I turn now to the issue of confidence and this allows me to close the circle and go back to the high unemployment costs observed so far. High uncertainty related to falling disposable income and increased unemployment has pushed up the precautionary savings of households. High uncertainty has also kept household confidence low, despite government actions going in the right direction. In this environment, lower prices would improve the purchasing power of households and reduce uncertainty. Confidence will be boosted if governments make sure that the burden of the adjustment is equally shared and not distorted by privileged groups and vested interests. (3)  The way forward: going structural  Thanks to the actions of the EU governments and the ECB, and with IMF support, signs of stabilisation in the euro area have been increasing in recent months. This provides an opportunity to make further decisive steps forwards. In stressed countries, governments have initiated reforms which are unprecedented in their ambition and scope. There has been an increase in the implementation of politically sensitive reforms in many areas, including public administration, health and pension systems, education, judicial systems, competition frameworks, industrial relations, labour markets, energy markets, network industries, service sectors and in the regulated professions. This list will sound very familiar to you as the Portuguese adjustment programme is covering all these areas. The reforms are consistent with the goals set by the European Union in 2000 in its Lisbon Strategy, but at the time there were no incentives to act on these commitments.

Economic activity relied on the public sector and external demand, although more moderately than in the first quarter of the year. In the meantime, the private sector demand appears sluggish, also conditioning our projections for economic growth for the rest of the year.   Private investments continue to be slow, compared with their historical rates and the country’s needs for quantitative and qualitative production capacities. This  BIS central bankers’ speeches  1  The expected easing of funding terms during the second half of the year as well as the decline of perceived uncertainty by businesses and individuals are expected to be accompanied by the somewhat more positive performance of private consumption and investments in this period.   Stimulating nature of fiscal policy during the first half of the year is reflected in a positive contribution of public expenditures to economic growth. For the first seven months of the year, public spending increased by 5.9% in annual terms. Moreover, performance of fiscal revenues was slow, reflected in their annual growth of 2.3% during this period. This behaviour of income and expenditures is materialised in a higher budget deficit than a year earlier. Fiscal impulse to the economy was consistent throughout this period. It showed tendencies of moderation during the second quarter, which are expected to strengthen further during the rest of the year, in conformity with the revised budget of 2011.   Contribution of foreign demand to economic growth was lower during the second quarter of the year.