public awareness of the importance of productivity and competitiveness, and a consensus on steps that can be taken with minimal social disruption to enhance the country ’ s international competitiveness. thomas f. huertas, crisis cause, containment and cure, 2e, palgrave macmillan, 2010. andrew w. lo, “ reading about the financial crisis : a twenty - one - book review ” journal of economic literature 2012, 50 : 1, pp. 151 – 178. stefan walter, “ basel iii : stronger banks and a more resilient financial system ”, financial stability institute, 6 april 2011. bis central bankers ’ speeches as you know, competitiveness depends on the relationship between changes in productivity and changes in costs, including wages. i have to note that unit labour costs ( ulc ), which are based on the relationship between compensation and productivity, have generally moved in line with those in the euro area. however, in recent quarters, malta ’ s unit labour costs have pulled ahead of those in the euro area, as shown in chart 6. in this respect, the wage setting process and efficient labour market practices are of critical importance. the fact that collective agreements in malta are negotiated at the level of the individual firm helps to ensure that wage growth is compatible with the realities of the markets where the firm sells its products. still, further steps could be taken to improve productivity levels and increase the employment rate. also, as i argued recently, cola increases should not be superimposed on wage increases agreed in collective agreements, but should form part of the negotiation process, so as to ensure that firms are able to match all wage increases with productivity increases. faster productivity growth depends on many factors, including investment, the infrastructure, the quality of the human resources and bis central bankers ’ speeches hence the quality of the educational system and its ability to meet the skills requirements of a growing economy. measures that increase the employment rate could include further policies that incentivise a higher female participation rate, as well as measures that facilitate more flexible work conditions, including part - time employment. a further requirement for economic growth is the smooth functioning of the financial system. particularly during these turbulent times, continued economic growth depends also on the uninterrupted supply of credit by the financial sector to firms and households, and to that end the stability of the financial system is essential. it is important to note that although its rate of growth has declined, bank credit has continued to increase in malta, unlike the situation

the maastricht criteria may not be enough as there could be other imbalances that would undermine market confidence. for example, in the case of ireland prior to the financial crisis, the country was doing well according to the maastricht criteria. government finances were quite healthy, with low public debt and a low deficit to gdp ratio. the turning point came with the collapse of the housing market starting in 2007. a drop in banks ’ share prices led to a deposit run on the banks. the scale of the problem snowballed after the irish government guaranteed all the obligations of the largest banks. this transformed the house price crash into a sovereign debt crisis, with the evaporation of the markets ’ confidence in ireland ’ s ability to honour its obligations. irish borrowing costs rose abruptly, requiring an eu / imf bailout. ioannis sarmas, ibid. bis central bankers ’ speeches strengthening governance as i have already mentioned, the ecb played an important role in the policy response to the crisis. in addition to the conventional interest rate tool, the ecb introduced a number of nonstandard measures ( such as the three - year ltros that i mentioned earlier, and a reduction in the required reserve ratio ) to facilitate the transmission of monetary policy to the economy. the events of the last few years have provided important lessons for the construction of a whole new approach to european economic governance. the aim is to go beyond the shortterm responses, such as the greek bailouts, and tackle the problem before the situation has become critical. to provide better support where necessary, the european financial stability fund will be replaced by the european stability mechanism, which will be a permanent rescue fund with added firepower and a stronger mandate. in the medium term, it is also important to set up governance changes that first, limit government deficits and debt, and second, protect national competitiveness. on the subject of fiscal consolidation, there is a broad recognition across the eu that fiscal governance has to be strengthened and that the stability and growth pact should be reinforced. the current thinking is that, to avert the recurrence of the crisis, fiscal consolidation should be enshrined in the governance structure of every country. to this end, the well - known fiscal compact obliges all euro area countries to run a structurally balanced budget each year. surveillance will be enhanced and the monitoring of economic policies will also be comprehensive. in particular, the problem of sustainable budget planning was