determining a financial center ’ s competiveness. ” an efficient legal system does not, of course, always imply more ( and more restrictive ) rules. a balance needs to be struck between restrictive rules and a lighter approach, which may be important for the overall competitiveness of financial centres. the current debate about the competitiveness of the us marketplace ( in particular in relation to its british competitor ) emphasises that this balance is not always easy to find. 3. financial globalisation and innovation let me now turn to some issues related to the impact of financial globalisation and innovation on legal systems. in my opinion the protection of the rights of debtors and creditors becomes more – and not less – difficult with the development of financial markets, both in a geographical sense as well as in the range of available products ( financial globalisation and innovation ). the challenges posed by financial globalisation are not difficult to understand : a financial instrument originated in country a, traded in country b by an intermediary whose headquarters are in country c and purchased by an investor who is resident in country d, to what legal system will it be subject to? how will the citizen of country d be able to enforce his rights, which courts will be responsible for any dispute, what kind of legal redress will it be available on citizens of country a and b? these are questions that lie at the very heart of financial globalisation. from the simple observation that the bulk of cross border capital flows still takes place among advanced countries, one may easily surmise that such legal uncertainties ( arguably more important in emerging economies ) play a fundamental role in the allocation of financial flows and financial capital worldwide. over the last years, quite a number of initiatives dedicated at enhancing legal certainty regarding such cross - border financial transactions have been undertaken on a global as well as on a european level. international bodies dedicated to the harmonisation of laws [ such as muellbauer et al. unidroit or uncitral ] have turned the focus of their activities on financial market issues, such as secured transactions or cross - border holdings and transfers of securities. this focus is mirrored by a multitude of complementary initiatives on the european level, where i would just like to mention the various legislative projects aimed to enhance the integration of the eu financial markets that were combined in the so - called financial services action plan as well as the more recent attempts to enhance efficiency and integration in the eu post - trading industry, that is the clearing and settlement of

the crisis on euro area employment. in fact, the unemployment rate across the largest countries in the euro area would have been much higher in the absence of these programmes ( see slide 3 ). but uncertainty may weigh on investment and job creation for a long period. and although furlough schemes can mitigate hysteresis effects in labour markets by reducing worker displacement, they may also delay the necessary structural adjustments to the crisis. second, the speed and extent of capital and labour reallocation is likely to differ across euro area economies, depending on the sectoral composition and the quality of labour market institutions. such differences, if left unaddressed, risk increasing heterogeneity and fragmentation, further complicating the conduct of the common monetary policy. third, recent events have increased the odds that large cash - rich firms may absorb liquiditystrapped start - ups, thereby curtailing competition, with potentially adverse effects on productivity and welfare. the pandemic could therefore amplify trends in economic concentration that we have already observed prior to the crisis, particularly in the united states. 1 fourth, there are risks that covid - 19 will lead to a surge in protectionism reversing the current pattern of international production. while re - shoring could be the outcome of benign advances in automation, a general unwinding of global supply chains would jeopardise potential output growth across the globe. and, finally, financial distress of firms and households will cause the share of banks ’ nonperforming loans ( npls ) to rise over time, weighing on bank capital and potentially clogging the bank lending channel of monetary policy. although euro area banks as a whole have entered this crisis in comparatively good shape, the 2 / 7 bis central bankers'speeches experience of past crises highlights that vulnerabilities in the banking sector, if not addressed early enough, may severely slow the pace of recovery and leave long - lasting damage. recent ecb research, for example, suggests that a failure to resolve high levels of npls in a timely manner can slow gdp growth by 1. 5 percentage points per year. 2 however, the magnitude of all these effects is far from certain, as is their impact on mediumterm inflation. it will critically depend on the extent to which firms and policymakers will use this crisis as an opportunity to overcome weak potential output growth that has held back prosperity and convergence in the euro area for too long already. the european recovery fund