be a shame if necessary reforms are not undertaken while there is a window of opportunity – as international financial organizations, european specialized bodies, including the ecb, emphatically argues. a slowdown is inevitable in time and it would be wise to have policy space at that time and more robust economies. but much depends on what governments do and whether they have the courage and social and the political support, apart from a critical mass of vision and well - articulated policies. i do not wish to examine here issues related to reforms that go beyond the completion of the bu ( banking union ). but one thing is clear to me : unless the degree of diversity in the euro area is smaller, unless economic divergence ( that is illustrated by dynamics after the introduction of the euro ) is reduced, further troubles will arise. jacques de larosiere, one of our doyens and a former president of eurofi, never tires of pointing out this fact. economic convergence is badly needed in the monetary union, where policy space for undertaking the correction of large external imbalances ( deficits ) is much diminished. i think that proposals made by the ec, by various governments, offer hope that better policies will be articulated in the not too distant future. romania and other new member states are bound ( by the treaties of accession ) to join the euro area. and we care enormously that the euro area, through its policy arrangements and tools, will enable economic convergence. 1 / 4 bis central bankers'speeches coming from romania, speaking today in bulgaria, let me take this opportunity to share with you some of the challenges faced by non - euro member states, in particular the ones in central and eastern europe. much has been said about growth and inflation in the euro - area, as well as about stage of the banking union. less attention has been paid to member states which want to join the banking union and the euro - area in the foreseeable future, but still need to implement structural reforms to get there. their experience is relevant, nonetheless, for the euro area member states as well, as the common market and free movement of capital is a two - ways street. financial and business cycles in euro - area and non - euro area are not perfectly aligned. growth is now much stronger in eastern europe, and the output gap has turned positive earlier than in the euro - area. inflation has also reemerged in non - euro area. some of it is cyclical, as it comes from

international commodity prices, other supply side factors, but also from a strong domestic demand. yet, some of it is structural, as any catching - up process is inflationary in nature. higher wage growth pressure is normal, up to a point, in view of large wage differentials, migration flows, and labor market tightening. despite the wage growth, cee countries are becoming increasingly competitive, as productivity also grows. this is why the current account position of non - euro member states is better now than before the crisis. the monetary policy normalization cycle runs also at a different pace. even within cee countries, while the monetary stance remains largely accommodative, the situation is quite heterogeneous regarding inflationary expectations, policy objectives, and policy tools used. as regards romania, we started the tightening of monetary policy by hiking the rate twice this year, after further narrowing the corridor around the policy rate last year, but a gradual approach is warranted by the need to avoid sharp currency appreciation in the regional context. in our case, the policy normalization has been supported by two favorable developments in the banking sector. first, the npls ratio dropped from 22 % at end - 2013 to 6. 4 % at end - 2017, making it the largest adjustment in europe over a relatively short time period. at the core of this adjustment were conservative requirements for provisioning npls, our hands - on supervision approach, and a fiscal facility that was conducive to the development of the secondary market for npls. second, the share of local currency denominated loans in the total stock of loans has increased from one third prior to the crisis to two thirds nowadays. this reduced the contagion risk and improved the transmission mechanism of the monetary policy. a somewhat higher inflation and an earlier start in the policy normalization cycle have to be considered in view of another challenge, which is the lower level of financial intermediation. some countries are facing the dilemma recently portrayed in a bruegel institute paper, between raising inflation and decreasing appetite for risk, the latter being reflected in the lower levels of credit to gdp. the solutions adopted are diverse. while some central banks are embracing a higher inflation, and try to stimulate financial intermediation, others try to reign in inflationary expectations and have already started the tightening cycle. nevertheless, the issue of financial intermediation remains important, as credit for the corporate sector would need to replace direct fiscal incentives in most of these economies