consumers. people will base their decisions on factors like price, quality and the cost of production. if it ’ s a competitive market, we ’ d expect it to have certain characteristics, such as that : other things equal, a lower price means more demand ; producers compete to offer the product at the lowest price they can ; and the price mechanism promotes efficiency by guiding resources to their best use. in practice, no market will meet those conditions perfectly. but the card - payments market has some particular qualities that make it very different from the stylised description i ’ ve just given. first, the card payments market is subject to network externalities, which is another way of saying that the cost - benefit decisions made by the various players are highly interdependent. the value of the service i get from being part of a card network depends, in part, on the size of the network. cardholders value having a particular card in their wallet because they know the card is widely accepted. and merchants value the capacity to accept a card because it ’ s widely held. this aspect of the market adds a level of complexity to the pricing strategy, because the suppliers of card services will want to take those externalities into account. they have an incentive to adopt pricing strategies that promote the size of their networks. the second difference is that card payments services are a joint product. the purchaser of the service, in any given transaction, is not the only one who benefits from it. when a card is used to make a payment, it delivers a service jointly to both the payer and the receiver of the funds. thirdly, the card payments market, particularly in the credit cards space, has evolved in such a way as to have a very unusual characteristic. that is, that the decision - maker in a transaction – the person who decides which payment method to use – is generally not the person who is on the receiving end of the price signal. to be specific, it is typically the purchaser who decides whether to use a card ( and which card to use ), but it ’ s the merchant who, in the first instance, pays the fee associated with that decision. so, in a world where cards are widely held and widely accepted, the effective demand for the service is determined mainly by the cardholders, while the price is charged to the merchants. this is where, in the four - party card schemes, interchange fees play a key role, because they are typically passed on to

reserve requirements, have allowed european banks to lock in funding for up to three years, thereby alleviating concerns about their near - term prospects. with the benefit of this support, european banks in turn have increased their holdings of sovereign debt, contributing to lower borrowing costs for some countries. second, euro - area leaders, the greek government, and private - sector holders of greek debt are taking steps to put greece on a more sustainable fiscal path. its sovereign debt has been significantly reduced, the greek authorities are intensifying their efforts to implement fiscal and structural reforms, and the european union and international monetary fund have pledged a considerable amount of new funds as part of a second assistance package. the greek economy remains in a deep recession, however. third and finally, leaders of most of the members of the european union have approved a new fiscal compact treaty that strengthens fiscal rules and their enforcement. this treaty represents a positive step toward resolving the fundamental tension inherent in having a bis central bankers ’ speeches monetary union without a fiscal union, and thus should help bolster the viability of the euro - area economy in the longer term. although progress has been made, more needs to be done. full resolution of the crisis will require a further strengthening of the european banking system ; a significant expansion of financial backstops, or “ firewalls, ” to guard against contagion in sovereign debt markets ; and, critically, continued efforts to increase economic growth and competitiveness and to reduce external imbalances in the troubled countries. actions taken by the federal reserve the federal reserve has followed developments in europe closely, and we are in frequent contact with key european policymakers. we are particularly focused on protecting u. s. financial institutions, businesses, and consumers from adverse financial and economic developments in europe. to help calm dollar funding markets and support the flow of credit to u. s. households and businesses, the federal reserve acted in concert with major foreign central banks to enhance the u. s. dollar swap facilities that were originally put in place during the global financial crisis and reestablished in may 2010. use of the reestablished lines was limited until late last year. however, in late november, the federal reserve agreed with the ecb and the central banks of canada, japan, switzerland, and the united kingdom to extend the swap lines through february 2013 and to reduce their pricing, from a spread of 100 basis points over the overnight index swap rate to 50 basis points. 1 the lower cost to the ecb