can make a difference. when a downturn came this time to australia, there were certainly casualties. risky business strategies ( in most cases related to financial structure ) were exposed, and those involved sustained losses of income, wealth and reputation. other firms and individuals suffered much more difficult circumstances too. but on the best reading of all the available information, this appears to have been one of the mildest downturns we have had. furthermore, it is likely that recovery is already under way. that ’ s the next lesson : when downturns come, we can recover. now the relative resilience of the australian economy in this cycle warrants some discussion. unless we are prepared to accept it has all been an incredible coincidence, we have to ask why things turned out that way. it wasn ’ t just that china returned quickly to growth. that certainly was important in sustaining export volumes, and in re - establishing confidence in the outlook for the resources sector, which did wobble for a few months. but china ’ s importance may be greater for future outcomes than recent past ones. equally important recently were other factors, including the relative strength of the financial sector, the economy ’ s flexibility and the willingness and scope to change macroeconomic policy. those things were not accidents. financial resilience resulted from sensible management by financial institutions themselves, and careful regulation on the part of the prudential supervisor. for the most part, the non - financial corporate sector was also fairly conservatively managed in respect of balance sheets – largely because enough corporate managers and directors today remember a time when that was not so. moreover, businesses took a far - sighted view about employment decisions. given the preceding difficulties in securing labour, they found ways of keeping people on payrolls, even if on reduced hours. they clearly had not only the good sense, but also the requisite degree of institutional flexibility, to do that, which must say something about the progress that has been made in labour market arrangements over the past couple of decades. and finally, long - term investments in prudent fiscal and monetary frameworks paid off. a whole generation of policy - makers painstakingly worked to build credibility by taking decisions with a long - run perspective. the return was in the form of a capacity to respond credibly to the downturn before it gathered much pace. the lesson here, then, is that all those investments were worthwhile. so i think this episode offers us an opportunity to re - visit our

. a major step has been the creation of a banking union that, as you all know, will delink bank and sovereign risks and ensure a harmonised and tough financial supervision. it is easy to underestimate this achievement. the idea was adopted less than two years ago. the single supervisory mechanism is now up and running. there is no example in contemporary european history when so much has been achieved in so little time. 2. we have launched a tough and comprehensive aqr and subsequent stress tests that should be completed by the end of this year. for the first time, these exercises will be conducted in a fully integrated way – under the aegis of the ssm – with full accountability of the results. completion should mark a turning point where there will bis central bankers ’ speeches be no more doubts about the sustainability of our banks and credit should resume at a normal pace. 3. in the longer run, a major policy challenge for the euro area is to “ reinvent ” a new and robust financial integration model. we need sound cross - border capital flows, because we do not want the eurosystem to intermediate permanently between borrowers and lenders from different countries. developing a safe securitisation process should be a priority, despite the major technical difficulties. ii. is europe facing the prospect of a lost decade? questions about long - term growth are not limited to europe. what we hear about our continent reflects a more general concern : the possibility of “ secular stagnation ” in advanced economies. secular stagnation rests on the assumption that the natural interest rate is negative. this may happen for two reasons : in the short run, we may have a downward shock on demand and an increase in savings resulting from the deleveraging process. i have just explained how we are currently addressing this issue ; in the longer run, ageing and slower innovation may push up saving rates and bring down the return on capital. therefore, the ultimate response to the risk of secular stagnation is to improve the return on investment, thus pushing the natural interest rate back into positive territory. again, this is not only a european problem. but we do have difficulties in this regard. structural reforms are not easy. many, however, are currently being implemented. france, although at too slow a pace, is reducing taxes on labour and has somewhat improved labour market flexibility. adjustments efforts conducted by several countries, especially in southern europe, are starting to pay off. competitiveness gaps between northern