vertical integration between the two countries, slower u. s. industrial activity, reflecting the downsizing of the oil sector amid low prices, has capped the expansion of mexican manufacturing. as a result, manufacturing exports have lost steam, with declining rates of annual growth falling into negative territory in recent quarters. this deceleration has taken place in spite of significant real peso depreciation, which has occurred along with that of other emerging - market currencies. this fact highlights the bis central bankers ’ speeches dominant negative effect stemming from a decline in external demand, notably from the united states, mexico ’ s main trading partner, but also from other nations as well. 1 in short, the main engine of recent mexican economic expansion has been domestic spending, largely by the private sector, including both consumption and investment. yet it is worth noting that, although representing a smaller weight in total aggregate demand, government consumption was expanding, thereby supporting spending as well. in the 2016 first quarter, however, this trend changed. additionally, public investment, an even smaller contributor to aggregate demand, continues to contract. as with the global economy and most world regions, mexico ’ s economic outlook has been subject to downward revisions, with a modest recovery projected for this and the following year. even in this lackluster scenario, mexico distinguishes itself, with expected expansion higher than the average pace foreseen for latin america. 2 this does not mean we should be satisfied with only middling growth. as an emerging economy, mexico should eventually enjoy much higher rates of economic expansion, breaking out of its previous long - term, not excessively encouraging, record. to be sure, in the short term, real challenges prevail. specifically, mexico ’ s scenario of modest improvement faces risks, among which the downside forces seem more numerous. let me mention three. in the first place, u. s. imports and industrial output may slow further, potentially not only inhibiting the country ’ s manufacturing production, but also generating spillover effects on the services sector and private investment. second, producer and consumer sentiment could deteriorate due to less favorable international financial events. finally, a larger - thananticipated fall in mexican oil extraction could occur. on the upside, however, recent structural reforms could start to yield greater - than - expected benefits. 3 financial markets international financial markets have been affected by uncertainty on the implications of the extraordinary lax monetary stances undertaken in advanced nations and the normalization process in the

, which commits countries to enshrining important fiscal rules in binding national legislation. the fiscal compact is an important step towards a fiscal union in the euro area. its timely ratification is now key. a real innovation is the macroeconomic imbalances procedure. it will help to detect and correct economic imbalances, for instance in house price developments. this should avoid situations like in ireland, where a bursting housing bubble, together with bank guarantees provided by the state, led to an abrupt fiscal deterioration. more legislative acts are under way to further increase the surveillance of national economic policies. once the “ two - pack ” has been adopted, it will be possible for draft national budgets to be examined in brussels. and revisions will be demanded if the budgets are not in line with the euro area ’ s fiscal rules. bis central bankers ’ speeches if implemented successfully, these measures will help countries to internalise an important point : any member of a currency union has to treat its economic policies as a matter of common concern. the euro area is already much closer to a political union than many of us realise. there is one broad area, however, where a good strategy is still missing. this is the area of financial markets. let me mention just one concern which needs to be addressed : the negative feedback loops between banks and national governments. the recapitalisation of a troubled bank by its government may lead to a deterioration of the government ’ s fiscal position. the deteriorating fiscal position in turn further weakens banks ’ balance sheets, through their holdings of sovereign bonds. this feedback loop has to be stopped. we have to move closer to a financial markets ’ union. a european bank resolution authority and a european deposit insurance scheme are two elements that could be used to address the nexus between sovereigns and banks. i see further issues that need to be addressed in the area of financial markets, for example the potential conflict of interest for national supervisors whose task should be to ensure financial stability and a smooth functioning of european financial markets, but who are – at the end of the day – accountable to a national parliament and the tax payers of one single country. this, from my point of view, is an argument in favour of the single european rulebook without loop - holes and a supervisory authority at the european level for systemically relevant financial institutions with a cross - border business model. concluding remarks let me conclude. the crisis in europe is still ongoing, but we have come a long way in addressing the most important