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One of the Maastricht convergence criteria that must be met before an EU Member State joins the eurozone concerns stability of the domestic currency. This is achieved through the participation in the exchange rate arrangement known as ERM II for a minimum of two years, during which the national currency is fully pegged with the euro.
When Malta joined ERM II (2 May 2005) an exchange rage was fixed between the euro and the Maltese lira, and is officially known as the central parity rate. The market exchange rate of the national currency against the euro is allowed to vary within a maximum of plus or minus 15% against the euro, but the local authorities have committed themselves at keeping the exchange rate of the Maltese lira unchanged.
The rate, which for Malta is Lm0.429300 per euro, was set jointly by the ministers of the Member States of the euro area and the ministers and central bank governors of ERM II participants together with the European Central Bank following consultation with the European Commission and the Economic and Financial Committee.
It is the intention of the Maltese monetary authorities to maintain the central parity rate at the same level throughout the ERM II so that eventually this will become the rate at which Malta participates in the euro area – this rate would be then known as the irrevocable conversion rate. This will be the equivalent value in Lm at which Malta would join the eurozone, that would be forever fixed at the agreed rate.
While local authorities have committed themselves to keeping this rate as the irrevocable fixed exchange rate, the final decision is based on a unanimous agreement between all euro area States and the local authorities, after consulting the ECB. The rate is then established the Council of Economic and Financial Affairs (ECOFIN).
Melvyn Mangion
Public & Media Relations
National Euro Changeover Committee
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