remarks, i will focus on the euro area ’ s framework for economic governance and on the crisis resolution measures taken in there. in view of enormous challenges that had to be dealt with, both the ecb and the euro area governments have taken important policy measures. bis central bankers ’ speeches the euro area economic governance framework and the crisis let me first briefly review the economic governance of the euro area at the outset. the most distinctive feature of emu is that it combines a single monetary policy with largely decentralised fiscal and economic policies. in such a framework, a key challenge is to ensure a high degree of self - responsibility or, expressed in other words, to ensure that unsound national policies do not even materialise and do not, in any event, undermine the stability of the common currency. these challenges were abundantly clear to the founding fathers of emu : rules on fiscal spending were laid down in the maastricht treaty, and supplemented by systems for the coordination of economic policy. together, they are now generally referred to as the european economic governance framework. the fiscal constraints in emu – given the two reference values, namely the ceilings of 3 % of gdp on budget deficits and of 60 % of gdp on government debt – are probably the best known elements of the fiscal framework. but the framework was, in fact, far more comprehensive, even before the recent reform of economic governance. a set of rules imposed preventive limits on government borrowing, requiring member states to achieve close - to - balance budgets over the business cycle. these rules were meant to place debt on a sustainable footing and, at the same time, to create fiscal room for manoeuvre for “ rainy days ”. a surveillance procedure was also put in place to verify that all the parties involved complied with the agreed fiscal targets. and in the case of non - compliance, a “ corrective arm ” was envisaged, starting with warnings and ultimately culminating in sanctions, in order to ensure that governments would quickly reduce any excessive deficit through progressive corrective steps. the fiscal rules were complemented by additional elements, such as the broad economic policy guidelines, which were introduced as a tool to ensure a convergence of economic policies and performance across member states and to foster economic growth and employment, as well as to attain the ambitious goals set in the “ lisbon agenda ”. how has the european framework for economic governance been applied and how well has it served europe? it is true that the euro area has fare

. of concern to us during the year was the persistent rise in domestic consumer demand which in recent times has been increasing at a year - on - year rate of around 8 per cent. this consumer exuberance has been financed by high rates of domestic credit extension and has led to record levels of consumer indebtedness of around 70 per cent of household disposable income. contributing to these high levels of demand have been rising real incomes, increased employment, lower interest rates and higher asset prices. both the housing market and equity markets have remained buoyant. the equity market in recent weeks has reached new record highs, having recovered from the reversal it suffered during the international market volatility in may and june when the all - share index declined by as much as 16 per cent. the rand exchange rate was also not spared the fall - out of the emerging market jitters in may and these developments have had an impact on the inflation outlook. having traded in a relatively narrow trading range for much of the first half of this year, the exchange rate reacted to the global risk aversion, and between 11 may and the middle of june it depreciated from r6, 10 to the us dollar to around r6. 80. subsequently, concerns relating to the widening current account deficit on the balance of payments in excess of 6 per cent of gdp caused the exchange rate to depreciate further. at one stage the exchange rate had depreciated to around r7, 90 to the us dollar in early october, but more recently it has been trading at levels of around r7, 20. in part the depreciation of the rand during 2006 should be seen as an element of the adjustment to the then widening current account deficit. already the trade account has improved in the third quarter of this year, and a stable rand at current levels will help stabilise the inflation outlook. in addition, the exchange rate adjustments are expected to be positive for export growth, and in conjunction with the adjustment of interest rates should help to ensure that domestic growth is driven by exports and infrastructural investment, rather than by strong consumer spending as has been the case in the past two years. international investor interest in south africa has nevertheless remained strong. despite the repricing of emerging - market assets in the middle of 2006, there has not been one month during the year to date in which non - residents had not been net purchasers of south african bonds and