustment without it being grossly exacerbated by the kind of extreme market overshooting brought about by the manipulative attacks we faced last summer. The adjustment taking place is rapid and pronounced: we saw a decline in asset values of some 50% at the peak of the crisis, a doubling of our unemployment rate to around 5.5% and a fall in our GDP last year of 5%. However, if this is the adjustment necessary to re-establish our competitiveness we have, and are prepared, to accept it. But we can do without the collateral damage and general trauma of overshooting experienced by so many other economies in the region. We believe that our fundamental strengths can help us through this adjustment, just as they have helped us through the many other transitions of the past few decades, whether economic or political.
This is a role the Bank has endeavoured to play consistently, and for good reason. The more people understand how our economy works, the challenges it is facing and the limited options available to overcome them, the greater the likelihood that policymakers will feel comfortable to take the required decisions promptly, leading to a faster pace of wealth creation, which is one thing we all want. 11. The adoption of the euro will greatly reduce the role of the Central Bank of Malta. What will you be doing in January 2008? Your question reflects a perception that is commonly held but which is not borne out by the experience of the current members of the euro area. It would be more correct to say that the Bank’s role will be greatly changed rather than reduced. Some existing functions will become less important, others more so, and yet others created. On the institutional level, the transfer of responsibility for monetary policy to the ECB would be replaced by the Governor’s participation in the Governing Council where interest rates are set for the euro area. For this purpose, we will need to strengthen our capacity in the areas of economic research, forecasting and statistics and redirect its focus. This also applies to our activities in support of monetary policy, such as open market operations, which would be conducted within the parameters set by the ECB.