a sharper deterioration in the credit cycle. all in all, the outlook for both global and euro area financial stability remains highly uncertain. a lot will depend on the interaction between macroeconomic developments and the financial system and on how banks respond to an operating environment that presents various challenges, including some new ones. the financial turmoil could be gradually broadening in scope and evolve into a more traditional credit - cycle downturn. in such circumstances, it is likely that the adjustment process will remain protracted as key participants in the financial system continue their efforts to strengthen their liquidity and capital positions. in an environment where balance sheet conditions can change unexpectedly, there is obviously no room for complacency. vigilance remains of the essence for market participants and policy makers. thank you for your attention.

2 a series of studies have revealed the similarity of monetary policy transmission channels, with the interest rate channel playing the prominent role in all countries and the bank credit channel a less predominant role. 3 national financial structures, however, still continue to exhibit significant differences. for instance, the role of debt securities and shares in financing the private sector and the types of vehicles ( pension, insurance and mutual funds ) used to manage the long - term savings and pensions of households are markedly different across countries. as a result of the high degree of trade, particularly intra - industry, and financial integration, as well as the high degree of convergence of macroeconomic policies in the euro area, the business cycles tend to be significantly synchronised. cross - correlations of business cycles ( in particular industrial output ) have been quite high between the larger euro area countries4 over the past decade, although business cycles have also tended to be more synchronised across the world. moreover, the dispersion of real gdp growth rates in the euro area has remained very close to its historical average, suggesting the absence of any major asymmetric shocks. as differences in gdp growth rates partly reflect differences in potential growth rates, and consequently differences in the successful implementation of structural reforms, the dispersion also indicates the scope for countries with low growth to achieve higher growth rates. it is important to note that even if there have been no major asymmetric shocks, diverging developments may have arisen from the transmission of common shocks, implying that adjustment mechanisms, working via external competitiveness or automatic fiscal stabilisers, are still necessary. for the new member states, business cycles are less correlated within the group and with the euro area, showing also higher output variability. while this partly reflects the profound structural changes and reforms that have taken place, it may also reflect the fact that these countries are rather small and specialised. as trade integration and foreign direct investment flows into these countries continue, there is reason to believe that the level of synchronisation will increase. as a matter of fact, there has been a marked increase in investment flows towards the 10 new member states in recent years. certainly, the euro area also lacks some properties that would make countries and regions more resistant to economic disturbances and improve performance in terms of gdp growth and employment, in particular a high degree of wage and price flexibility and labour market mobility. some have also argued that the sustainability of emu hinges on the existence of a cross - country fiscal transfer