wages to prices, and other forms of nominal rigidities. because these causes of a diverging evolution of ulcs are of a structural nature, and their effects on ulc growth and competitiveness positions can persist, we need to monitor and assess their implications carefully. should we be concerned by what we observe in certain euro area countries? yes, because persistent ulc growth in excess of the euro area average can be expected to give rise to sustained inflationary pressures and losses in competitiveness, with adverse effects on the real economy. what does the evidence tell us? first, the cumulative change in ulc over a period of time is highly correlated with the hicp inflation over the same period across euro area countries. the close relationship between the cumulative ulc growth and inflation rates is impressive ( see slide 13 ). a second unfavourable impact of persistently higher ulc growth is that the resulting effects on competitiveness are likely to contribute to a worsening of trade and current account balances. indeed, there is some evidence that countries with cumulative losses in cost competitiveness, as measured by the cumulative relative ulc growth, often exhibit large current account deficits or worsening current account balances ( see slide 14 ). what have been the consequences of these effects on economic growth performance? prior to emu, diverging inflation and competitiveness developments and sizeable current account deficits would have heralded, sooner or later, external adjustment via the exchange rate. within a monetary union, this adjustment channel does not exist any longer. the effects on gdp growth of losses in competitiveness as measured by the cumulative relative ucl growth are not visible in all countries ( see slide 15 ). why have we not witnessed, so far, expected adverse effects on output growth and employment in all countries that have experienced strong ulc growth? there are several reasons. let mention two : first, the negative effects of persistent above - average ulc growth and losses of competitiveness on economic activity and employment may take some time to materialise. second, these adverse effects on the real economy have been counteracted, and even fully offset, over the past few years by favourable effects of other, structural or cyclical, factors. such factors have included substantial interest rate decreases in the run - up to emu, eu structural funds support, immigration flows and financial liberalisation. their positive impact on economic activity may imply that the link between adverse ulc developments and economic activity was less visible and the respective

, and the challenges they will face in the years and decades to come. the origins and achievements of european banking supervision 1 / 5 bis - central bankers'speeches our common ties can be traced back to the origins of european banking supervision. the ssm was born out of crisis. in the years leading up to the establishment of european banking supervision, the euro area economy was struggling to recover from the great financial crisis and the euro area debt crisis. financial crises and financial fragilities led to de - risking and deleveraging, which had negative repercussions on economic growth and the inflation outlook. back then, weaknesses in the banking sector hindered the transmission of our accommodative monetary policy into similarly favourable financing conditions for companies and citizens. these obstructions to the transmission mechanism made it much more difficult for the ecb to maintain price stability. ultimately, the persistent weaknesses in the european banking sector led governments to establish the banking union. in addition to european banking supervision through the ssm, with a central role for the ecb, the banking union would include a single resolution mechanism and a european deposit insurance scheme, although this third pillar is yet to be implemented. one of european banking supervision's achievements has been the strong culture of cooperation within our pan - european joint supervisory teams, who use a harmonised supervisory methodology that ensures the same standards are applied across all supervised banks. this has helped to significantly reduce risks in the european banking sector and increase the resilience of european banks. the efforts of european banking supervision have paid off. this became clear during the pandemic, which was the first major crisis since the creation of the banking union. instead of being sources or amplifiers of shocks like in previous crises, banks proved to be resilient to the pandemic shock. in fact, they were able to help dampen it by extending credit to citizens and companies that had experienced a sudden loss of income. unlike during the crises that predated the banking union, banks were no longer part of to the problem, but part of the solution. of course, it should be kept in mind that they were able to do so in a context of massive fiscal support to citizens and companies and accommodative monetary policy. sound banks and effective monetary policy transmission so where do we stand now? let me start with the positives, but i must stress that these are no reason to be complacent. on the banking supervision side, we see that