However, as the ECB points out in its study, there is another aspect to consider in banking consolidation alongside potential cost cuts: the improvement in geographical diversification, from the standpoint both of revenue and of risks borne. I fully share the conclusion of the study. It is true that cross-border mergers offer the advantage of increasing diversification. That no doubt improves resilience at times of stress and shores up revenue in terms of greater stability and recurrence, as was highlighted during the past crisis. In this respect, I believe that the lack of explicit acknowledgement of diversification as a risk-reducing factor may be restricting this type of cross-border integration. Some profound reflection across Europe and internationally may be advisable on the regulatory treatment of diversification, and its potentially beneficial effect on banks’ risk profile. In any event, it should be stressed that mergers are always long and complex processes and, on many occasions, they entail more problems than those initially envisaged. Also, national barriers persist that hamper mergers of banks from different jurisdictions. Persistence of national barriers. Admittedly, despite progress, specific cultural, institutional and regulatory obstacles persist that hamper the creation of a truly European banking market. Reluctance to eliminate these obstacles contributes notably to the ring-fencing of national banks, which restrict or even prevent the free movement of capital or liquidity across the different euro area jurisdictions. In my view, after significantly reducing risks in the financial sector, it is time to do away with national supervisory barriers.

At its peak, the UK government was paying the wages of around a quarter of the workforce (9 million people) and is still doing so for around 4 million workers. Judging the true “employment status” of these furloughed workers, in particular whether they are actively seeking work, is difficult to judge. It is also difficult to gauge how many of these furloughed workers will return to their jobs once the furlough scheme ends. That leaves the current unemployment rate, the likely future unemployment rate and the equilibrium unemployment rate (taking into account the natural frictions associated with people moving job) all highly uncertain at present. This means measures of labour market slack in the economy are also highly uncertain. The same is true, for many of the same reasons, of measures of spare capacity within firms. 12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  With quantities uncertain, one indirect measure of slack comes from looking at the prices of labour, goods and services. These, too, have faced measurement problems and have been distorted by sharp shifts in the composition of employment and spending. 13 Nonetheless, most measures of underlying inflation and costs have been surprisingly resilient over the past year, given the scale of the contraction in activity. For  example, core CPI inflation rates have fallen by only 0.2 percentage points over the past year, while private sector average weekly earnings growth has been roughly unchanged.