the convergence process : a productivity divide between countries and regions ; and household income inequality within countries. if growth and wealth are not spread equitably in european regions and their several communities of citizens, the union will be politically challenged and may even cease to be desired. the report goes one step further to show that, within countries, regional divides are widening. and world bank research found that the main reason for this is low economic potential : lagging regions have poorer institutions, a lower share of skilled workers, and limited access to markets. www. bportugal. pt interestingly, portugal had a contrasting experience in the recent past. an empirical study from universidade do minho shows that, between 2008 and 2015, inequality among the portuguese regions in terms of real gdp per capita actually decreased by 12 %. this is an encouraging performance compared to european peers, especially when compared to those that were implementing financial assistance programmes during that same period. on a less positive note, in 2016, the vast majority of portuguese regions were still below the european union average in terms of gdp per capita in purchasing power parity. this subnational regional analysis is important for two main reasons : • on the one hand, within - countries inequalities in advanced economies have been intensifying – they are the ultimate expression of global and supranational dynamics and are giving rise to growing social and political tension ; • on the other hand, policy instruments tailored to address inequality remain mostly in the hands of national authorities. this brings me to the second point i would like to cover. 2. coping effectively with inequality at the national level the world bank ’ s growing united report argues that the revival of the european convergence machine should be pursued by ensuring equal opportunities for people and firms. this is crucial advice to all policy authorities responsible for addressing inequality : the most effective and sustainable path to reducing inequality is not by redistributing income, but rather by ensuring everyone has comparable opportunities to take part in the generation of income. in other words, although redistribution remains an important complementary tool, the strongest instrument to promote social inclusion is inclusive growth. three institutions are particularly relevant for generating inclusive growth : education, the labour market and the business environment. www. bportugal. pt let me start with education. as already pointed out by many studies, universal access to highquality education ensures equal access to opportunities, and subsequently, equal access to income. but the education system needs to be adequately tailored

carlos da silva costa : the origins of the crisis and future prospects address by mr carlos da silva costa, governor of the bank of portugal, at the centro portugues de estudos, london, 16 june 2011. * * * introduction good evening ladies and gentlemen. it is a real pleasure to be here. four years after the beginning of the largest financial crisis since the great depression global financial stability has yet to be secured and many policy challenges remain to be addressed. indeed : global recovery is not proceeding at a balanced pace ; large global imbalances persist ; widespread public debt sustainability concerns have emerged ; and links between weak balance sheets of both governments and the banking sector have led to renewed tensions in financial markets, particularly affecting the euro area. against this background, my intention today is to review the origins of the crisis and discuss future prospects. 1. what has happened? the great moderation and regulatory failure the causes of the global financial crisis are now well understood. the mid - 1990s marked the start of a decade of sustained macroeconomic growth and low inflation – a period which has become known as “ the great moderation ”. globalisation has favored benign macroeconomic conditions, creating the illusion of a new paradigm in the economy. low consumer inflation eased the pressure on central banks – most notably the us fed – to tighten monetary policy and rein in credit growth. rather than translating into consumer price inflation, credit expansion, deriving from the ample liquidity and low interest rates, has led to fast rising asset prices. in particular, very low us interest rates have promoted the rapid expansion of consumer and mortgage credit, fuelling a widespread housing bubble. regulatory and supervisory failures have amplified these developments. indeed, relevant factors to explain the magnitude of the financial bubble and the subsequent disruptions include : wide - ranging financial de - regulation ; pro - cyclical elements in regulatory frameworks ; insufficient attention devoted to financial interconnectedness and macro - systemic and liquidity risks ; and, last but not least, lack of market transparency. bis central bankers ’ speeches the transition to the self - regulation paradigm and the move from the “ originate - to - hold ” to the “ originate - to - distribute ” business model have created perverse incentives : emphasis was put on expanding lending, rather than on the borrower ’ s ability to pay. accumulation of imbalances in the us economy has mirrored the build - up of large global imbalances. indeed, current account surpluses in emerging countries, most