observe right now is divergence or fragmentation, not convergence. the economies of the euro area countries had not converged sufficiently when the euro was introduced, and the gaps among them widened further after the bubble burst in the middle of 2000s. divergence is evident in unit labor cost growth and current account balances. yield differentials in the european bond markets have also widened. such market fragmentation has forced investors to reconsider country risks, which had been considered eliminated with convergence to a single financial market. to accomplish a greater degree of convergence, while taking into consideration strong national identities and the slow process of population movements across borders, three options are often mentioned, ones that are not mutually exclusive. the first is to carry out so - called internal devaluation in the periphery. the second is to boost productivity and create value - added industries in the periphery. and the third is to implement fiscal transfer from the core to the periphery on the grounds of mutual benefits. here i believe that the keys to success are the european people ’ s belief in the euro system and their “ solidarity ” or the common cause of “ european citizenship ”. although achieving any of these options will take a long time and painstaking effort, it is hoped that the euro area nations will continue to do their best on these fronts. v. a new hope : strengthening market infrastructure finally, i would like to touch briefly on the new hope seen in the strengthening of market infrastructure both in europe and japan. for many market participants, strengthening market infrastructure is important for sustained investment in europe and elsewhere. in this regard, the eurosystem has been pushing forward with target2 - securities ( t2s ), a single pan - european it platform for securities settlement. at the same time, the bank of japan is working to revamp the bank of japan financial network system ( boj - net ) to enhance the system ’ s flexibility and accessibility. it is hoped that both of these initiatives will succeed in making global financial markets more resilient and efficient. thank you very much for your kind attention. bis central bankers ’ speeches

from european countries. the evidence is similar to the studies done with us data, and sometimes the evidence is even stronger, since in europe banks are the key source of finance for many firms. 16 for instance, italian data show that bank m & as have an adverse effect on credit, especially if an m & a is followed by the termination of a business relationship. the effect lasts for three years and by the end of that period it has been absorbed, suggesting that firms are able to compensate for the negative shock. 17 in addition, also based on italian data, contract interest rates on bank loans fall when banks with small shares in the local banking market combine. the opposite result is observed for mergers between large banks. 18 based on evidence from some countries, relationship customers of the target bank are more likely than acquirer customers to have their relationships terminated with their bank. these effects are more pronounced for smaller customers with no alternate lending relationships. 19 furthermore, mergers reduce the equity value of small publicly traded firms that are customers of the target bank and the reduction in value increases with the size of the target bank. 20 6. role of small banks all in all, the evidence from europe is very similar to that of the us. if small businesses tend to suffer from bank m & as, especially when the banks involved are not small, then it seems that there is a role for small banks. the key characteristic of lending to smes is the “ softness ” of the information generated in the decision - making compared with large banks that rely more on “ hard ” information. hard information is based on accounting data and not on personal knowledge and repeated interaction between lender and borrower. 21 because soft information is important for lending to small businesses, the supply of credit to small firms may be negatively affected by m & a activity because the resulting larger banks show a preference for transaction - based lending over relationship - based lending. in fact, evidence suggests that small banks use soft information for lending and are, therefore, key for sme lending. 22 moreover, as i said earlier, m & as between small banks increase bank efficiency and lending to smes. small banks also lend to riskier firms, which generally are smes. 23 see carow et al. ( 2006 ). see ecb ( 2007 ). see ecb ( 2007 ). bonaccorsi di patti, and gobbi ( 2007 ). sapienza ( 2002 ). degryse, masschelein, and