This additional distortion has given rise to further instability in the financial system, both directly and through its interplay with the weaknesses of the public sector. Given the central role played by sovereign debt in financial markets, its dysfunctional behaviour threatened both financial stability and the transmission of monetary policy. In this context, the Eurosystem launched its Securities Markets Programme (SMP), which entails the outright purchase of debt instruments to address the malfunctioning of securities markets and to ensure the proper transmission of monetary policy impulses to the wider economy and, ultimately, the general price level. In addition, in order to mitigate the impact of the sovereign debt crisis on the banking sector’s ability to refinance its activities, the ECB temporarily reversed the phasing-out of its nonstandard measures. It also took collateral-related measures to support access to central bank liquidity by banks located in the countries that were committed to implementing economic and financial adjustment programmes negotiated with the European Commission, in liaison with the ECB, and the IMF. There is no denying that the financial crisis has put the euro and the economy of the euro area to the test. During the crisis the euro area public authorities have proven their capacity  2  BIS central bankers’ speeches  and willingness to take the necessary emergency steps to maintain financial stability. However, the crisis has clearly shown the need to undertake a number of reforms in order to address some institutional and structural weaknesses in our economies.

Much has been achieved in the reform of financial market regulation and supervision since the onset of the financial crisis. But there are still many areas that require the attention of policy-makers – such as stricter regulation of all systemically relevant financial institutions, greater transparency as regards the “shadow” banking sector, better regulation of investment funds and credit rating agencies, and improvements to corporate governance models in the banking sector. These are just some of the key areas in which greater efforts are needed in order to strengthen the foundations of our economies. IV. Concluding remarks  I have described the way forward for the euro area economy. Of course, I have only looked at what will happen if we take the high road out of the crisis. I haven’t even considered some of the “shortcuts” that, according to some commentators and economists, are supposedly available to countries unwilling to bear the costs of structural and fiscal reforms. In particular, it is often argued that Greece would be better off rescheduling or renegotiating some of its sovereign debt, rather than continuing to implement the adjustment programme negotiated with the international authorities as part of the financial assistance provided by the European Commission and the IMF. The argument is typically presented as follows: “Greece’s key problem is not a temporary lack of access to liquidity, but rather a solvency crisis. The country is too weak to bear the economic and social costs of implementing the institutional and economic reforms foreseen by the adjustment package.