In fact, this might greatly reduce the risk of financial crises, as international financial exposure is managed in a more risk-conscious manner. At the same time, a lesser degree of financial globalisation could help to reduce global imbalances. Sizeable cross-border reallocation of capital allowed the persistence of large current account deficits or surpluses in some countries which posed threats to global financial stability.
These losses in cost and price competitiveness mainly originate from a lack of flexibility in labour and product markets and reflect the need to improve the adjustment capacity of the economies concerned. Indeed, structural rigidities – and in particular distortions in the wage and price formation mechanism – hinder a proper working of the competitiveness adjustment mechanism across the euro area countries.