reforms that were finally addressed in 2003 when domestic problems such as high structural unemployment, rising social security contributions and repeated excessive public deficits became more and more pressing. i will therefore take a closer look at this german experience trying to draw some conclusions for those countries that have lost competitiveness since the launch of the euro. euro – what have we gained? my positive assessment of the first ten years of monetary union results mainly from the fact that emu clearly contributed to a favourable climate for economic growth within the euro area. throughout the financial crisis, however, the euro proved to be far more than a growth factor for the euro area. in several respects it has stabilised the member economies. as market participants ’ risk aversion increased, any additional risk would have depressed their propensity to invest. therefore, the absence of exchange - rate risk within the euro area has represented an additional benefit during the crisis. more specifically, even though the effective exchange rate of the euro area rose sharply in the financial crisis – before falling again more recently – the euro prevented emu member states from witnessing a scenario that europe had experienced in former times, for example during the crisis of the european monetary system ( ems ) in 1992 / 93. at that time, the ems had been exposed to a massive flight primarily into the d - mark, which resulted in significant tensions among ems currencies. this caused massive adjustment problems for those economies with appreciating currencies and inflationary pressure. finally, the fact that banks within the euro area obtain short - term liquidity through the eurosystem at the same terms and conditions has proved to be a great advantage during the financial crisis. it has significantly mitigated money market tensions and therefore served as a buffer against global financial market shocks. this has protected smaller economies especially. otherwise some of them would probably have needed to make additional efforts to defend the credibility of their currencies, for example in the form of higher interest rates, interventions on the foreign exchange market or swap agreements with other central banks. economic divergencies – a challenge for emu 3. 1 increasing intra - emu heterogeneity the search for the causes of the financial crisis has intensified the discussion about global imbalances. what is often overlooked in this discussion is the fact that the euro area as a whole has an almost balanced current account. consequently, the euro area has not contributed to the build - up of global imbalances. however, the economic diver

as well. this is why the effects of the real economic crisis have not yet fully arrived in the financial system. market valuations are actually relatively high at present and only partially reflect the real economic fundamentals. phase 2 : prepare for insolvencies as weaknesses in the real economy remain, solvency problems will become apparent in the corporate sector and affect the financial system. so far, firms have been able to tap into their own assets and rely on government liquidity measures to cushion losses in revenue. it helps that many german firms improved their capital base over the past few years. the obligation to file for insolvency was temporarily suspended in the pandemic. the current number of insolvencies therefore reflects the situation in the corporate sector only to a limited degree. our simulations predict that insolvencies and loss allowances will rise in the future. in the corporate sector as a whole, insolvencies could increase to more than 6, 000 per quarter in the first few months of 2021. that would be fewer than during the global financial crisis, at which time roughly 8, 000 enterprises filed for insolvency each quarter. the increase in relative terms would be the greatest in the manufacturing sector ; this would also be a key driver behind banks ’ loss allowances. if these adjustments are similar to past patterns, banks should be able to cope. needless to say, though, such simulations are subject to a high degree of uncertainty. they are based on past 2 / 4 bis central bankers'speeches patterns of adjustment. but the current real economic crisis is affecting other sectors, and policymakers have responded differently. in short, we cannot rule out the possibility that, in an adverse scenario, significantly more enterprises could become insolvent than currently expected. so the priority is ensuring that all agents are well - prepared and preventing harmful feedback loops between the real economy and the financial system. rising insolvencies will certainly leave a mark on banks ’ balance sheets. corporate insolvencies lead to credit defaults. this weighs on banks ’ capital ratios. banks may attempt to reduce their lending in order to stabilise capital ratios. but that would hurt the real economy. bank capital therefore plays a key role in feedback loops between the real economy and the financial sector : if banks use their existing capital buffers, the risk of deleveraging is reduced. what does “ use of the buffers ” mean? a bank ’ s supervisory capital consists of minimum