##al level, thus geographically aligning supervisory incentives with the effect such supervision has on the financial sector as a whole. other welfare enhancing benefits will come from the reduction of reporting costs for international banks, the easier centralised management of liquidity and the improving of the overall management of risks. the materialisation of all these benefits will depend, however, on a vital condition for the functioning of the ssm, namely that it ensures a truly unified european perspective and does not act as a sort of an inter - governmental body of national supervisors. the elimination of any possible national bias implies that it has to function really as one system with a strong center and this will be its greatest challenge. a second reason that justifies the banking union project regards the requirements for a smooth functioning of the single monetary policy. its transmission mechanism across all member countries of the euro area requires an appropriate level of financial integration that ensures well performing cross border money markets. after a spectacular integration of money and financial in the first 10 years of monetary union we have observed increasing fragmentation that only recently, after the creation of our omt programme, started to abate. this fragmentation has impaired the transmission mechanism of monetary policy. it has, of course, several different causes but could have been mitigated in the first place if some elements of a banking union had been in place. this would have contributed to a stronger separation between sovereign and banks by creating enhanced confidence in the national banking sectors´ solvency and liquidity situations. this would happen not only as a result of an effective overall supervision but also would stem from the elimination of ring - fencing practices condoned or even incentivised by some national regulators. the elimination or mitigation of the banks and sovereigns negative feedback loops will then be promoted by several elements of the banking union acting together : the single supervisory mechanism, the single resolution mechanism and the european direct recapitalisation of banks. the third reason that justifies the banking union project has to do with the development of large financial imbalances within the euro area in both public and private sectors. in particular, the development of macro and external imbalances was significantly driven by private sector indebtness, proving that the fiscal brake was not enough to guarantee macro stability and excessive heterogeneity among member states. this provided the rationale for the recent creation of a formal macroeconomic imbalances procedure to monitor and promote timely policy measures to avoid the building up of macroeconomic instability in member states.

to the long - term prospects, in order to raise the rate of potential economic growth in the euro area, structural reforms in the size and composition of public revenue and expenditure, as well as in product and labour markets, have to continue. advances have been made in times of high real gdp growth, although in many areas, including in labour markets, more could have been achieved. as adjustment needs are likely to become more visible in periods of less vigorous economic growth, policy - makers must now intensify the acceleration of reforms rather than allow efforts to abate. moving forward the reform agenda decisively will enable the euro area economy to respond flexibly in future and thereby underpin our confidence that external shocks can be more easily absorbed than in the past.