Against the background of the gradual economic recovery, financial market participants have also become more optimistic concerning corporate earnings prospects. That said, the high leverage of euro area non-financial corporations, coupled with low profitability in 2008 and 2009, has translated into high default rates for non-financial firms. Chart 3 on slide 7 shows patterns of default rates for euro area firms of all size categories, indicating that, in 2009, bankruptcies reached historically high levels. There is a large degree of cross-country heterogeneity within the euro area with some countries having endured annual increases in bankruptcies of more than 70% in 2009. When considering the outlook, it is instructive to examine past correlation patterns between bankruptcies and real GDP growth. As Chart 3 shows, insolvencies in the euro area remained at very high levels after the last downturn (2002–03), even after GDP already picked up. Hence, notwithstanding a recovery in economic activity, it might still take some time before a normalisation of bankruptcies would be observed. The fourth risk identified outside the euro area financial system is the possibility of greaterthan-expected household sector credit losses if unemployment rises by more than expected. Over the past six months, the condition of euro area household sector balance sheets has changed little with only a slight increase in new ECB estimates for write-downs on residential mortgages and consumer loans up to end–2010. That said, considerable increases in the rate of unemployment in most countries are expected between the fourth quarter of 2009 and the fourth quarter of 2010.

Vítor Constâncio: Thomas Philippon’s contribution to macro-finance Speech by Mr Vítor Constâncio, Vice-President of the European Central Bank, at the ceremony awarding the Germán Bernácer Prize for Promoting Economic Research in Europe to Thomas Philippon, Madrid, 3 November 2014. *  *  *  I wish to thank Angela Maddaloni and Agnese Leonello, from the Directorate General Research, for their help in preparing this speech. Ladies and Gentlemen, I am delighted to be here today to award the 2013 Germán Bernácer Prize to Thomas Philippon, Professor of Finance at the Stern School of Business at New York University. Thomas Philippon is a renowned scholar with a wide-ranging research agenda, both theoretical and empirical. The numerous prizes he has won throughout his career, including “best paper” awards in several top journals, speak loudly about the academic quality of his contributions. Thomas’s research – being right at the intersection between macroeconomics and finance – is also highly policy-relevant, not least from a central banker’s perspective, as I will try to highlight today. In fact, many central banks and the ECB in particular have devoted considerable attention and actively contributed to the burgeoning literature on macro-finance. The financial crisis underscored the need for a better understanding of the linkages between the health of the financial sector and the performance of the real economy. Promoting economic research in this field is an essential step in the process of developing effective policies to ensure the stability of the financial sector and, ultimately, to foster economic growth.