The effects of the Euro adoption on the Maltese trade with the Euro area

Abstract

The adoption of the euro presents a number of challenges and reforms which will have significant consequences on the Maltese economy. The expected benefits of joining the euro area come at the expense of relinquishing monetary policy and thus the CBM can no longer pursue changes in the rate of interest and nominal exchange rate. Yet the expected gains outweigh the costs of joining the euro zone as the euro would bring greater macro economic st11bility, lower risk premium on borrowing costs and the elimination of transaction costs. Meanwhile, the loss of monetary less significant since changes in the exchange rate proved to be only fruitful in the short-run while movements in the interest rate are highly influenced by the decisions made by the ECB. All in all, this should boost Malta's trade level with the euro area and put Malta on a higher economic growth coupled with higher standard of living. Hence membership in the EMU will mark a very important milestone for the Malta.