liviu voinea : europe - managing the upswing in uncertain times speech by mr liviu voinea, deputy governor of the national bank of romania, at the conference ceps - imf spring 2018 regional economic outlook, brussels, 15 may 2018. * * * dear governor smets, dear director of the imf ’ s european department thomsen, dear ceps director gros, thank you for having me here. it is an honor for me to speak at the launch of the imf regional economic outlook for europe. this report is remarkable in many respects : it is comprehensive, well - documented and clearly written, with strong messages and judicious policy recommendations. it comes in times of uncertainty, when the european economy is rebounding, but challenges remain ; in particular, the business and financial cycles of advanced economies are so dissimilar to those of the new member states that a distinct analysis is warranted. the first chapter of the report is entitled “ managing the upswing in uncertain times ”. the report shows that growth has recovered in advanced european economies and even picked up in the new member states, some of which are now having large positive output gaps. moreover, growth forecasts are strong in 2018, but growth is not taken advantage of to advance with fiscal consolidation and structural reforms. this recovery has created more than 12 million jobs in the eu since 2013, exceeding pre - crisis peaks. consequently, unemployment fell by a total of 5 percentage points in nms and 3 percentage points in eu - 15 over the same period. uncertainty, however, does not mainly come from the economic environment ; it comes from the erosion of trust, based on an unbalanced distribution of globalization benefits, a long and slow recovery, decentralization and fragmentation – as the imf ’ s first deputy managing director david lipton pointed out in a recent speech1. the reo also speaks about the weakening support for globalization, which affects global trade and long term growth prospects, a thesis linked to the apparent retreat from cross - border integration and the move from multilateralism to bilateralism. and the report is right, in my view. after 3 decades of deregulation and liberalization, the consensus is being threatened by the return to protectionism. east european countries, being at the receiving end of capital movements, are the short term losers of what it looks like an exit from globalization as we knew it. i call this exit from globalization “ glexit ”

as a driver of growth, if we want growth to remain sustainable. the low financial intermediation in the banking sector comes, first of all, from the demand - side. households ’ distribution of income and credit is more uneven in cee than in euro - area ; and corporate balance sheets have not been repaired to the same extent as the banks ’ balance sheets were. as for the alternatives on the supply - side, the capital market is thin, and the role of the other financial institutions is less important than that of banks – although there are some differences in country - level data. this leads us to another challenge which has become increasingly important in non - euro member states : the sovereign - bank nexus. indeed, banks operating in non - euro area countries 2 / 4 bis central bankers'speeches are more exposed to the domestic sovereign debt, as they hold a higher share of it. however, sovereign securities are the only highly liquid assets available in large amounts in small markets ; hence banks have no realistic alternative to build liquidity buffers. moreover, government debt levels in cee are much lower than the euro - area average. the contrast between high banks ’ exposures to sovereign debt and low government debt in noneuro countries emphasizes the structural challenges in these countries. any solution for addressing the sovereign - banks nexus should account for the specificities of non - euro member states, and in general of emerging countries not issuing debt in a reserve currency. in the spirit of european integration, any limit should be addressed to the banks ’ group level, not at the subsidiaries level – a solution which would help preventing fire sales and would not affect financial stability in these countries. this takes me to the issue of integrated financial markets in europe, not only in the euro - area. as peter praet mentioned in last year ’ s eurofi held in malta, “ private risk - sharing was the general principle of the new european rules such as the bank recovery and resolution directive ( … ) making banks equally liable across countries for the amount of risk they want to take into their respective balance sheet ”. a pending issue for the completion of the banking union rests with the home - host approach in the resolution process. one of the main tasks within the resolution planning process for groups is to identify the most suitable resolution strategy and ensure its viability. most of the resolution authorities and banking groups have embarked in a single point of entry ( spe ) resolution strategy at european level, acting according to their declared standing and european