•  Another milestone was the creation of the Economic and Monetary Union, at the beginning with 11, then 12 and 13 and 15 members since January this year. o  The Treaty establishing the European Community assigns the European System of Central Banks the primary objective of maintaining price stability. The ECB has managed to gain and maintain trust of the public and of market participants by delivering price stability. Although the single monetary policy faced a number of significant challenges, the ECB managed to stabilise the HICP inflation on average at 2,1 % from 19992007. This compares with an inflation rate of 3 % in the nine years preceding the EMU. o  The inflation expectations in the euro area have been anchored in line with the ECB’s definition of price stability: below but close to 2%. This underlines the high reputation the ECB’s monetary policy has gained over time. II  Given the topic of my speech, the principles, procedures and criteria that govern the adoption of the euro, I would like to underline the key principles for joining the euro area at the very outset: 1. A country must first be a member of the European Union before it can adopt the euro. The EU Treaty lays down the criteria that European States have to respect before they can apply for EU membership. BIS Review 17/2008  1  2. The roadmap and the conditions for the adoption of the euro are laid down in the EC Treaty.
Last year the previous Riigikogu issued the central bank with a clearer mandate than ever before for macroprudential supervision in Estonia, and we have started to act on this mandate. Macroprudential supervision aims to increase the resilience of the banks and the rest of the financial system to systemic problems and to restrain the accumulation of major risks. •  The first measure introduced by Eesti Pank was the requirement for commercial banks to hold a 2% systemic risk buffer. The systemic risk buffer is needed to manage the banking risks that are specific to a small and open economy. The introduction of the buffer did not imply any major changes for the banks operating in Estonia, as their capitalisation levels were already above that required. The measure was a precautionary step by the central bank to guard against possible risks in the future. •  The second step was taken three months ago when requirements for housing loans were applied to the commercial banks by the central bank with the aim of pre-  BIS central bankers’ speeches  3  empting possible credit booms in the future. The requirements do not have any noticeable effect on the loan market as things stand, as the banks are in any case currently acting conservatively. Both of these measures are precautionary steps taken against any significant future increase in the risks in the real estate market should competing banks start to take on excessive risk.