for prudent credit risk evaluation and monitoring. we could thus say that covered bonds are incentive compatible while many asset - backed securities were not, at least in the way the concept was implemented before the crisis. in the years preceding the crisis, banks tended to favour the issuance of asset - backed securities over the issuance of covered bonds, because this form of finance appeared cheaper in an environment characterised by heavy underpricing of credit risk. given that the financial crisis clearly exposed the dire consequences of this underpricing, the usefulness of more conservative asset classes such as covered bonds, which have proved to be safe assets over time is obvious. i believe that covered bonds and asset - backed securities will both contribute to a thriving capital market, each catering for a different set of investors and issuers. last but not least, the ecb ’ s measures for enhanced credit support were designed in full respect of the euro area macroeconomic framework, which is founded on a clear division of tasks and policy responsibilities between the ecb and the national authorities. financial support measures potentially involving a significant transfer of credit risk from financial institutions to the taxpayer clearly fall into the realm of fiscal policy. the decided outright purchases of covered bonds are fully consistent with this fundamental principle. while they are expected to be effective in supporting credit, these purchases do not burden the eurosystem with excessive credit risk and therefore do not limit our flexibility in the conduct of monetary policy. before concluding, allow me a few words on the challenges facing the spanish economy. over the last decade the spanish economy has shown a very strong performance in terms of output and in particular employment growth. spain disposes of some world - class companies in important sectors including energy, communications and banking. spain has been hard hit by the reassessment of risks in the financial sector and the overall change in economic sentiment since the intensification of the global crisis last autumn. the spanish economy also faces some specific challenges, stemming in part from macroeconomic imbalances which have developed over many years and the related sharp reversal of the housing and construction boom. for many years strong growth in domestic demand led to relatively high inflation. the persistent inflation and labour cost differential with the average of the euro area during the expansion has hampered competitiveness which will have to be regained. the present situation suggests a need for labour market reform and wage moderation in particular by discontinuing wage indexation. appropriate structural reforms will support a sustainable economic upswing and also the consolidation

, the appropriate financing of the economy and taking into account the very significant rebalancing of inflationary risks ; second, they can be easily unwound once the financial crisis attenuates and when we see any risks of a future rise in inflation. these two features ensure that all measures taken are fully consistent with the ecb ’ s primary objective, which is to preserve price stability in the euro area over the medium term. beyond monetary policy, i see two policy priorities going forward. first, governments need to spell out how they envisage unwinding the crisis - related fiscal stimulus measures to return to sustainable fiscal positions in the medium term. this is particularly important as substantial support for the financial sector might still be needed. while this support often does not directly affect fiscal balances, it creates contingent liabilities that may have to be catered for. second, the urgent need for reform of the global financial architecture should not distract from the need for further progress with labor and product market reform in the euro area. rigorous implementation of the lisbon reform agenda remains as pressing as ever, as increased productivity and efficiency will not only foster the development of the private sector, but also facilitate the return to sustainable fiscal positions. in my remarks today, i would like first to recall the origins of the crisis. i will then explain in detail the various actions the ecb has taken to support the euro area economy and the financial system. before concluding, i will also say a few words on the specific challenges currently facing the spanish economy. the roots of the financial crisis and its propagation over the past ten years, we have witnessed a dramatic shift of focus in large parts of the financial sector – away from facilitating trade and real investment towards unfettered speculation and financial gambling. to be clear, i do not deny that financial liberalisation and financial innovation over the past two decades have made important contributions to the overall productivity of our economies. for example, the securitisation of assets – the transformation of bilateral loans into tradable credit instruments – had tremendous potential for the diversification and efficient management of economic risk. but the way securitisation was implemented also meant that banks and non - banks were able not only to sell loans, but also often to place them fully off - balance sheet immediately after they had been extended. this weakened their incentives to conduct prudent screening and constant monitoring of loans. this is true only for the most recent product innovations in the field of securitis