The European Commission and the Economic and Financial Committee (EFC), which is the advisory arm of the EU Council of Economic and Finance Ministers, will also be involved, as will central banks and ministers of Member States outside the euro area. The latter, however, will act in a consultative capacity. At no point in the process, therefore, would the Central Bank of Malta or the government be able to establish the central parity rate, or modify it, on their own. This is standard procedure and statements suggesting otherwise are incorrect. Other than the central parity rate, there are two further decisions to be taken: the date of entry and the method of participation in ERM II. What about the date of entry in ERM II? Has this been decided? Although eligibility for entry in ERM II is not dependent on the fulfilment of a set of formal criteria, it is presumed that only Member States making progress in convergence can join the mechanism. Consequently, the formal application process for ERM II is normally preceded by an examination of the prospective applicant's economy. In Malta's case, an assessment was conducted earlier this year by the European Commission. The results will be discussed at a Eurogroup meeting in early April. Subject to a positive outcome, one would expect the Maltese authorities to make a formal application. If such an application is made, the Economic and Financial Committee would consider it during one of its subsequent meetings.
At such a meeting, Malta's method of participation in ERM II, including the central parity rate, would be agreed. The way would then be open to join the mechanism. ERM II is characterised by a standard fluctuation band of +/- 15 per cent per cent. How relevant do you expect such a band to be for Malta? The system allows so much flexibility to ease the burden of transformation and structural reforms in those Member States which still have a relatively long way to go before they reach average EU levels of development and whose exchange rate may not yet, therefore, have reached an equilibrium level. The standard band represents the maximum exchange rate flexibility that can be availed of, depending on individual country circumstances. The existence of the bands should not, therefore, give rise to the expectation that the exchange rate will automatically fluctuate to this extent. In the case of Malta, for example, the economy has already achieved a relatively high level of real and nominal convergence and one would, therefore, expect that the daily rate should remain close to the central parity rate. Indeed, given the crucial role that exchange rate stability plays in the highly open Maltese economy, and the significant credibility attained by the Maltese lira under the existing basket peg, the authorities would like to preserve the important positive effects of the current arrangement, namely exchange rate stability, during ERM II. Will participation in ERM II entail a change in the level of the lira/euro exchange rate?