that their economic prospects can be insulated from weak demand in the euro area, should it persist or reappear in the future. let me also add that for eu candidate countries the benefits of eu membership remain as convincing as ever : the acquis is the surest path to modernisation, democracy and the rule of law. but while the benefits of euro membership are real, like any club, the euro area has rights and it also has obligations. and during the crisis, the obligations of membership have become much more clear. first, countries have to be ready and willing to join. by this i mean they must have internalised, in their public debate, the requirements of being part of a monetary union. countries cannot join the euro area but continue with the same economic policies based exclusively on national considerations. and this consensus needs to be there before membership. second, while the treaty prescribes the criteria for joining the euro, convergence means more than meeting a set of nominal criteria at a point in time. it has to involve laying the foundations to prosper in emu over the long - term. there cannot be labour markets that protect insiders ; product markets that shield closed professions ; education systems that hinder innovation ; public administrations that fail to collect tax or pay arrears ; or judicial systems that cannot enforce contracts in reasonable time. countries that join the euro area in the future are in the enviable position of being fully aware of these obligations. they can prepare properly for membership and hence maximise the benefits. and indeed, many are already doing that. it is somewhat ironic that the exemplars for the right kind of policies for euro area membership are mainly found outside it. latvia is the leading example of how to adjust through internal devaluation, and it is a model for others in the euro area. its “ v - shaped ” economic recovery illustrates what can be done with a strong consensus to undo the excesses of the past. after an initial fall in gdp of bis central bankers ’ speeches almost 18 % in 2009, gdp increased by more than 11 % from 2010 to 2012, and unemployment has fallen by almost 7 percentage points from its peak. and poland is a case in point of how not to get into difficulties in the first place : it is a country with relatively sound macroeconomic fundamentals, which has managed to avoid recession and preserve sustainable growth in recent years. to sum up, the case for joining the euro area for cee member states

also for the financial system of the region as a whole. let me give you an example : as you are fully aware, foreign currency lending in some of the countries of the region has been a real source of systemic risk. according to the new capital framework for banks ( crd iv ), the ecb – as newly empowered macro - prudential authority – will be able, on its own initiative, to pre - emptively tighten prudential capital requirements above eu - level minimums when national systemic risks are detected. in other words, not only will the ssm improve detection of emerging financial risks like those that caused the crisis, it will provide a stronger set of tools to counter - act them. bis central bankers ’ speeches but banking union is more than just the ssm. it will also create a common approach to restructuring and resolution of banks across europe. we need a consistent set of rules, including a clear pecking order, to create certainty for investors and reassure depositors. fortunately, progress here is well underway. the bank recovery and resolution directive – which applies to all 27, soon 28, eu countries – is the key first step. this framework should enter into force as soon as possible, and i would like to see the bail - in provisions advanced to 2015 to reduce the cost of bank repair for the public purse. the next step is to establish a single resolution mechanism, based on a single resolution authority and a fund to be financed by the levies on the banking industry itself. this would ensure that all banks in the eu – in particular those here in cee countries – benefit from a level playing field, as bank funding costs would not be determined by the soundness of their sovereigns, but rather the soundness of their balance sheets and business models. however, to move ahead with banking union we need urgent clarity about who will actually remain outside. many countries have given indications that they are considering to join the ssm. but as the legislative process enters the final stretch, and as our own internal preparations are gearing up, it is essential that those intentions become something more firm. ideally, we should know by july 2013, when the legislation is expected to be finally adopted, which countries outside the euro area are committed to join, and by when. conclusion let me conclude. the euro area is here to stay. it will survive this crisis, it will emerge from it stronger and more countries will join the euro in the future. but it is also