Restoring market  BIS central bankers’ speeches  1  confidence, in turn, requires achieving fiscal sustainability while spurring economic growth. Some have described the task as akin to redesigning an aircraft in mid-flight amidst severe turbulence! 7. Nonetheless, important progress has been achieved and the situation today is visibly better than it was even six months ago. •  The European Central Bank’s Outright Monetary Transactions programme has materially reduced the tail risk of a disorderly breakup of the monetary union. •  Sovereign bond yields in Italy and Spain have come down, on average, some 200 basis points from their peak levels in the middle of last year. •  Bank deposits in the peripheral countries of Greece, Ireland, Portugal and Spain have shown signs of stabilisation. 8. But Europe remains mired in recession. There is still no compelling growth agenda. Domestic demand is weak amidst fiscal consolidation. Banks are not lending amidst an uncertain investment environment. And several structural issues remain unresolved. It will not take much to reignite financial market stresses. In short, the crisis in the Eurozone is not over. Japan: dealing with deflation, demographics, and a natural disaster 9. Japan has a different set of problems. Its economy has recovered less than two-thirds of the output lost during the crisis. It has fallen prey to weak external demand and is still reeling from the aftershocks of a major natural disaster. 10. Japan is caught in the pincer grip of prolonged deflation and unfavourable demographics.

China needs to lift its consumption ratio from its current low of 36%. Ongoing efforts to bolster the social safety net, enhance consumer protection, reform tax systems, and liberalise interest rates, are steps in the right direction. 52. In India and the ASEAN economies, the challenge is to increase investment spending, especially in infrastructure. This will not only generate indigenous demand, but also alleviate supply-side constraints that have become increasingly evident in recent years. 53. Second, Asia must deepen and broaden its financial markets. Asia needs to do a better job in efficiently intermediating its large savings pool, as well as directing capital inflows towards more productive investment in the region. Asian financial systems are still too dependent on banks. Deep corporate bond markets can play a complementary role in enabling private and institutional investors to invest for the long term. 54. Third, increasing productivity. Countries in Emerging Asia are still far from the technological frontier, and there is ample room for gains in productivity. However, unlocking these gains will require different policies across the region. 6  BIS central bankers’ speeches  55. China can unleash higher productivity by removing inefficiencies and distortions in its economy. The prescriptions are well-known – overhaul state-owned enterprises, liberalise the financial sector, instil cost of capital discipline. But delivering them will take determination and political will. In India and the ASEAN countries, improvements in governance and regulation will be key to attracting investments that can raise supply capacity and productivity. Conclusion 56. Let me conclude.