And that kind of investment tends to go to countries with sound economic fundamentals, including a budget that is balanced over the course of the business cycle. More immediately, if we renege on the Convergence Programme targets, there would be a real risk of a drop in investor confidence. This is confirmed by recent developments in interest rates and in bond markets in central Europe, where markets have started to punish countries who risk delaying euro  2  BIS Review 16/2006  adoption. It is indeed relevant to point out that Malta’s current ‘A’ rating is predicated upon the continued pursuit of fiscal consolidation. There is an additional short-term gain from staying on course. As I have mentioned, fiscal restraint also helps to reduce the country’s external imbalance, and this, in turn, could allow a cut in the interest premium that investors require in order to hold Maltese lira assets. This would mean lower interest rates. On balance, therefore, the outcome of a u-turn on fiscal policy is unlikely to be positive. 4. Last year’s entry in ERM II has been described as hasty and premature. Why the rush to join the euro? Does it not rule out any possible adjustments to the value of the lira? One of the arguments made in support of this view is that our euro adoption calendar does not allow government to run a higher deficit and thus promote faster growth. I have just explained why I am not convinced by this argument.
Major banks and dealers at the core of these markets generate both short- and longer-term credit and market risk exposures from a number of sources and activities, including trading positions, loan commitments that support securities issuance, and warehousing positions in advance of packaging and distributing them. Retained interests associated with securitization transactions are substantial relative to capital of the largest firms. And the importance of securitization for the firms-both from a funding and revenue generation standpoint-provides an incentive for them to support investors in these products in ways that may go beyond contractual obligations. •  The post-trade processing and settlement infrastructure, particularly in credit derivatives, is still quite weak relative to the significance of these markets, although the major dealers and buy-side investors are making a substantial effort to address these problems. The total stock of unconfirmed trades is large and until recently was growing considerably faster than the total volume of new trades. The time between trade and confirmation is still quite long for a large share of the transactions. The share of trades done on the available automated platforms is still substantially short of what is possible. Until the adoption of a new protocol last fall, firms were typically assigning trades without the knowledge or consent of the original counterparties. Nostro breaks, which are errors in payments discovered by counterparties at the time of the quarterly flows, rose to a significant share of total trades. Efforts to standardize documentation and provide automated confirmation services has lagged behind product development and growth in volume.