emerging economies : they praise the euro ; they want it to succeed ; but they sometimes question our collective ability, in current circumstances, to do what is necessary, to make the right decisions or make them at the right time and to set in place the proper framework for the future. these are the concerns i would now like to address. where and how did it start? most euro area and eu countries entered the crisis with significantly deteriorated fiscal positions, very far from the “ structural balance objective ”, which is the core of our fiscal framework and also the commitment made by member states that adopted the euro. with the crisis, fiscal imbalances increased, not so much because of a rise in expenditure, but essentially through a massive loss in revenue. the imf has shown that, in all advanced countries, including the united states and the united kingdom, these losses accounted for around two thirds of the deterioration in fiscal positions observed during the crisis. fiscal deterioration was compounded, in some countries, by the size of implicit blanket guarantees, which materialized as the crisis unfolded through public money injections in the financial sector. unfortunately, these problems were not specific to the euro area. public debt jumped by around 30 % of gdp in the united kingdom and in the united kingdom. structural deficits in these countries stand at similar or higher levels than those in most parts of the euro area. this is also true for japan. overall, the crisis has brought to light major deficiencies in the implementation of fiscal discipline and, more generally, in the economic governance of the euro area. the founders of the euro had put in place the growth and stability pact. the principles were sound. the framework was adequate. the implementation has been extremely weak. bluntly speaking, peer pressure failed to ensure consistent and rigorous compliance with the principles which had been agreed upon. it was, and remains necessary to make a “ quantum leap ” in economic governance. bis central bankers ’ speeches what have we done? governments are addressing these deficiencies. significant progress has been made over the past year. at the national level, all member states have embarked upon credible public finance consolidation plans that are already bearing fruit. at the eu level, a new framework has been agreed upon, built around three pillars. the first pillar is much stronger prevention : surveillance of budgetary policies has been reinforced ; government debt levels are better taken into account ; and sanctions will become more automatic. ideally, this should be completed by the adoption, in each member state, of

or three years ago, you will conclude that these programmes proved to be highly useful and successful. hence, the assessment has to be cautious, before being definitive. in short, in just one year, since may 2010, the eu has embarked on a radical overhaul of its economic governance, while managing the sovereign crisis. this is a great achievement, especially considering the multiplicity of actors involved and the creativity of the response, which also had to take account of public opinion. bis central bankers ’ speeches positive developments looking at aggregate numbers, it is very difficult to understand many of the concerns expressed on the euro area. the euro area is the only major currency area with its external accounts in balance, and which therefore does not depend on external finance. this is an essential element of robustness. for outside investors, it provides a strong guarantee of long term solvency. its aggregate fiscal balance ( with a deficit of 6. 3 % of gdp in 2010 ) is the most favorable of all advanced economies ( 10. 5 % for the united states, 9. 6 % for the united kingdom and 7. 7 % for japan ). the same holds true for public debt, which stands at 92 % of gdp, close to that of the united states ( 93 % ), and much lower than that of japan ( 200 % ). looking at national fiscal situations, most analysts would acknowledge the magnitude of the efforts undertaken. yet, some tend to take a very pessimistic view about future outcomes. in short, their argument is that the euro area, and more specifically, its periphery, will be unable to return to normal growth anytime in the foreseeable future. this is a very dramatic assumption and it matters a lot because, as we all know, debt dynamics are extremely sensitive to forecasts about future growth. some of the implicit assumptions underlying current negative judgments seem to me to be seriously misguided. recall what i pointed out at the start of my talk. we have recently been pleasantly surprised by growth dynamics in the euro area. consumer confidence is almost back to pre - crisis levels ; pmis are at an all time high and gdp growth will almost certainly be above potential, on average, for the year 2011. these developments take place at a time when drastic fiscal consolidation programmes are being implemented in all countries. positive confidence effects in the private sector are outweighing the negative impact of reductions in public expenditure. what about countries in the periphery? the spanish growth rate swung from – 3.