It may be that Sweden, Denmark and the UK will have to discuss their future relationship to the euro at the same time as the euro area expands to include half a dozen new countries. The Central and Eastern European countries will also have to weigh the long-term gains of adopting the euro against the risks of asymmetric shocks. The advantages for these countries are perhaps even clearer than for Sweden. Particularly substantial gains may arise from increased financial integration through the euro. Thanks to the fact that banks from EU countries have acquired large sections of the banking system in eastern Europe, the financial sector there has been able to evolve relatively quickly. But the new Member States’ financial systems are still rather undeveloped, with credits in relation to GDP of between one-eighth and one-quarter of that in the euro area. Sweden’s Baltic neighbour Estonia is one example of how currency integration can help the financial system to evolve. The Estonians have pegged their currency to the euro for over a decade and are keen to quickly take the step into monetary union. Their banking system is owned by Swedish-Nordic banks and credit volumes are growing by 20-30 per cent a year - most of which is denominated in euro. In some countries, the euro can also help to cement the macroeconomic discipline that is still a relatively new phenomenon there.
There are national and international arguments for a country to adhere to the Core Principles. The domestic argument is the one of avoiding or reducing the impact of bank problems, not least because they are costly to the macro economy. While the Principles are not intended to prevent single banks from failures, effective regulation and supervision should reduce potential risks and make them easier to identify at an early stage. The international argument for compliance is that other countries will require this before they open their financial markets. The fear of contagion, implying that problems of one country spread into others, remains strong. Conducting an evaluation of compliance towards the Core Principles is especially helpful when a country is in a stage of modernising its financial sector, such as Sri Lanka. The result of the evaluation will identify weaknesses and can serve as a guide to reform measures. It is also the experience of other countries that the result of the evaluation may be a useful tool for the supervisory authority in convincing the politicians of needed legal and regulatory amendments. Conclusions I have touched upon a number of aspects of supervision, all in one way or another related to lessons learned during the last ten years. I shall make no attempt to summarise, just return to my first point that a high quality, risk-oriented and flexible supervision will create credibility for the financial sector 7  BIS Review 66/2000  and make it prosper.