citizens more closely in the european project. in other words, the future prosperity of europe hinges on our ability to complement monetary union with economic union, fiscal union and financial union. this more advanced institutional architecture will in turn need to be embedded in some form of political union that engages citizens more deeply in european decision - making. as a result, joining the euro area in the future should imply greater sharing of sovereignty and a deeper european accountability than it did ten years ago. bis central bankers ’ speeches the institutional challenge is the first major challenge with which we are currently confronted. we have already made much progress in addressing the challenge. but a great deal of work remains to be done. the economic challenge the second and complementary challenge is economic. the benefits of adopting the euro are greater the more consistent the economic structures of existing and prospective members are. convergence can be broadly defined as a process in which cross - country differences in economic structures are reduced over time. the success of the convergence process ultimately depends on the sustainability of the underlying policies. shortcomings in the process of convergence across euro area members have been at the root of the challenges we have faced since 2010. but i am pleased to report that progress in addressing those shortcomings is being made. external imbalances and fiscal imbalances are starting to be unwound. efforts to regain price and non - price competitiveness are bearing early fruit. deleveraging is generally proceeding in an orderly way, even though credit flows to the real economy seem to be negatively affected in parts of the euro area. debt is being reduced in some countries, while others are devising strategies to make debt reduction sustainable over time. and financial sector weaknesses are being addressed along with their links to sovereign risk. as i have said, progress is being made but much still needs to be done. the recent experiences of some current euro area members also serve as a cautionary tale to eu members bound by the treaty to adopt the euro in the future. i will now turn to the challenges facing these countries in the process of convergence. 2. the perspective of eu countries which have still to adopt the euro the framework for convergence with two exceptions, all eu members that are not yet in the euro area are expected to adopt the single currency on meeting certain convergence criteria. as you know, the treaty defines these criteria along three dimensions. the first dimension is the degree of nominal convergence with the euro area. this implies achieving price stability ; ensuring the sustainability of the government ’ s

costs ” : operating costs incurred in normal times and losses sustained in times of crisis. as for the operating costs, european supervision will be financed by fees to be levied on banks. however, there will be efficiency gains from avoiding the duplication of services ( national and european ), so additional cost burdens for the financial industry will be contained. what happens if a viable bank lacks capital? such a bank, wherever it is based in the euro area, should first try to raise fresh capital from its shareholders or in the market. if it is unable to do so – for example due to unfavourable market conditions – fresh funding should be provided from a european recovery and resolution fund that is financed by all banks. such a fund should also help with resolution, for instance, to capitalise a bridge bank that is later sold on the market. bailing - in of stakeholders will also play an increasing role to cover the cost of resolution. during the crisis we have seen the full spectre from mainly bailing - out banks with taxpayers ’ money and bailing - in even depositors. a reliable framework is needed to guide investors and savers. therefore, the pecking order of a broad scope of bail - in instruments needs to be defined. the list of exclusion should be limited. the bank recovery and resolution directive ( brrd ) currently being negotiated should clarify in particular the positioning of unsecured depositors in the cascade. it is of crucial importance that an agreement on the brrd is reached in a timely manner to have a resolution and recovery framework in place before the ssm starts operating. only as a last resort should rescue funds be temporarily drawn from the esm. to ensure fiscal neutrality, a loan to the european recovery and resolution fund should then be repaid ex post via levies on viable banks, and of course, the proceeds from the re - privatisation. another rationale for the srm as a separate entity is that a supervisor cannot give objective verdicts on the viability of banks if then these banks can only be closed in a disorderly way. that, in turn, could trigger contagion and endanger financial stability. in other words, if banks cannot be resolved in a disciplined manner – known in advance and agreed upon – we could drift into supervisory forbearance, evergreening and zombification of companies as well as the banks themselves. hence, a resolution mechanism is essential for repairing financial markets. the capacity of the