the economy improves again? 8 i therefore remain convinced that delaying the reform process would have been counterproductive. second, one can exaggerate the effect of the zero lower bound. the ecb has employed various standard and non - standard measures that have helped to smooth the adjustment process for stressed countries. the provision of liquidity to banks through fixed - rate tender procedures with full allotment, and against an expanded list of eligible collateral, has been crucial to prevent further catastrophic effects arising from the sudden stop that some countries experienced. 9 the expansionary monetary policy stance has ensured that inflation expectations remained well anchored over the medium term, thereby ensuring that short - run price adjustments do not translate into longer - term deflationary expectations. price stability has been also crucial in avoiding increases in the real values of nominal debts – increases which would be unwelcome throughout the euro area, but especially pernicious in countries under stress. there are monetary policy instruments that could be used in the event of downward risks to medium - term price stability, even if the nominal interest rate is constrained by the zero lower bound. third, besides monetary policy, we should also not forget the additional support for governments that came from external assistance, which also helped to offset the effects of a sudden stop. between 2010 and 2013 greece, ireland, portugal and cyprus requested financial assistance from the eu and the imf. in 2012, spain requested financial assistance from the eu for the recapitalisation of its banks. at the same time, a permanent solidarity framework – the european stability mechanism – was put in place, to provide financial assistance to member states in difficulty, thereby reducing threats to financial stability in the euro area. conclusions let me conclude. the crisis has been long and painful for many people in europe. nevertheless, and in spite of persistent challenges, much of the macroeconomic adjustment has now taken place. looking back, 2013 was certainly the year of the turnaround. since 2008, the current account deficits of stressed countries have narrowed substantially. greece, spain and portugal moved from double - digit deficits and in 2013 achieved slight current account surpluses. over the same period, the current account balance of ireland went from a deficit of around 5 % of gdp to a surplus of around 5 % of gdp. some of the adjustment certainly reflects a decline in imports due to the cyclical compression of domestic demand. but in spain, portugal and ireland, the larger part of the adjustment is attributable to robust

burden of adjustment across society. this, in turn, helps to diffuse the risk of social tensions and political crises. the structural reforms agenda initiated in the crisis countries – and in particular in the programme countries – has therefore been wide - ranging. 4 challenges for stressed countries given the observed benefits of structural reforms, why has implementing them therefore been so costly for some stressed countries? indeed, from 2009 to 2013 real gdp fell cumulatively by about 7 percentage points in portugal and spain, 8 percentage points in italy, 11 percentage points here in slovenia and 26 percentage points in greece. at the same time, the unemployment rate rose to very high levels in all these countries, with the rate of youth unemployment being more than double the overall one. the first contributing factor is that most of the countries involved entered the crisis with rigid institutions and structures. an instantaneous adjustment of relative prices was not feasible due to nominal wages and prices being “ sticky ”. 5 as a result, both the duration and the real cost of adjustment have increased sharply, as did the burden borne by the more vulnerable members of the society, affecting the political acceptability of reforms. the cost of high rigidities can be well understood when comparing the adjustment in ireland with those in the other programme countries. in the first case, the correction in relative wages and prices occurred immediately after the 2008 – 09 recession and basically all the nominal adjustment had already been made before ireland entered the financial assistance programme in late 2010. this is very different from what happened in greece, portugal and spain, where the nominal adjustment has lasted many years after the recession. as a result, in ireland, an export - driven recovery started back in 2011, while the unemployment rate started to decline in 2012. for the other three countries, the recovery story had to wait two or three more years. second, when reforms were undertaken, there were implementation obstacles. ex ante the approach to structural reforms was broad - based and aimed at all critical weaknesses in a comprehensive manner. but ex post it turned out that it was easier to change institutions and rules in the labour market than in product and services markets. this meant that marginal cost improvements did not automatically translate into price improvements. for example, labour costs fell by around by 18 % in greece from 2009 – 13, but price adjustments did not see blanchard, o., and f. giavazzi ( 2003 ), “ macroeconomic effects of regulation and deregulation in goods and labor markets, ” the quarterly journal of economics,