. furthermore, the euro has established itself as the second international reserve currency behind the us dollar, and investors trust the euro when investing in eurodenominated financial products. i would like to take this opportunity to : provide you with an insight into our current of the current economic situation ; explain how the single currency has contributed towards the management of the financial market crisis ; offer you an overview of the financial market reforms in the european union ; outline what is still to be done to guarantee the stability of the euro over the longterm horizon. assessment of the economic situation of the euro area allow me to first explain the ecb ’ s current assessment of the economic outlook from a monetary policy perspective. as regards the economic situation of the euro area, there are a bis central bankers ’ speeches number of positive signals. the economy is following an upward trajectory ( show chart ). since its trough in the second quarter of 2009, the economy has made up close to half of its recession - induced production losses. the relatively low rate of growth observed until now is in line with experiences of other economies recovering from severe financial crises. a peculiarity of the current recovery in comparison with previous upturns is the relatively low contribution to growth stemming from consumer spending. however, in this area to, there are some positive signals. as regards private households, the labour market situation is stabilising, which should boost consumers ’ purchasing power and, by extension, domestic demand. the impact of the crisis weighed more strongly on the number of hours worked than on the number of employed. that is why the rebound in economic activity is also making itself felt more in the number of hours worked than in the rate of unemployment, although the latter has been hovering around 10 %. in the near future, all available forecasts indicate that the gradual recovery of economic activity in the euro area is likely to continue. according to the most recent projections of ecb staff ( table ), the real economic growth rate is expected to stand at between 1. 3 % and 2. 1 % this year and between 0. 8 % and 2. 8 % next year. at the same time, the outlook for growth in the area of exports and domestic demand is now predicted to improve. overall, the most recent economic data confirms that the underlying momentum of economic growth in the euro area is favourable. however, as regards economic activity and the medium - term risks to price stability, the surge in oil prices is increasing cause for concern ( show chart )

- digit levels. according to the autumn 2010 economic forecasts of the european commission, the public deficit for the euro area stood at 6. 3 % of gdp last year, while a decline to 4. 6 % of gdp is projected for this year. these figures far exceed the 3 % ceiling laid down in the stability and growth pact. the deterioration of public finances in a number of euro area member states has impacted negatively on investors ’ confidence in government bonds issued by these countries, and thus to further turbulences in the financial markets. this is also reflected in the sharp increase in the cost of provisions for losses on the government bonds of a number of euro area countries. the additional distortion has not only given rise to further instability in the financial system, but has also had an impact on the ecb ’ s monetary policy action. allow me to take a closer look at two of these aspects : the first is the need for a stable financial system and the second relates to the safeguarding of the stability of the euro by way of stability - oriented economic and fiscal policies. financial market reforms in the european union the financial crisis has highlighted that turbulences in the financial markets can have a massive impact on economic growth. the crisis, which originated in the markets for complex financial instruments, rapidly evolved into a crisis encompassing large parts of the financial sector. this resulted in a decline of lending to households and enterprises, as well as in a drop of 4 % in euro area growth in 2009. bis central bankers ’ speeches although the causes of the financial crisis are multifaceted and complex, far - reaching reforms that lead to an improved regulatory framework for, and a better supervision of, the financial markets are essential in order to avoid a recurrence of such adverse developments in the future. there is a general consensus on the necessity of improving the regulatory framework and supervision. the g20 countries were quick in striving for reforms, which have since been elaborated further by the basel committee on banking supervision and the financial stability board ( fsb ). all in all, some progress has already been made in the area of reforms to financial market regulation, with the most notable advance being the agreement reached in the basel committee, i. e. “ basel iii ”. the accord calls for a strong reinforcement of current capital requirements and the liquidity reserves of financial institutions. even in relation to previously unregulated or lesser regulated financial institutions, such as investment funds and ratings agencies, tentative steps are being taken to improve