That being said, persistent losses in relative cost competitiveness can also relate, for instance, to a number of structural rigidities leading to inertia in price and wage formation. They may be worrying signals for an economy, indicating a need for caution. Hence, developments in price and cost competitiveness across the euro area economies need to be closely monitored.
This type of protection against counterparty risk is most effective when changes in risk are specific to the counterparty and not correlated with increases in risks to other counterparties and in other markets. In this case, the posting of additional collateral long before a firm reaches insolvency can provide valuable protection.