, on expanding the policy toolkit of central banks, the ecb is no exception. the environment of low interest rates and low inflation forces us to constantly review and upgrade our analytical toolkit to ensure we take the best possible decisions in our pursuit of price stability. 2 see also draghi, m. ( 2017 ), “ the interdependence of research and policymaking ”, speech at the lindau nobel laureate meeting, lindau, germany, 23 august. unofficial euroisation as a policy challenge let me therefore spend a few minutes on the one recommendation that is specific to candidate and potential candidate countries, albeit not uniformly to all, namely that the use of local currencies be strengthened. as you know, the high degree of unofficial euroisation is a striking feature of the banking systems in the western balkans. in the region as a whole, on average 56 % of total loans and 52 % of total deposits are denominated in, or indexed to, foreign currencies, in most cases the euro. 3 mid - 2017 data. for further details, see the special feature on “ unofficial euroisation in cesee countries ” in the international role of the euro, ecb, 2017, pp. 45 – 49. this phenomenon, also known as currency substitution, is driven by many factors, such as low confidence in the domestic currency, which is often the result of not - so - distant memories of monetary instability. another factor relates to the fact that the risk premium on loans in the domestic currency is higher, thereby providing an incentive to take out foreign currency loans. lower funding costs, in turn, are often supported through strong integration with the euro area via trade and financial channels, but also via migration and remittances, which contribute to the holding of bank deposits in euro. all this is conducive to widespread unofficial “ euroisation ”. but a high degree of foreign currency use also has serious drawbacks. for example, unofficial euroisation, while being a sign of trust in the euro as a stable store of value, constitutes a financial stability risk in the event of sudden and substantial exchange rate fluctuations. households and firms may suddenly no longer be able to service their foreign currencydenominated debt, creating credit risk for banks. the same holds true for dollarisation in other parts of the world, as the asian financial crisis vividly demonstrated. unofficial euroisation also impedes monetary policy transmission and may limit the overall room for manoeuvre

offers, however, is a framework to overcome common global challenges together, as long as all member states play by the rules. for candidate and potential candidate countries this means that adopting suitable economic and legal structures and putting in place the appropriate institutions in good time will allow many of the benefits of eu membership to be frontloaded. this also applies to central banking. the ecb, and in fact the entire european system of central banks ( escb ), supports central banks in the region on their path towards joining the eu. while the ecb plays no formal role in the eu accession process, it contributes in its areas of competence. as you know, we maintain close relations with central banks in candidate and potential candidate countries, which will eventually become part of the escb and later the eurosystem. through technical cooperation, we also support central banks in building and enhancing institutional capacity. this may take the form of eu - funded programmes, twinnings with escb national central banks or regional workshops and seminars hosted by the ecb. the cbbh was one of the first beneficiaries of such technical cooperation in the region through eu - funded and ecb - coordinated programmes in 2007 and 2010 – 11. these programmes also involved many eu national central banks and are remembered as being very successful. in addition, the ecb contributes to the assessment of the economic reform programmes of candidate and potential candidate countries as part of the eu ’ s economic and financial dialogue with applicants. here the ecb naturally focuses on monetary and exchange rate policies and financial stability. our views then feed into the joint conclusions of the economic and financial dialogue between the eu and the western balkans and turkey. 2 / 4 bis central bankers'speeches this year the ecb recommended that countries take five main actions : ( i ) adopt and implement comprehensive non - performing loan ( npl ) resolution strategies ; ( ii ) strengthen the use of local currencies ; ( iii ) expand the analytical and policy toolkits of central banks ; ( iv ) reinforce the medium - term orientation of fiscal policies ; and, finally, ( v ) improve the overall business and institutional environment, with a view to reducing external vulnerabilities, among other things. many of these recommendations also apply to current eu member states, as i alluded to before. in particular, low productivity, together with large stocks of npls and sovereign debt, remain a drag on growth in large parts of the euro area. also with respect to the third recommendation