of ottoman rule and, more recently, the communist take - over of these countries, which resulted in an expulsion of all non - communist greeks. after an interlude of some 50 years, the historic forces are back at work. more than 5, 000 greek companies now operate in the neighbouring balkan countries and are among the main foreign investors in bulgaria, fyrom, romania, albania and, more recently, serbia. this development has resulted in a delocalisation of greek industry to our neighbouring countries and a steady inflow of migrant workers to greece. the greek banking sector has also undergone a radical transformation, evolving from the highly regulated sector it was 15 years ago, when the bank of greece set over 150 different levels of interest rates to become a free, competitive and dynamic sector and a key pillar in greece ’ s successful economic performance. despite their relatively small size by european standards, the greek banks'high profitability has enabled them to build sound foundations. just like other sectors, the greek banking sector has also expanded to south - east europe. this offers greek banks the opportunity to benefit from the growth potential of a rapidly developing region with low levels of financial intermediation, to increase their size and efficiency, and to continue to flourish in the very competitive international financial environment. the market penetration of greek banks, based on their total assets in the neighbouring countries, ranges from 11 % to over 30 %. moreover, the foreign claims of greek commercial banks on the balkan region countries have reached almost €11 billion, which represents 25 % of greek banks ’ total foreign claims and 58 % of their own funds. unfortunately, the state of the greek economy is far from rosy and many challenges still lie ahead. after euro area entry, fiscal discipline was relaxed and during the last five years the fiscal deficit has, in fact, worsened. only this year has it been budgeted to fall below 3 % of gdp, while continuous efforts will have to be maintained to reach a balanced position, as required by the eu. moreover, the euphoria after euro area entry prompted a'' money illusion'' with labour unions demanding and obtaining high nominal wage increases, regardless of the impact on real incomes and unemployment, as a result of the the loss of external competitiveness. this makes it even more urgent and imperative to raise productivity growth further and develop high value - added activities. we, therefore, need to intensify our structural adjustment efforts in the labour and product markets, promote innovation and technology, and

history of the last 50 years has taught us. in this context, i think that we can go a long way with the lamfalussy framework. and i do not think we are anywhere near the stage where we can say that we have fully exploited all the possibilities it has to offer, at least in the banking sector. in addition, the lamfalussy framework and the way it is applied will evolve over time in response to the evolution of markets. the eurosystem ’ s perspective i would like to conclude my speech with a specific reference to the eurosystem's perspective of the above - mentioned regulatory developments. it is worth noting that the eurosystem's primary relevant concern stems from the fact that it is responsible for monitoring financial stability in the euro area, and at the same time recognises that a smooth - functioning financial system is a vital transmission mechanism for ecb monetary policy. within this context, the forthcoming implementation of the new capital requirements framework, as well as the strengthening of supervisory cooperation within the eu, are seen as particularly encouraging developments, as they considerably enhance the existing financial stability framework. of course, as the financial market landscape changes and the degree of european financial integration increases, new concerns are likely to arise, regarding, for instance, the ability of the system as a whole to respond to a possible emergency situation in a timely and effective manner. the bank of greece, as a member of the eurosystem, keeps a close eye on developments, while participating actively in the respective discussions within the eu institutions for the establishment of common arrangements.