both 2009 and 2010, to have budget deficits in excess of the reference value of 3 % of gdp agreed in the stability and growth pact. furthermore, the euro area debt ratio is expected to increase to more than 80 % of gdp by 2010, some way above the reference value of 60 %. some countries ’ debt ratios will be far in excess of 100 % of gdp. even with some fiscal consolidation in 2010 or 2011, the euro area debt ratio will continue to rise for several years. these numbers are dramatic and their implications are clear. euro area governments must reject calls for further fiscal stimulus. instead, they need to focus on implementing the measures already adopted as quickly as possible. increasing deficits even further is likely to prove counterproductive, for two main reasons. first, increased fiscal deficits could fuel market concerns regarding a country ’ s ability to repay its debt, thereby placing upward pressure on interest rates and leading to worsening financing conditions for everyone. we have already seen a number of euro area countries ’ long - term government bond spreads widen substantially vis - a - vis germany, which demonstrates financial markets ’ ability to distinguish between countries on the basis of their creditworthiness. second, increases in budget deficits could raise concerns about an measured by the change in the general government deficit. increased tax burden in the future, leading consumers to save rather than spend any additional income. this would also undermine the effectiveness of any further fiscal stimulus. looking ahead, the main priority for euro area governments must be to devise exit strategies that remedy those large fiscal imbalances and reduce governments ’ direct involvement in the financial sector. the adoption of credible exit strategies may even make the current measures more effective, as it will indicate to financial market participants that governments are able and willing to reverse unsustainable policies and help to limit the upward drift in long - term interest rates. the most credible exit strategy would be for governments to clearly demonstrate their commitment to returning to sound fiscal policies, in full compliance with the stability and growth pact. the adjustment process should start in principle in 2010 and in any case not later than the economic recovery. the efforts should be stepped up in 2011. why has the euro area been so badly affected? you may wonder why the euro area economy has been so badly affected by the current crisis, given that it originated outside the euro area and the response by euro area policymakers has been timely and effective. one answer to this question can be found in the structural features of the

luis de guindos : the inflation outlook and monetary policy in the euro area keynote speech by mr luis de guindos, vice - president of the european central bank, at the first annual conference, organised by the central bank of cyprus, limassol, 4 october 2023. * * * introduction i will start by giving you an overview of the economic outlook for the euro area before going on to look at how the ecb has adjusted its monetary policy to this outlook. i will then discuss in more detail the transmission of our monetary policy in the current environment and the sources of uncertainty that appear particularly relevant at this stage. the outlook for inflation and growth in the euro area economic activity broadly stagnated over the first half of the year and is likely to remain subdued in the coming months. weaker foreign demand and tight financing conditions are dampening growth, especially in the manufacturing sector. the services sector, which had been resilient so far, is now starting to " catch down " to manufacturing. the labour market remains resilient despite the slowdown in activity, with the unemployment rate standing at its historical low of 6. 4 per cent in august. however, there are signs that labour market momentum is slowing as the economy weakens. the employment purchasing managers'index declined significantly between the second and the third quarters of 2023, despite a slight uptick in september. the services sector, which has been a major driver of employment growth since mid - 2022, is now also creating fewer jobs. in september ecb staff revised down projected gdp growth, particularly for this year and next, due to a greater contractionary effect from tightening financing conditions and the weakening international trade environment. beyond the near term, ecb staff expect growth to recover owing to higher real disposable income thanks to rising wages and falling inflation, which is set to underpin spending. ecb staff now expect the euro area economy to expand by 0. 7 % in 2023, 1. 0 % in 2024 and 1. 5 % in 2025. inflation fell markedly from its double - digit peak last october, with the headline rate having declined to 4. 3 % in september ( flash estimate ). in the coming months, the sharp increases recorded in the autumn of 2022 will drop out of the yearly rates, lending further support to a deceleration in inflation. at the same time, underlying price pressures remain strong, although most measures of inflation have started to ease thanks to