yves mersch : economic and monetary policy at a turning point – where is the economy heading in europe, the united states and china? speech by mr yves mersch, member of the executive board of the european central bank, at the petersberger sommerdialog, konigswinter, 29 june 2019. * * * despite the escalating trade dispute between the united states and china, the global economy continues to grow robustly, albeit at a slower pace. looking at developments in major economies beyond the euro area, activity in the united states is supported by the strong labour market, accommodative financial conditions and current fiscal stimulus. however, economic growth is expected to decelerate. at the same time, in china the slowdown in domestic demand has been cushioned by the implementation of a series of fiscal and monetary policy measures. although the escalation in the trade dispute with the united states is foreseen to weigh on trade, china is expected to continue its orderly transition to a more balanced growth path. the incoming data for the euro area in the first quarter of 2019 have been somewhat better than expected. euro area real gdp increased by 0. 4 % quarter on quarter in the first quarter of 2019, bolstered by resilient domestic demand. however, survey information and economic indicators point to somewhat weaker growth in the second and third quarters of this year. this reflects the ongoing weakness in global trade and the prolonged presence of uncertainties that continue to weigh on euro area growth, in particular in the manufacturing sector. consequently, the eurosystem staff projections see euro area real gdp growth of 1. 2 % in 2019, which will accelerate further, to 1. 4 %, in both 2020 and 2021. compared with the march 2019 staff projections, the outlook for real gdp growth has been revised up slightly for 2019, largely owing to a stronger than expected first quarter. at the same time, real gdp growth has been revised down for 2020 and 2021, mainly reflecting a somewhat weaker contribution of foreign demand. the fundamental factors supporting the euro area expansion remain broadly in place. labour market dynamics remain robust, with unemployment at 7. 6 % in april, the lowest level since august 2008. employment increased by 0. 3 % quarter on quarter in q1 2019, as in the previous quarter. the cumulative increase in the number of people employed between q2 2013, the trough of euro area employment, and q1 2019 amounts to 10. 8 million. nevertheless

complex decisions, particularly when resolving the large stock of nonperforming loans. thus, bank boards have to have strong and independent directors with a robust track record who can ensure arm ’ s length decisions in the best interests of their stakeholders and of the greek economy. bank management needs to be free of political interference and vested interests. with this aim in mind, we encourage the hellenic financial stability fund to make every reasonable effort to finalise the review and reconstitution process within the next few weeks. on financial sector policy, there are other important elements of the ongoing second review which seek to further reduce structural impediments to swift and effective npl resolution. let me highlight the reform of the out - of - court workout framework, with its main goal being to provide sufficient incentives for creditors and debtors to agree on mutually beneficial debt restructuring arrangements. the framework is intended for viable but distressed firms whose profitability has been severely hit by the prolonged economic crisis. to be effective, it needs to take into account the fact that greek firms have both significant non - performing loans vis - a - vis banks and significant arrears to the state. let me add that as of end - 2015 total arrears to the state in respect of taxes and social security contributions were around €110 billion, of which about €79 billion was due from corporations, small and medium - sized enterprises as well as professionals – the categories eligible for out - of - court frameworks. the stock of non - performing exposures in greek banks relative to these same categories amounted to another €55 billion. 2 / 4 bis central bankers'speeches apart from developing effective out - of - court frameworks, the greek authorities also need to fully implement the agreed measures to strengthen the judicial system, thereby substantially shortening legal proceedings and enhancing the competence of the courts. these requirements are not specific to greece ; experience has shown that npl resolution requires strong legal frameworks throughout the euro area. in any case, creditors in greece have to wait longer to obtain a court ruling after an insolvency than in any other eu country except the slovak republic. it takes on average about three and a half years, compared with less than six months in ireland, the eu ’ s best performer. swift progress on npl resolution will also help banks to support the economic recovery through credit provision, eventually ending the prolonged period of negative credit growth. so far, credit developments remain subdued, with credit from monetary financial institutions