and spread its risk. even more importantly, achieving integration will allow us to reap the full and lasting benefits of the drive towards union that began in 1957, and will ensure that the european community is more than just the sum of its parts and that europe has weight and influence in tomorrow ’ s world. b. improving the functioning of the banking union... one of the main steps towards this integration has been the banking union. however, its functioning needs to be adapted and improved. the most visible aspect of banking union has been the implementation of a single supervisory mechanism under the aegis of the ecb. constructed in record time to address the main weaknesses in our banking system – the doom loop between government debt and bank debt, the disparity in national banking rights, the national bias in supervision – the single supervisory mechanism is now a tangible reality that has completely transformed the way the euro area banking industry is regulated. after just over four years of existence, the ssm today constitutes a unique and efficient model, based on the application of the eu single rulebook ( under the direction of the european banking authority – eba ), close cooperation between the ecb and national authorities on all levels ( ecb supervisory board, joint supervisory teams, on - site inspections teams ), and the principles of subsidiarity and proportionality ( the ecb directly supervises 119 of the largest banking groups while all other institutions are supervised through national authorities ). the ssm represents a major institutional step forward and the initial results are real. banking supervision practices have been harmonised upwards and are now aligned with the highest international standards ( for example, the methodology for the supervisory review and evaluation process or srep ). europe ’ s banking industry is today significantly more robust than before the crisis : the biggest banks ’ cet1 ratio has increased by more than 3 percentage points since 2014 ( from 11. 3 % to 14. 6 % at end - 2017 ) and their balance sheets have largely been cleaned up ( through a reduction in the npl ratio from 7. 6 % to 4. 9 % over the same period ). the industry ’ s resilience was confirmed in the stress tests organised by the ecb and eba in 2018, which simulated the impact of financial shocks on the solvency of the largest banks : in an 5 / 7 bis central bankers'speeches adverse scenario, the average cet1 ratio for the sample would come out at 9. 9 % – or 1 percentage

in january 2013 in the euro area as a whole ( and as high as 55. 5 % in spain and 38. 7 % in italy ). there are signs of a growing mismatch between worker attributes and job requirements across a number of euro area countries, consistent with an outward shift in the aggregate euro area beveridge curve – i. e. a higher level of unemployment is associated with a given level of vacancies. future growth depends on human capital being cultivated and expanded. that is threatened if too many workers remain unemployed for too long and lose their employability. the fiscal crisis has also endangered solidarity between generations by calling into question the ability of governments to raise enough revenues to afford the services they provide to the older generation. finally, the crisis is exerting visible strains on the relationship among the people of europe, with nationalist temptations that do not help to achieve a consensus on cooperative solutions or to allow a return to stability and growth. see http : / / eur - lex. europa. eu / lexuriserv / lexuriserv. do? uri = oj : c : 2010 : 083 : 0013 : 0046 : en : pdf, european union, article 3 ( 3 ). bis central bankers ’ speeches treaty on a rebalancing is inevitable and is now under way, but it is taking its toll. the longer that rebalancing takes, the higher the social costs. so it is crucial that a sense of urgency is maintained both at national and at european level. the national level is still central to the definition of the social contract. seen from within europe, social contracts vary between member states because of history and political preferences. seen from further afield, however, it is apparent that there are common values in, and common challenges to, these national social contracts. we recognise explicitly those common values and sought to have them reflected in the maastricht treaty. they include freedom, peace, democracy, tolerance and – vital from a social perspective – solidarity. upholding those values faces similar challenges across the continent, in particular the sustainability of public policies, which are an expression of the social contract. europe is also a political union : the social contract exists both within countries and across countries. the eu can in fact be regarded as perhaps the most ambitious example of the philosophical theories that underpin the social contract. as thomas hobbes remarked in his leviathan2, sovereign states are established to regulate social