of the financial system. in europe, this primarily means the banks. since the banks themselves were in trouble, however, the impact of these monetary policy measures was much weaker than it should have otherwise been. the next wave of the financial crisis in europe hit in 2010. financial market tensions rose, resulting from growing market concerns about the sustainability of public finances, especially in greece. the strong links between banks and their sovereigns led to contagion that eventually also engulfed ireland, portugal and cyprus – all of which needed international rescue programmes. banking systems in vulnerable countries lost access to funding, financial intermediaries retreated behind national boundaries and markets began to bet on a breakup of the euro area. in july 2012, president draghi announced that the ecb would do “ whatever it takes ” to preserve the integrity of the euro area. this announcement was followed up in september with the launch of the outright monetary transactions programme, aimed at stabilising jittery sovereign bond markets. one could argue that, in the absence of a robust political response, the ecb stepped beyond the normal remit of monetary policy to counter a threat to the very existence of the euro area itself. although the programme itself was never activated, the fact that it was in place reduced tensions in financial markets and the risk of a breakup of the single currency area receded. economic activity began to recover in mid - 2013. since then, real gdp in the euro area has expanded steadily, if moderately, until by the second half of 2015 it had reached its pre - crisis level. however, the unemployment rate in the euro area remains relatively high, though it has fallen from a peak of above 12 % in 2013 to below 10 % today. against the backdrop of a tentative recovery, and with euro area banks having to clean up their balance sheets and restrict lending, inflation in the euro area began a prolonged downward trend. inflation in the euro area fell to 0. 4 % in 2014, zero in 2015 and just 0. 2 % last year. at these rates, inflation was considerably below the ecb target. indeed, by mid2014 disinflationary pressures in the euro area were clear. the concern was that inflation expectations, which were firmly anchored until then, could lose their moorings. this would lead to a self - sustained deflationary spiral that would further weaken the euro area economy. at this stage, the conduct of monetary policy ran into another constraint. as we have seen, by may 2009 the

aware of the need to preserve confidence in our financial system. our co - operation, which is institutionalised through formal arrangements, has to date worked well. indeed, apart from regular meetings of the standing committee envisaged by the memorandum of understanding, we also cooperate through the domestic standing group that brings together the bank, the mfsa and the ministry of finance, the economy and investment in a forum for crisis management. this mechanism was first tested in 2007 when the financial crisis was about to erupt, and that experience highlighted the importance of coordinated and timely action and of the ministry as a key player in times of financial instability. another notable example of coordination between the bank and the mfsa concerns stress testing. we have jointly undertaken a series of “ constrained ” bottom - up stress tests across a number of banks and last year we participated in the eu - wide stress test stress test. this year the bank is assisting the mfsa in the stress test exercise being conducted by the newly established european banking authority. together, the bank and the mfsa now need to build upon this positive track record. the recent changes in the nature and size of the domestic financial system and in the external environment with which it increasingly interacts, in fact, suggest that the time has come for the existing model of cooperation to be further refined and strengthened. the need to increase the effectiveness of the institutional arrangements for the preservation of financial stability is also related to malta ’ s aspirations to consolidate its position as a successful financial centre. the financial services industry has grown considerably, particularly since eu membership in 2004. today there are 25 licenced credit institutions, 14 of which with a majority shareholding from other eu countries. but the fastest growing sector has been the funds industry, with more than 400 funds registered, many having redomiciled from other jurisdictions. there has been a similar growth in the insurance business with 50 operators here today. in the process, malta has become a very important centre for captive insurance in the eu. this increased visibility brings with it the responsibility to ensure that our financial system does not serve as a channel through which risks are transmitted to other countries. against this background, the step we are taking today, which is designed to intensify the exchange of views between the authorities and the financial services industry and to deepen the examination of common concerns, assumes even greater importance. participation in the work of the forum for financial stability should, therefore, prove to be of mutual benefit. from the point