to ensure a firm anchoring of medium - term inflation expectations. such anchoring is indispensable to supporting sustainable growth and employment and contributes to financial stability. accordingly, we will continue to monitor very closely all developments over the period ahead. regarding fiscal policies, the latest projections by the european commission point to a sharp increase in the euro area general government deficit and debt ratios in 2009. the deficit ratio is projected to rise to 5. 3 % of gdp in 2009 and further to 6. 5 % in 2010, from 1. 9 % in 2008, with the debt ratio exceeding 80 % of gdp in 2010. a large majority of euro area countries are expected to exceed the 3 % of gdp deficit reference value in 2009 and 2010. to ensure trust in the sustainability of public finances, an ambitious and credible adjustment effort will be required to return as soon as possible to sound fiscal positions, supported by a full application of the provisions of the stability and growth pact. the rapid attainment of sound fiscal positions will be necessary to enable countries to deal with the additional fiscal burden owing to demographic ageing as well as the risks arising from government guarantees that were provided to stabilise financial sectors. turning to structural policies, there is a strong case for undertaking further efforts to support potential growth in the euro area. it is crucial that the focus is now on strengthening the adjustment capacity and flexibility of the euro area economy in line with the principle of an open market economy. in this respect, the current situation can be seen as a catalyst to accelerate the implementation of necessary domestic reforms, notably labour market reforms to facilitate appropriate wage - setting and labour mobility across sectors and regions, as well as product market reforms to foster competition and speed up restructuring and productivity growth. at the same time, many of the policy measures taken in recent months with a view to supporting specific segments of the economy need to be phased out in a timely manner. we are now at your disposal for questions.

in any event, the papers presented today and tomorrow bring further evidence that the relative importance of banks and markets is a widely used summary indicator of the evolution of financial systems. the changing nature of banking relationships in european finance today is the issue on which i would like to share a few thoughts with you this evening. banks deserve special attention as they are, in continental europe, the main suppliers of credit and financial services to individuals and firms. my argument will develop around two simple questions : • how important is relationship lending in the euro area? • given the current trends in bank structure and competition, is relationship lending on a declining trend, and if so, what could be the consequences? 1. relationship lending in europe by relationship lending, i mean that banks and their customers build up agreements on terms of credit, implying for instance secured access to credit lines at pre - set prices. the bank acquires expertise about the credit - worthiness of its customer by keeping close contact with the management of the firm. for instance, the bankers who sit on the board of many european firms can gain insider information on these firms. the implication of this close link may be that the bank provides the firm with easier access to liquidity. relationship lending is particularly widespread in the euro area, in particular regarding small and medium enterprises ( sme ). given that sme account for about 60 % of private sector employment in the euro area, it is immediately apparent that a reduction in the availability of relationship lending could have an effect on the euro area's economy and on the working of monetary policy. this is particularly relevant to determine the importance of the often mentioned " credit channel of monetary policy ". at the micro - economic level, relationship lending implies that as a tendency the bank insulates its customers from liquidity or interest rate shocks. in case of a drop to its cash flow e. g., a firm can draw on a credit line that has been previously negotiated. likewise, bank lending rates will not necessarily be adjusted in line with market interest rates. while firms that have access to these risk - sharing schemes can be expected to pay some form of an insurance premium to the bank, their decisions on investment, employment and production should be less sensitive to financial shocks. hence, at the macro - economic level, the more widespread relationship lending is, the smoother the business cycle should be. this may contribute to explain why business cycle fluctuations have traditionally been larger in the us and the uk, where relationship lending is limited