While the risk of a pronounced slowdown of the US economy, with negative repercussions on the world economy, cannot be ruled out, such a scenario appears unlikely at present. However, a major challenge for the US authorities over the next few months is engineering a “soft landing” of the US economy. The Japanese economy now shows clearer signs that the protracted weakness of the last few years could come to an end. An economic consolidation and a resumption of capital flows to crisis-hit emerging market economies, especially in Asia, also contribute to this favourable outlook. Against this positive background, the challenge now is to ensure that the current recovery in the euro area becomes a period of prolonged non-inflationary and employment-generating growth. I will  1  BIS Review 116/1999  elaborate on the possible contribution of the ECB and the Eurosystem, but also on the limitations thereof, pointing to the necessary contributions of other policymakers. Looking back at the past ten months, I would like to recall that the introduction of the euro took place in an environment of price stability that only few observers would have predicted some years ago. This was the result of a process of economic convergence, in the course of which European inflation rates were reduced significantly. This development is very encouraging, since theoretical arguments and empirical evidence over several decades suggest that high and variable rates of inflation are detrimental to growth and employment in the long term.
2) In recent months, as a prior step to the SSM taking over supervisory competences, an assessment has been made of significant institutions, the aim of which is to enhance transparency in respect of their position and to reinforce their solvency. The outcome of this exercise will help the SSM to assume its functions with accurate knowledge of the actual situation of the banks it will directly supervise. The exercise is now close to completion and its results will be made known before the end of this month. It comprises two phases: an asset quality review and a stress test, on which the Banco de España has been working intensely for several months in cooperation with the ECB. The first phase, namely the assessment of the quality of the assets associated with credit and market risk, consisted of verifying the accuracy of the figures and of reviewing asset and collateral values, along with the related provisions (with the collaboration of audit firms). On the basis of the results obtained, exposures have been classified as standard or nonperforming, based on the level of risk, with the ECB imposing painstaking quality control of the results of the review. A stress test is an analysis of credit institutions‘ capacity to absorb losses, evaluating their resilience in different scenarios. The exercise indicates how much capital might be needed were risks to materialise, and it helps highlight areas where supervisory action might be necessary.