decision is paying off. at the same time, challenges remain and continued reform efforts are needed to ensure that the recovery proves sustainable. against this background, let me first elaborate on what i think are the key milestones achieved so far and then address what are the key challenges for the ecb in the coming months. what have we achieved so far? the euro area reform agenda has consisted of two pillars. one is to restore fiscal sustainability and economic competitiveness at country level. the other is to fix structural shortcomings in the euro area architecture that had allowed imbalances to build up in the first place. bis central bankers ’ speeches on both counts, the euro area has made considerable progress. despite strong recessionary headwinds, euro area governments have markedly improved their fiscal positions. average government deficit ratios fell by more than a quarter over the last two years and, excluding interest payments, were approaching balance at the end of 2013. simultaneously, most of the stressed euro area countries have made remarkable progress in gaining competitiveness. over the past five years, the cumulative unit labour cost differential vis - a - vis the euro area have fallen by more than 20 percentage points in ireland, around 15 percentage points in greece and spain, and almost 10 percentage points in portugal. this was accompanied by substantial improvements in the export dynamics of these countries. overall, we see the euro area ’ s economic recovery gradually taking hold, albeit at a slow and uneven pace. in parallel, the architecture of economic and monetary union ( emu ) has been strengthened in ways that many would have considered inconceivable two years ago. perhaps most important for monetary policy, and certainly most topical for this conference, are the concrete and ambitious steps towards a banking union. by establishing the single supervisory mechanism ( ssm ), european policy - makers have demonstrated a firm commitment to a stringent and uniform application of common supervisory standards. as a crucial counterpart, policy - makers are in the process of establishing the single resolution mechanism, which should enable quick and efficient resolution of ailing banks without permanent recourse to taxpayer funds. together, these new institutions will fundamentally strengthen transparency, stability and incentive - compatibility in the financial sector. in a primarily bank - based financial system like the euro area ’ s, these features are crucial, not only for the functioning of the financial system per se, but also for the conduct of monetary policy. this is because, with an impaired bank lending channel, monetary policy may lose its handle on

background, we will remain alert as to whether any indications on further downside risks to price stability emerge and we stand ready to act. a second challenge we will be facing in the coming months is to make the single supervisory mechanism really work. as i initially explained, the institutional reforms that have been adopted or are being adopted to establish a banking union constitute important progress. but to meet the ultimate objective of strengthening financial stability, implementation is key. and implementation is well under way : the supervisory board has held its first three meetings ; a framework regulation has been prepared and is now the subject of a public consultation ; and work is progressing on the supervisory model of the ssm with the supervisory manual. one of the first major implementation tests is the comprehensive assessment, the health check of the euro area banking system, which is currently being conducted as a prelude to the ssm becoming operational. here, the ecb is making good progress in establishing the new structures and ensuring that the exercise will be fair, transparent and stringent. but many more steps still lie ahead of us. a final challenge relates to the macro - prudential arm of the ssm. as you know, the ssm regulation gives the ecb the power to apply stricter macro - prudential measures than the national authorities if it deems them necessary. we can also advise on the calibration of instruments. this goes some way towards insuring against an inaction bias at the national level, thus improving the prospects for a more stable euro area financial system. we will maintain a clear separation of objectives between the macro - prudential policy framework and monetary policy and a clear hierarchy, with price stability remaining the ecb ’ s overall primary objective. but we are very much aware that both policies may interact. as mentioned before, financial instability may undermine monetary policy ’ s ability to maintain price stability, both directly by its negative impact on credit provision, growth and inflation and indirectly by impairing the monetary transmission process. conversely, a protracted low interest rate environment necessary to maintain overall price stability may create incentives to search for yield and lead to local bubbles in a heterogeneous monetary union. in both cases, macro - prudential policy can be used to address financial stability concerns and facilitate our monetary policy conduct. in the first case, where the financial stability concerns are of a systemic nature affecting the whole euro area, those policies will have to be coordinated. in the second case, national macro - prudential