tends to be forgotten : like individuals, countries cannot afford to live beyond their means indefinitely. sooner or later, the excesses of the past have to be paid for, often at a high economic and social cost. the recent proposals by the ec to strengthen economic policy coordination and fiscal discipline are grounded in precisely such thinking. 8 they call for improvements in both the preventive and corrective arms of the stability and growth pact, more emphasis on debt european commission european economic forecast, spring 2010. european commission european economic forecast, spring 2010, page 118. ec document com ( 2101 ) 250, entitled reinforcing economic policy coordination published on 12 may 2010. sustainability and the extension of peer surveillance beyond the budgetary dimension to other macroeconomic imbalances, such as losses in competitiveness, asset price booms fuelled by excessive credit growth and rigidities in product and labour markets. while malta ’ s situation is clearly less worrisome than that of some of the peripheral euro area countries, these proposals would benefit our economy as well. the persistence of current account deficits, for example, suggests an erosion of competitiveness and, therefore, the need for higher productivity, the removal of remaining constraints on market efficiency and increased investment in high value added, export - oriented activities. indeed, the economy ’ s strong performance up to 2006 owed more to domestic consumption than to exports. export growth, upon which the sustainability of a small, open economy depends to a large extent, has been insufficient over the past decade, and the consequent loss of market share partly explains why malta ’ s income gap with the euro area has not narrowed in recent years. with regard to the internal imbalance, the events of the last two years have brought to a halt the substantial fiscal consolidation that was achieved in the run - up to euro adoption. while the deficit had been reduced from almost 10 % of gdp in 2003 to 2. 2 % in 2007, it widened in the following two years and the latest projections, those of the ec, suggest that the shortfall will increase further to 4. 3 % this year, before declining to 3. 6 % in 2011. 9 these projections imply that the debt - to - gdp ratio in 2011 will stand at roughly the same level as in 2004, around 72 %. these ratios are higher than those contained in the government ’ s stability programme since the ec follows the “ no policy change ” rule and also because of differing macroeconomic assumptions. a credible fiscal consolidation

the citizens and advised the government. 3. safeguarding financial stability in addition, however, to its advisory role in economic policy making, the bank of greece also had decisive powers and responsibilities for shaping a strategy for the banking sector, constantly geared to safeguarding financial stability. although the crisis in greece started in the public sector, contagion to the banking system was inevitable. the banking system was hit by the successive downgrades of the greek government ’ s credit rating that led to corresponding downgrades of the banks ’ credit ratings. this fact, on the one hand decreased the value of collateral available to banks for borrowing from the eurosystem, and on the other hand made their access to the interbank market particularly hard and expensive, gradually leading to their exclusion. with the debt restructuring in 2012 the value of the bonds held by greek credit institutions was severely impaired. thus their capital position was eroded or even turned negative. at the same time, the recession was leading to a continuous increase in non - performing loans, while the surrounding uncertainty was encouraging deposit withdrawals. bis central bankers ’ speeches to safeguard financial stability, the bank of greece intervened by taking several targeted steps. i shall only briefly refer to the most important among them. first, the bank of greece ensured the uninterrupted supply of liquidity to the banking system, including by emergency assistance to the extent required. the provision of emergency liquidity assistance was reviewed every two weeks and the ecb governing council could put a stop to it for a variety of reasons ( lack of collateral, low capital adequacy ratios of the banks, incomplete implementation of the programme, etc. ). we therefore had to thoroughly prepare our positions and persistently intervene to prevent any negative developments. second, to avoid a further shaking of the confidence of depositors we constantly had to supply the banking network with banknotes, so as to prevent cash shortages at bank branches or atms. in chapter 8 of the book we release for the first time data on the increased demand for cash and the bank ’ s cash management during the crisis, which i believe you will find very interesting. third, we had to map out a strategy for the recapitalisation, restoration of soundness and restructuring of the banking system. the point of departure for this strategy was the first diagnostic assessment of greek banks conducted with the help of blackrock in 2011, and the viability study that followed in 2012. the bank of greece engaged foreign agencies to assist