reduced the cost of doing business across countries. 7 firms have unbundled their production networks and relocated production and assembly in line with the relatively lower cost of production. as a result, trade flows of intermediate inputs increased almost threefold8 from 1990 to 2015. supply chain linkages intensified at a faster pace and were more resilient during the crisis compared with supply chain linkages with countries outside the single market. 9 second, the adoption of the acquis communautaire led to a more predictable legal environment and high - quality regulatory framework, which have increased investor confidence and contributed to a rapid inflow of foreign investment and technology. 10 the inflows of foreign direct investment ( fdi ) in the region amounted to around 6 % of gdp in the pre - crisis years, compared with only 3. 4 % in the eu as a whole. 1 / 4 bis central bankers'speeches countries that achieved a high level of institutional quality and governance, 11 and have been able to adopt the single currency, further benefited from the reduction of trade costs. 12 their participation in value chains has been consistently higher than that of other eu countries and they have made most progress in catching up with the average level of gdp per capita in the eu. but more importantly, the single currency ’ s main benefit has been to provide stability in the integration process. it has ensured that a critical mass of countries participating in the single market was insulated from exchange rate volatility during times of economic stress. by preventing competitive devaluations between countries within the bloc, the single currency has guaranteed the continued openness of the single market and strengthened the incentives for firms to increase their competitiveness through productivity gains. 13 all economies have gained from increased trade. since the 1990s, intra - eu trade has risen in real terms, even as emerging economies entered the global market. 14 trade has in turn supported productivity growth. cee countries, in particular, have been able to accelerate the process of technology absorption from firms at the productivity frontier, which has proved to be a key ingredient in the process of convergence. ecb research shows that technology transfers have contributed to strong productivity spillovers within european value chains. 15 a 10 % increase in total factor productivity ( tfp ) growth of western eu firms at the value chain frontier contributed to 4. 8 % tfp growth for cee firms participating in value chains, which in turn fostered wage convergence in these economies. global headwinds : vulnera

/ 10 bis central bankers'speeches analyse asset prices, and we use early - warning and financial cycle models as well as models to predict outcomes such as changes in banks ’ profitability. the third step is to collect market intelligence. after all, it is hard to understand the markets without talking to those who shape them. we regularly talk to analysts, managers and strategists in different financial institutions. we try to find out what they see as potential risks, or what changes they see on the horizon. and of course, in all this we use expert judgment. we gather data and information and use sophisticated models. but data and models need to be interpreted and assessed. this is where the experience and the knowledge of our experts come into play. once we have identified the key risks, we communicate our findings to the public. and we do this twice a year through our financial stability review. although the latest edition of the report finds the situation to be quite favourable overall, there are risks which might spoil the good mood at some point. altogether, we identified four key risks. the first risk is that market sentiment might suddenly change. this in turn could force prices in asset markets to adjust and set off a downturn in the real economy. such a repricing could be triggered by many things, both from inside the euro area and from outside. the second risk has to do with banks. the cyclical outlook for euro area banks is improving, but there are still structural challenges. if financial or economic conditions deteriorate before the structural challenges are addressed, banks may lose their ability to finance the economy. the third risk is that public and private debt may not be sustainable. households, firms and governments are highly indebted in a number of countries, with euro area firms, in particular, carrying high levels of debt. and also the sustainability of government debt is a concern. the fourth risk is about liquidity in the non - bank sector. this sector has been growing for some time now, and no end is in sight. not only are non - banks highly interconnected with the banking sector, they are also becoming more and more interconnected among themselves : their portfolios tend to be similar, making them more vulnerable. 10 so, the ecb communicates the risks it sees, and it is always a challenge to do so. we know that the words of a central bank can be powerful. they can affect markets in either direction. such communication is a challenge we cannot