We have launched a tough and comprehensive AQR and subsequent stress tests that should be completed by the end of this year. For the first time, these exercises will be conducted in a fully integrated way – under the aegis of the SSM –with full accountability of the results. Completion should mark a turning point where there will  BIS central bankers’ speeches  1  be no more doubts about the sustainability of our banks and credit should resume at a normal pace. 3. In the longer run, a major policy challenge for the euro area is to “reinvent” a new and robust financial integration model. We need sound cross-border capital flows, because we do not want the Eurosystem to intermediate permanently between borrowers and lenders from different countries. Developing a safe securitisation process should be a priority, despite the major technical difficulties. II. Is Europe facing the prospect of a lost decade? Questions about long-term growth are not limited to Europe. What we hear about our continent reflects a more general concern: the possibility of “secular stagnation” in advanced economies. Secular stagnation rests on the assumption that the natural interest rate is negative. This may happen for two reasons:   In the short run, we may have a downward shock on demand and an increase in savings resulting from the deleveraging process.
I have just explained how we are currently addressing this issue ;    In the longer run, ageing and slower innovation may push up saving rates and bring down the return on capital. Therefore, the ultimate response to the risk of secular stagnation is to improve the return on investment, thus pushing the natural interest rate back into positive territory. Again, this is not only a European problem. But we do have difficulties in this regard. Structural reforms are not easy. Many, however, are currently being implemented. France, although at too slow a pace, is reducing taxes on labour and has somewhat improved labour market flexibility. Adjustments efforts conducted by several countries, especially in Southern Europe, are starting to pay off. Competitiveness gaps between Northern and Southern Member States have been reduced, notably through real wages decreases in countries like Spain or Portugal, which are exporting more and more. This builds the way for a healthy growth in peripheral countries, which are experiencing a trade surplus of 2% of their GDP on average, and a moderate public deficit, taken down to 3%. III. Short-term policy challenges and responses  The main challenge, of course, is low and declining inflation, with inflation expectations in the euro area drifting downward at short to medium-term horizons. This prevents adjustments in relative prices, – an important mechanism to eliminate gaps in competitiveness – and increases the risk of outright deflation, should a negative shock occur in the future.