the performance of a few sectors, which makes the economy more vulnerable in the case of asymmetric shocks. last, but not least, i also want to point out the social dimension of growth – every group in society should benefit from the growth process such that the build - up of social inequalities and the resulting pressure on political economic institutions can be contained. with these considerations of balanced growth in mind, let us briefly look back on the precrisis economic developments in cesee in order to have a reference for the intensity of the recession in 2009 and the related adjustment process since then. bis central bankers ’ speeches chart 1 high growth correlated with the build - up of severe vulnerabilities and imbalances h igh growth correlated with the build - up of severe vulnerabilities and imbalances average annual gdp per capita growth ( 2000 - 07 ) current account deficit % % of gdp estonia romania lithuania latvia bulgaria slovakia croatia czech r. hungary poland slovenia bulgaria latvia estonia lithuania romania hungary croatia poland slovakia slovenia czech r. share of foreign currency loans average annual growth in h ouse prices ( 2004 - 07 ) % of total loans % latvia estonia croatia hungary lithuania romania bulgaria poland slovakia czech r. slovenia latvia lithuania bulgaria estonia poland slovenia slovakia czech r. hungary croatia romania source : wiiw, eurostat, ncbs, ameco, imf, bis, ecb, national statistical offices, reas. between 2000 and 2007, the cesee countries were – besides china and india – one of the fastest growing regions in the world ( average real gdp per capita growth : 8. 2 % ). this outstanding growth performance was mainly driven by large foreign capital inflows, which fuelled domestic credit growth, led to a surge in asset prices ( in particular house prices ) and considerably boosted domestic demand. however, as you can see in chart 1, the sizable gdp growth was generated on the back of rising vulnerabilities. soaring prices and wages were one of the consequences of sharply rising domestic demand. as a matter of fact, double - digit inflation rates were not unusual during the boom years. on top of very strong lending growth in the years preceding the crisis, a large part of domestic loans to households and companies was – and in some countries still is – denominated in foreign currency. growing internal imbalances were also reflected by the development of the external sector. increasing internal demand led to an appreciation of the exchange rates in countries with floating

##tablishing confidence in sovereign bond markets – a precondition for recovery. additionally, the ecb is the key player in the single supervisory mechanism ( ssm ), a core element of banking union. moreover, it is one of the institutions involved in the assistance programs for member states under financial stress. all this made some commentators fear that the ecb, as “ the only game in town, ” might be stretching beyond its mandate. more importantly, however, it underlines the need for other or new institutions to step in and relieve the ecb from some of its responsibility. actually, this is the central message of the five presidents ’ report. the rationale behind a genuine emu as a complement to the ecb ’ s monetary policy comes from the optimal currency area ( oca ) theory, which states that within a monetary union, the lost mechanism of exchange rate adjustments must be replaced by that of labor and capital adjustment if countries are affected by asymmetric shocks. hence the justification of structural reforms in labor and product markets. they should increase the flexibility of wages and prices while taking into account the autonomy and responsibility of social partners. another element to improve the resilience of emu would be stronger business cycle synchronization through economic and financial integration ; but here the evidence is sobering. yet, while the oca theory concentrates on asymmetric external shocks, what seems to matter more are really asymmetric trends. that is to say, that since the introduction of the euro, member states have systematically built up external imbalances as a result of unsustainable debt accumulation and asset bubbles. here comes in another element of the oca theory : the role of risk - sharing mechanisms. given the lack of fiscal risk - sharing, however, this role has been more or less explicitly delegated to financial markets. unfortunately, however, financial market participants insufficiently understood the risks they were taking. the rest of the story is well known : a dramatic stop of private financing flows required economies under stress to quickly adjust their external imbalances via improved competitiveness at the cost of internal disequilibria, notably high unemployment. the negative spillovers have been felt all over the euro area during the double dip recession, albeit at different degrees. what can we learn from this crisis? apart from market - based risk - sharing mechanisms, emu needs a fiscal framework that combines risk reduction and risk - sharing, in other words : discipline and solidarity