speech the analytical contribution of external statistics : addressing the challenges keynote speech by philip r. lane, member of the executive board of the ecb, at the joint european central bank, irving fisher committee and banco de portugal conference on “ bridging measurement challenges and analytical needs of external statistics : evolution or revolution? ” lisbon, 17 february 2020 introduction it is a pleasure to speak at this first edition of the conference on external statistics, which is jointly organised by banco de portugal, the irving fisher committee and the european central bank. not only as a central banker but also during my time in academia, i have spent much of my time analysing data on external transactions and international investment position. so it should come as no surprise that i take a very active interest in the programme of this event and look forward to the discussions today. it is fair to say that the richness and availability of external statistics has increased considerably over the last 20 years. at the same time, the measurement challenges have increased, meaning that there are still many analytical hurdles to overcome when interpreting external statistics. for the ecb, high - quality measurement of cross - border statistics is centrally important to the ecb for several reasons. first, the euro area is closely integrated into the global economy, both on the real side – via trade linkages and participation in global value chains ( chart 1 ) – but also on the financial side – as indicated by the size of euro area external assets and liabilities ( chart 2 ). second, the current account balance of the euro area is a primary macroeconomic variable and the underlying shifts in the current account have widespread implications for the overall real and nominal dynamics of the euro area. it follows that accurately measuring the external sector of the euro area is central to understanding exposures to external shocks and the international transmission of the ecb ’ s policies. in my remarks, i will first discuss some of the globalisation - related measurement challenges that are affecting the real side of external statistics, before turning to the financial side. i will then highlight some of the ongoing initiatives to address these measurement challenges and outline some ideas to enhance the external statistics compilation framework, with a focus on the euro area. chart 1 euro area trade and global value chain participation ( percentages of euro area gdp ( left side ) ; percentages of total exports ( right side ) ) sources : ecb, eurostat and world input - output database. notes : the data refer to extra - euro area trade. the exports and

capital buffers to continue providing key financial services and absorb losses while avoiding abrupt and excessive deleveraging that would be harmful to the economy. the support from governments and prudential authorities together with the ecb ’ s monetary policy measures has preserved financial stability so far and ensured a smooth flow of credit to the economy. although policy support has been successful in containing immediate financial stability risks, medium - term vulnerabilities remain high. the pandemic has amplified pre - existing imbalances and created new challenges. for example, the profitability outlook for banks remains weak as lower - for - longer interest rates dent margins and structural challenges persist. in addition, corporate sector vulnerabilities have increased, and higher corporate default rates are to be expected once policy support measures are withdrawn. this would lead to the quality of banks ’ assets deteriorating, resulting in another challenge for these institutions in the coming period. the forceful response of fiscal, monetary and prudential authorities has reduced the economic and social costs of this crisis and created a virtuous circle between sovereigns, banks and corporates. the measures introduced have stabilised demand, ensured the flow of credit to firms, avoided a wave of corporate defaults and protected banks ’ balance sheets. however, they have also increased interdependencies among various parts of the economy, which could lead to the emergence of a negative feedback loop between existing vulnerabilities. authorities therefore face a delicate balancing act. on the one hand, an early withdrawal or scaling back of support risks triggering a wave of insolvencies that would have a large impact on the economy and banks ’ asset quality. on the other hand, providing public support and low financing costs for too long may result in unviable corporates being kept alive to the detriment of banks ’ viability, economic productivity and, by extension, economic growth. 2 / 3 bis central bankers'speeches at the moment, risks from the early withdrawal of policies are higher than the risks associated with keeping support measures in place. we need to preserve the virtuous circle we have created. however, any negative longer - term effects from keeping support measures in place need to be carefully and continuously monitored. conclusion in the short term, all stakeholders, particularly fiscal ones, must keep complementing our accommodative monetary stance. if we want a timely recovery in europe, we have to avoid any cliff effects from the premature scaling back of these policies. it is therefore of