, there has been more diversity in financial conditions across the globe due to differences in speed of recovery from the crisis, the state of balance sheets and variation in policy decisions. under these conditions, there is greater potential for adverse external policy spillovers since countries are at different points in the tightening - loosening policy spectrum. 7 / 10 bis central bankers'speeches in addition, lower bound constraints mean that it is more problematic for a central bank to offset an externally - driven tightening in financial conditions through domestic monetary easing. 10 furthermore, a tightening in financial conditions is especially damaging during phases in which domestic sectoral balance sheets are under repair. given these constraints, a welldesigned monetary strategy can provide a strong anchor for domestic financial conditions by providing clear forward guidance on the commitment of the central bank to meeting its mediumterm inflation target. internal spillovers its unique status as a monetary union of nineteen member countries means that it is essential to address also internal spillovers within the euro area. the high levels of trade and financial integration among the member countries mean that the scope for cross - border internal spillovers is especially acute. indeed, avoiding the disruptive impact of shifts in national currency values ( including from a political economy perspective ) was one of the motivating factors behind the formation of the monetary union. 11 let me focus on a particular type of internal spillover : if macro - financial conditions in an individual member country substantially deviate from the rest of the euro area, the area - wide monetary policy may not be optimal from the perspective of the country in question. 12 in this sense, the macro - financial conditions in the rest of the euro area spillover to this country through their impact on monetary policy. to mitigate the impact of this type of internal spillover, it is now widely accepted that national macroprudential policies can play an important role, especially in relation to differences in financial cycles across member countries. 13 in addition, taking due account of fiscal sustainability considerations, counter - cyclical national fiscal policies can contribute to macrofinancial stabilisation. in fact, recent analysis shows that there are complementarities between national macroprudential policy and counter - cyclical fiscal policies, which limits the burden placed on either policy instrument if both are simultaneously deployed. 14 through such mechanisms, the impact of internal spillovers within the monetary union and any potential financial stability side effects of the area - wide common monetary policy can be mitigated. conclusions in summary, the focus

conditions on the design of the ecb ’ s monetary measures, while also recognising the role of the external sector in determining their effectiveness. from a global perspective, the external spillovers from the ecb ’ s monetary strategy also matter for macro - financial conditions elsewhere and may affect optimal monetary strategies for other central banks. in addition, from the perspective of individual member countries, the national impact of the ecb ’ s monetary strategy depends on a host of country - specific factors, together with the indirect impact through the matrix of inter - linkages among the member countries. to the extent that there is a mis - match between the current macro - financial conditions in an individual member country and the ecb ’ s monetary stance, this can be analytically viewed as a type of internal spillover generated by the deviation vis - a - vis macro - financial conditions in the rest of the euro area. we will return to the analysis of internal spillovers later in the speech. 1 / 10 bis central bankers'speeches external spillovers in thinking about external spillovers, it is important to bear in mind that nature and magnitude of spillovers varies over time, across regions and across different states of the world. accordingly, it is essential to adopt an empirical approach in assessing the role of spillovers at a given point in time. to this end, let me make a few empirical observations. first, as shown in figure 1, the share of world gdp ( measured in current us dollars ) that is generated by emerging and developing countries has risen sharply from about 20 percent in 2000 to 30 percent in 2007 and 40 percent in 2017. in relation to the trade channel, figure 2 shows that this group is collectively far more important than the united states as a trading partner for the euro area. it follows that the assessment of macro - financial conditions in these economies is an important task in determining the appropriate monetary stance for the euro area. 2 / 10 bis central bankers'speeches second, the nature of external linkages and spillovers inevitably varies with the current state of the euro area economy. to take just one dimension, some transmission mechanisms are a function of output levels, while others are a function of domestic expenditure levels. accordingly, the cross - border transmission of shocks and policies will differ depending on the direction and magnitude of the euro area ’ s trade balance, which is simply the difference between output and expenditure. figure 3 shows net exports as a share of gdp for the euro area : the current net surplus position