certainly that crisis, which had its origins in the united states, has had a devastating impact. but why have the problems been particularly deep and intractable in the euro area? after all, not all euro area countries have been equally affected. germany, to take the largest and most striking example, has emerged from the shocks of the last few years with lower unemployment than before. and, as for the most adversely affected countries, the imbalances and excesses which they have experienced have been quite diverse. greece ’ s problems have emerged as the result of large and under - appreciated fiscal deficits, italy ’ s as a result of high debt and persistent lack of growth dynamism, ireland from a banking - driven boom - and - bust cycle. what is the common feature of these and other syndromes? this is important for us in understanding what needs deepening in a relaunch of the system, and it also, of course, is vital for a country contemplating and preparing itself for a future euro membership. i believe that the key to this mystery lies in the fact that the euro represents a commitment device, a policy straitjacket which, if accompanied by the behaviour to which the country implicitly and explicitly commits when it joins the currency union, will lead to an improved economic performance relative to what can otherwise be achieved. the commitment is of course to policies that retain macroeconomic balance, which requires fiscal discipline, and international competitiveness in both price and non - price dimensions. for decades, many european union countries have had a chequered history of macroeconomic imbalances, generally resolved through devaluations at the cost of relatively high inflation, and high nominal and real interest rates, all of which contributed to growthdamaging uncertainty. in addition to the considerable microeconomic benefits of eliminating currency conversion costs and all of the exchange rate risk for intra - euro area transactions, the main advantage of the currency union was seen to be lower inflation and interest rates, contributing to a stable growth platform. yet it was as if policymakers and market participants believed that the results would happen semi - automatically. governments would adopt restrained fiscal policies for fear of market reaction, and if they didn ’ t markets would quickly penalize them with interest penalties that would incentivize them to get back on track. bis central bankers ’ speeches likewise any loss of competitiveness due to wage rates increasing faster than the currency area would result in such quick damage to employment that such divergences would

nevertheless, under the central forecast, capacity is set to tighten further in coming years. however, the irish economy is intrinsically volatile : there can be sudden and sizeable adverse shifts in fundamentals, especially for small and highly open economies. the list of downside risks includes : an unexpected tightening in international financial conditions or a downgrading of future global growth prospects, relative to the benign environment that has been in place for the last number of years ; shifts in international trade and tax regimes that fundamentally challenge the irish economic model ; disorderly brexit scenarios ; and domestic policy errors that add to procyclical dynamics in the economy. given this current configuration of risks, macro - financial risk management should have two aims. first, policy actions should not amplify pro - cyclical dynamics, if overheating risks in the economy 1 / 4 bis central bankers'speeches and the financial system are to be contained. second, macro - financial resilience requires buffers to be accumulated during good times that will enable ireland to cope more easily with future downside shocks. as a general rule, the running of budget surpluses during phases of strong economic performance is a pre - condition for the running of stabilising counter - cyclical deficits in the event of a future downturn. in relation to the financial system, our macroprudential policies such as the countercyclical capital buffer that we triggered this summer and our mortgage rules are intended to ensure that resilience is enhanced during phases of good economic performance. the aim is that a more resilient financial system will be better placed to absorb the impact of future downturns, with more sustainable funding positions and greater capacity to tolerate a decline in the credit environment. the financing of the business sector let me turn to my second theme : the financing of the business sector in ireland. by and large, multinational firms are financed through the treasury arms of their global parents ( some of these are also located in ireland ). the largest domestic corporates are able to tap international bond markets, in addition to bank finance. in contrast, the funding of the sme sector primarily depends on internal resources and access to bank credit. the losses incurred during the crisis severely limited internal funding for an extended period but the uptick in profitability in recent years has improved self - funding capability. in relation to debt dynamics, deleveraging has been extensive in the aftermath of the crisis. the proportion of firms reporting no debt rose from