The advances made by the European Council in December 2018 are a step in the right direction but clearly need to be strengthened and built upon. The success of the Banking Union will depend on the establishment of a solid resolution mechanism, – probably even more than a full common deposit insurance scheme. Regarding the backstop of the Single Resolution Fund, in the interests of financial stability, we should consider extending the maturities on the credit lines. And we will not achieve an effective and 4/6  BIS central bankers' speeches  profitable Banking Union without cross-border consolidation in Europe: there are still too many roadblocks and not enough cross-border restructuring. Unfortunately, there was almost no progress at all on the Capital Markets Union in the December agreement. Let us finally move on from a rhetorical consensus in principle to concrete headway, notably on harmonising bankruptcy regimes and strengthening ESMA. Both the Banking Union and the Capital Markets Union are the key components for a genuine “Financing Union for Investment and Innovation”: I have put forward this idea as a way of better channelling our abundant resources – our EUR 340 billion private savings surplus – towards the concrete needs of European economy: the energy transition, SMEs’ equity or digital innovation. But the strengthening of the euro area should also include public mechanisms of solidarity. Regarding the ESM, it should not be just about managing crises ex post, but about preventing them ex-ante above all by reinforcing our precautionary tools.

Further regulatory reform of services markets will create fresh opportunities for firms to develop new services, meet emerging global demands and increase  BIS Review 116/2008  3  employment. It will also increase the incentives for companies to innovate and improve productivity growth. With all these, country would reach higher level of economic growth. Before I conclude, I would like to address three broader issues based on three important macroeconomic fundamentals. First, unemployment; second, exchange rate and the third is inflation. What will unemployment reduction do? The declining trend in unemployment to its lowest recorded level in Sri Lanka brings to focus the need for more efficient use of labour through productivity improvements. Precisely, lower unemployment indicates a potential hindrance to future higher growth prospects unless labour productivity is improved substantially. It has been encouraging to observe the continuous improvements in labour productivity over the years, especially in the industry and services sectors, which have contributed well to higher economic growth. However, an increasing mismatch in labour supply and demand is reflected by the high rate of youth unemployment, including graduates, and their desire to join the already expanded public service, while certain sectors in the private sector are finding it difficult to recruit necessary skilled labour. This together with declining labour force available for agriculture employment indicates the need of improving productivity as a prerequisite to achieve the envisaged higher growth targets and a more balanced regional development. What will the Exchange Rate do?