This system, called the Malta Real-time Inter-Bank Settlement System (MARIS), provides for the immediate delivery and settlement of wholesale financial payments in line with the principle of finality adopted in the acquis and will eventually be integrated with the EU’s TARGET system. In the meantime, the Central Bank has already set up two committees to identify the changes which need to be made to the instruments, contracts and control procedures which the Bank uses for monetary and foreign exchange operations. In both cases the necessary changes have been identified and are in the course of implementation. With the cooperation of the Malta Police, the Central Bank is also strengthening its capacity to detect cases involving counterfeit notes and to report such cases to the ECB and Europol. Finally, the Bank is analysing ways in which the composition of its official reserves could be revised as Malta progresses towards EMU membership. As noted above, a key aspect of the smooth operation of EMU is fiscal discipline. Earlier on, I made reference to the Stability and Growth Pact. This, however, is but one element in the framework which applies to the co-ordination of economic policy and fiscal surveillance in the euro area. In particular, euro area members are also required to submit reports outlining their policy intentions over the medium-term. As part of the preparations for their eventual participation in EU surveillance efforts in this area, accession countries have already started to submit Pre-Accession Economic Programmes (PEP).
The rationale behind ERM II is that, if a country succeeds in maintaining the value of its currency against the euro within the fluctuation bands for a period of two years, then it would be reasonable to assume that the country would be able to deal with the binding constraints of EMU. During this phase, accession countries will have to prove that they are able to put up with the disciplines inherent in a fixed exchange rate without imbalances arising in other sectors of the economy. That is why accession to EMU is conditional on prior participation in ERM II. Furthermore, it would be unfair on the twelve euro area countries if the EU were to demand less stringent conditions of the present wave of accession countries. Upon EU accession and during the ERM II phase, Malta, like the other accession countries, would have the status of a “country with a derogation”. Since ERM II neither entails the formal transfer of monetary policy responsibilities to the ECB nor the replacement of the domestic currency by the euro, it will not, as I have already indicated, involve any significant departure from current practice, although it offers more flexibility than our current fixed exchange rate regime, which does not involve any fluctuation band. Another difference is that the obligation to defend the central exchange rate under ERM II would be binding on both the ECB and the Central Bank of Malta. Both institutions would be expected to intervene to preserve that value.