the young workers), that, as a result, carry extremely large economic and social costs. This is socially unfair and economically inefficient. European countries must made more efforts to resolutely pursue – and with far greater urgency than in the past – the necessary structural reforms in product markets, labour markets, pension systems and so on. In this respect, a key contribution to the strengthening of the euro area’s long-term economic prospects will come from the thorough implementation of the Europe 2020 strategy, with its focus on key areas such as: (i) education, research and innovation; (ii) resource efficiency; and (iii) high levels of employment and social cohesion. III. (c)  Enhancing the crisis management framework  In response to the sovereign debt crisis, the euro area has recently armed itself with an important tool to safeguard area-wide financial stability. At the European Council meeting of 24 and 25 March 2011 the Heads of State or Government of the EU agreed to establish a permanent European Stability Mechanism (ESM) based on the existing temporary European Financial Stability Facility (which will remain in place until June 2013). The ESM will grant financial assistance to countries in distress in the form of credit, with the assistance provided under strict conditionality and on the basis of a strict analysis – conducted by the European Commission and the IMF, in liaison with the ECB – of the sustainability of the relevant country’s debts. The establishment of the ESM represents an important addition to the institutional fabric of EMU.

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.