Malta and the Euro This report assessed the main benefits and costs of participating in the Economic and Monetary Union (EMU)

Essentially, the report evaluated the feasibility of adopting the Euro at the earliest possible date, namely January 2008. It first considered the likely benefits and costs that would accrue from adopting the single currency. Following that, the report assessed whether Malta is prepared to adopt the euro by employing the theory on the Optimum Currency Areas (OCA), which was fathered by Mundell (1961) and developed further by McKinnon (1963) and Kenen (1969). In essence, it provided a starting point against which the readiness of a country to form part of a monetary union can be determined. The criteria which was analysed in this section include: the underlying economic structure and the contribution of each sector to the country’s Gross Value Added, business cycle synchronization, wage and labour market flexibility, the degree of trade and financial integration with the Euro area, and others. Furthermore, the report also looked into the possible risks that are normally associated with the adoption of the Euro, particularly that the changeover process would be accompanied by a general increase in the price level. In this regard some lessons from the experience of other countries was also derived.