, and the likelihood of seeing second - round effects to date remains relatively low partly because of the softness of our labor market. that is the current state of the economy and the outlook, and so, what is the way forward a bit further? page 4 of 8 part 2 : the way forward immediate policy challenge is to keep the recovery intact. “ no cliff ” looking a bit further, the immediate policy challenge is to ensure that the recovery is intact. we have to make sure that there are “ no cliffs ” or things that will interrupt our recovery path. what kinds of things would cause this? firstly, we do not want financial conditions tightening too early because that would hurt the ongoing recovery path. in this case, we must do what is necessary to ensure that the banking sector still provides credit facilitation to the economy and help keep the recovery going. we also do not want to see an adverse impact on the thai financial markets from the tightening in global financial markets due to the fed or the ecb policy normalizations. however, we are well - placed to withstand the tightening, given our low external vulnerability. the other thing that would constitute a cliff is the deteriorating financial conditions. for example, a sudden and sharp uptick in non - performing loans could interrupt the banking sector and the credit intermediation channel. we would like to see only a gradual increase in non - performing loans or a gradual decrease in credit quality, given the extent of the crisis. we try to make sure that this is a gradual process and nothing unexpected or unforeseen happens. next : lay the foundation for the longer term aside from an immediate task of keeping the recovery intact, the other thing we have been doing is to lay the foundation for the longer term. specifically, we try to ensure that our financial sector responds well to the landscape post - covid - 19. it is hard to say how exactly the post - covid - 19 landscape would look like, but there are at least two trends that will become significant in the future. firstly, the world will become much more digital, and secondly, there will be a much greater emphasis on sustainability. on this, we have published the bank of thailand ’ s financial landscape consultation paper that put out our view about how we see things evolving in the financial sector. the paper indicates what we want and do not want to see and what are the red lines in each of these areas that we regulate. in the digital space, the first element of

have increased interest rates out of consideration for britain and italy, or at least might not have permitted rates to rise to the extent that the bundesbank considered necessary. this would not have served either germany or italy and britain well. in the case of asymmetric shocks a uniform monetary policy is second best. apart from this historical case in point, the general rule is that the costs of the loss of monetary independence will be progressively lower as the pace of economic adjustments increases. in particular, the speed with which the economy recovers depends largely on the flexibility of the labour market and on job mobility. when salaries develop in line with the regional economy and a potential for direct investment exists, regionally diverse shocks may be more easily absorbed despite a uniform monetary policy. the mobility of the workforce is also a helpful factor. if a workforce is mobile, there will be some who will leave a country suffering from a crisis and settle where job prospects are better. an illustration of how useful such flexibility can be was provided by the 1990 - 91 recession in the united states. following substantial cuts in military expenditure, the economic downturn in particular affected regions with a high proportion of military bases and arms manufacturers. notably in california, the unemployment rate rose much more markedly than in the rest of the country. thereupon, between 1993 and 1994 more than 250, 000 employees ( in net terms ) emigrated from california, while in the previous boom year 200, 000 persons had been attracted to this region. even if the adjustment process was painful for many people, the flexibility of the us labour market dampened the costs of this asymmetric shock. coming back to the european currency union, it might be objected that monetary policy is not the sole economic policy instrument. fiscal policy measures such as a tax reduction or an increase in public expenditure are also a means of boosting overall demand. yet the stability and growth pact, which helps to ensure budget discipline in euroland, imposes restrictions on the fiscal policy of the individual members. by contrast, interventions in the field of fiscal policy on a european level would hardly be in contradiction to the stability and growth pact. for a long time to come, however, the union's budget is still likely to be too modest to bring about the desired effects within the union by means of a stabbility - oriented fiscal policy. for the time being, fiscal policy is therefore not a realistic option. finally, one should take into account that by its very nature a monetary union promotes the