reduced the cost of doing business across countries. 7 firms have unbundled their production networks and relocated production and assembly in line with the relatively lower cost of production. as a result, trade flows of intermediate inputs increased almost threefold8 from 1990 to 2015. supply chain linkages intensified at a faster pace and were more resilient during the crisis compared with supply chain linkages with countries outside the single market. 9 second, the adoption of the acquis communautaire led to a more predictable legal environment and high - quality regulatory framework, which have increased investor confidence and contributed to a rapid inflow of foreign investment and technology. 10 the inflows of foreign direct investment ( fdi ) in the region amounted to around 6 % of gdp in the pre - crisis years, compared with only 3. 4 % in the eu as a whole. 1 / 4 bis central bankers'speeches countries that achieved a high level of institutional quality and governance, 11 and have been able to adopt the single currency, further benefited from the reduction of trade costs. 12 their participation in value chains has been consistently higher than that of other eu countries and they have made most progress in catching up with the average level of gdp per capita in the eu. but more importantly, the single currency ’ s main benefit has been to provide stability in the integration process. it has ensured that a critical mass of countries participating in the single market was insulated from exchange rate volatility during times of economic stress. by preventing competitive devaluations between countries within the bloc, the single currency has guaranteed the continued openness of the single market and strengthened the incentives for firms to increase their competitiveness through productivity gains. 13 all economies have gained from increased trade. since the 1990s, intra - eu trade has risen in real terms, even as emerging economies entered the global market. 14 trade has in turn supported productivity growth. cee countries, in particular, have been able to accelerate the process of technology absorption from firms at the productivity frontier, which has proved to be a key ingredient in the process of convergence. ecb research shows that technology transfers have contributed to strong productivity spillovers within european value chains. 15 a 10 % increase in total factor productivity ( tfp ) growth of western eu firms at the value chain frontier contributed to 4. 8 % tfp growth for cee firms participating in value chains, which in turn fostered wage convergence in these economies. global headwinds : vulnera

s economies need to find new ways to boost tfp growth and deepen capital accumulation in order to “ grow out ” of their vulnerabilities. the main long - term challenge is moving towards a more balanced growth and financing model, which is more reliant on domestic innovation and on higher investment spending than it has been so far. this will only be possible if domestic institutions and governance are improved. those countries that joined the euro area have continued improving their institutional quality, partly owing to the accession process. in the other eu countries of the region, efforts to improve institutional quality have been more mixed in recent years. overall, institutional quality is still below the euro area average in almost all cee economies. 19 convergence is an ongoing process and reforms introduced over the past few years should not be rolled back. a high level of institutional quality is necessary to fully reap the benefits of the single market and maintain the sound economic structures necessary for the resilience of the single currency. the same applies to structural policies which were introduced to improve the competitiveness and resilience of cee economies. conclusion the single market created prosperity in cee countries, especially for those in the euro area, by generating convergence in per capita income. 20 indeed, the eu has been a source of growth and anchor of stability, allowing the region to catch up with eu living standards. conferences such as this one are valuable for policymakers to reflect on the region ’ s current vulnerabilities and to discuss new avenues for growth. today, we have with us a distinguished guest who, through her leadership of the imf, her experience as minister of the economy and finance and former chair of the g20, will undoubtedly bring valuable ideas and new insights to this conference. please give a warm welcome to christine lagarde. 1 the cesee region comprises albania, bosnia and herzegovina, bulgaria, the czech republic, croatia, estonia, hungary, kosovo ( this designation is without prejudice to positions on status and is in line with unscr 1244 and the icj opinion on the kosovo declaration of independence ), latvia, lithuania, montenegro, north macedonia, poland, romania, serbia, slovakia, slovenia and turkey. 2 zuk p., polgar, k., savelin, l., del hoyo j. and konig, p. ( 2018 ), “ real convergence in central, eastern and south - eastern europe ”, economic bulletin, issue 3, ecb. 3