over the last year. moreover, low longer - term interest rates increase the market value of financial assets held by banks. this, in turn, results in capital gains that further support bank profitability. this aggregate picture masks some heterogeneity within the banking sector. in particular, depending on their business models, individual banks might be affected in different ways by the low interest rate environment. a second issue is the potential risk of credit or asset bubbles. currently, we do not see compelling evidence at the euro area level of stretched asset valuations. both corporate bond spreads and equity prices appear to be broadly in line with fundamentals. similarly, real estate price growth remains moderate in the area as a whole, although significant cross - country heterogeneity is observable. this assessment is corroborated by the fact that credit growth is still modest, which suggests that asset price developments are not accompanied by increasing leverage. nevertheless, the longer the accommodative measures need to be kept in place, the greater the risks of unwarranted side effects on the financial system become. for instance, asset prices may increase to levels that are not in line with fundamentals because investors might be tempted to take on more risk during times of low yields. such developments are best addressed by enacting appropriate macro and micro prudential policies. while our single monetary policy is geared towards delivering price stability for the euro area as a whole, macroprudential policy measures can be designed to address financial stability risks that may be building up in specific market segments, jurisdictions or individual countries. addressing potential risks at their origin also reduces the probability of contagion throughout the euro area. microprudential policies also help to reduce vulnerabilities in banks. i therefore welcome the european commission ’ s risk reduction proposals presented last november, which further develop the eu ’ s legal framework for credit institutions and should increase the resilience of banks. conclusion let me conclude. as i argued last week in ljubljana, and as the crisis has shown, the benefits of the single currency can only be fully reaped if we have policies and institutions at national and european level that ensure it works for everyone. in the run - up to the launch of the euro, there was a strong commitment to advancing along the path of institutional and economic convergence. the crisis showed that this commitment cannot be relaxed. in fact, it remains fully relevant today as we seek to strengthen emu and the

i should like to emphasise how important it is that monetary policy is supported by structural measures to improve the functioning of labour, product and capital markets. this would also enable the economies of the euro area to operate at a higher degree of resource utilisation and thus make better use of the available productive capacity. in particular, it is widely recognised that the euro area faces a problem of high and persistent unemployment, which is largely structural in nature. there is therefore, a pressing need for measures targeted at making labour and product markets work more flexibly. furthermore, flexible labour and product markets are also important to enable national economies to adapt to shocks, particularly those that do not affect the countries of the euro area equally. monetary policy has to maintain price stability in the euro area as a whole, so national labour and product markets need to be flexible enough to adjust to such shocks. although some countries have adopted a wide range of measures, the progress made so far in pursuing structural reforms has been uneven and not yet satisfactory overall. however, there are some encouraging signs. over the past few years, the european community has stepped up its efforts in this field, aiming to co - ordinate and improve member states ’ policies in the field of employment and labour market reform and to initiate reforms that improve the functioning of goods, services and capital markets. the experience of countries that have undertaken significant reform programmes shows that it takes time to implement structural reforms and even longer for the benefits of these reforms to materialise in full, but that these reforms bring about swift progress in employment creation and the reduction of unemployment. finally, let me stress that while there are challenges ahead, the independence of the eurosystem, together with the clear mandate to maintain price stability in the euro area, provides a solid foundation for the long - term stability of the euro. the first six months of 1999 have seen the successful launch of the new currency. in the coming years the euro will make an important contribution to further economic and financial integration, helping to improve the growth potential of european economies.