quality are therefore clearly sub - optimal from a monetary policy perspective. m y third reason for why real convergence matters is related to the second point : just as institutional quality matters for monetary policy and closing income level gaps, so do integration and risk - sharing. deeper integration will help smooth consumption through asymmetric shocks, rather than amplifying those shocks, and will support the process of real convergence. for example, labour mobility between countries is low and, as we have seen in recent years, is unlikely to be a major source of adjustment once a crisis hits. although there was an increase in labour mobility in crisis - hit countries, the overall adjustment was limited. similarly, financial integration has come to a halt. 7 on slide 7 you can see that the latest level of the ecb ‘ s quantity - based financial integration composite indicator is comparable to the level in 2004, and the latest level of our price - based composite indicator is roughly comparable to levels observed between 2000 and 2004. 9 / 15 bis central bankers'speeches as a result, and in the absence of large - scale fiscal transfers between regions, the degree of risk - sharing in the euro area is lower than in other currency unions. one recent estimate finds that between 1999 and 2014, total risk - sharing through both public and private channels in the united states smoothed 57 % of country - specific shocks, compared with just 29 % in the euro area. 8 this greater degree of risk - sharing derives not just from federal fiscal transfers, but also from greater risk - sharing through credit and financial channels. credit provision dried up in certain countries during the crisis at precisely the moment when it was needed to smooth income shocks. clearly, deeper financial integration is needed. and as i said elsewhere, convergence is also a political prerequisite to engage in a discussion on any new public risk - sharing mechanisms – just like john rawls pointed out with his concept of the “ veil of ignorance ”. 9 10 / 15 bis central bankers'speeches convergence and the need for efficient economic institutions all this means that if we want to achieve sustainable economic convergence – if we want to reap the full potential of our economies – then we also need to strive for convergence towards high institutional quality and strengthen the integration of our economies and markets. this is also in the interest of monetary policy as i have just explained. and i want to be clear here, i am talking about convergence in institutional quality, rather than convergence in institutions. in other words, what matters is not

country - specific to sector - specific risk assessment. in the banking sector too, the changeover to the single currency seems to have intensified the trend towards consolidation. although most mergers have been domestic, they have often been instigated and influenced by euro area - wide market developments and the integration of financial markets following the introduction of the euro. moreover, there is no doubt that the introduction of the euro has encouraged the internationalisation of banking activities. in particular, the rapid integration of the wholesale banking and capital markets, as well as large - value payment systems, has already created closer links between banks at the euro area level. overall, these new economic and financial conditions in europe are creating new investment opportunities, encouraging industrial restructuring and promoting sound competition between economic agents in a new, enlarged market. for sure, the beneficial effects of this new environment on economic structures will only be felt gradually, but there is no doubt that these effects are deep and lasting. meanwhile, other economic policies are needed to accompany this restructuring process. this is not to deny that important progress has already been made. over recent years, wage settlements have been relatively moderate, public finances have improved, deregulation and liberalisation have been initiated in a number of sectors, and there are signs that labour markets are gradually becoming less rigid. employment grew by 1. 8 % in 1999 and by over 2 % in the first half of 2000, and since the start of monetary union, the unemployment rate in the euro area has fallen by 1. 5 percentage points. however, further efforts are required in order to create the best conditions for turning the current upswing in economic activity into a period of sustained growth in an environment of price stability. with regard to fiscal policies, the overriding objective for governments should be to shelter their budgets not only from normal cyclical fluctuations, but also from unexpected shortfalls in revenues and interest rate increases. in the current favourable economic conditions, it is crucial that any loosening of fiscal policy be avoided and that further progress along the path towards fiscal consolidation is made. in parallel, governments ’ budgetary policies also urgently need to address longer - term issues, such as the structural reform of social transfer systems. significant reductions in unemployment can only be reached through resolute measures to improve the functioning of labour and product markets. the successful experience in some countries of the euro area has shown that such reforms can rapidly provide important benefits for the economy and for society. finally, looking at the process of regulatory reform, although