The advantages of pegging fully to the euro area should nonetheless be considerable, as the euro area already accounts for more than half of Malta’s external trade in non-primary products. For the EU as a whole, the share is even higher. This share is set to increase as Malta integrates further with the EU and as more of the current non-euro area Member States join the euro area. While prospects for the UK’s entry in the euro area remain uncertain, the analysis does not change much, as a large number of companies operating in the UK have already switched to the euro as an accounting currency to gain exposure on international markets and to preserve their competitiveness. This trend is set to continue and is likely to spread to other countries as the euro continues to establish itself as an international currency. This means that the local business community could face pressures to make payments in euro even while Malta is outside the euro area, acquiring new currency mismatches in the process. There comes a point, therefore, when delaying adoption of the euro results in more pain than gain. Membership of the euro area will also present considerable financing opportunities associated with the large size and liquidity of financial markets in euro. Businesses will be in a better position to shop around for the cheapest terms and the highest return.
Once Malta is an EMU member, the foreign currency and local currency rating will be equalised but at what level will depend mostly on the fiscal account.”  BIS Review 61/2004  3  ECB; and that even if the degree of business cycle synchronisation with the euro area is already significant, national economic and financial structures might respond to the ECB’s monetary policy stimuli differently from the average euro area Member State. While this might not matter much when other tools of adjustment such as the exchange rate are available, the argument continues, the use of these tools is thwarted in a single currency area such as EMU. On the one hand, exchange rate flexibility is conditioned by the maximum allowable bands in ERM II, and is given up altogether upon the irrevocable fixing of the exchange rate at the point of euro adoption. Additionally, the Stability and Growth Pact constrains the use of fiscal policy for fine tuning the economy. Consequently, any underlying imbalances in the economy are bound to persist. While based on sound theoretical principles, this argument is largely not applicable to Malta. In particular, the business cycle is already fairly synchronised with that of the euro area, and the degree of trade integration is also quite significant. At the same time, sectoral GDP and employment data both reveal a strong correspondence with euro area economic structures, after allowance is made for the relatively more dominant role of tourism in Malta.