indicators which, together with timely economic analysis, should help detect sufficiently in advance those situations of vulnerability that may endanger financial stability in the euro area and give form to the measures needed to correct them. progress in designing a permanent crisis - management mechanism has been considerable but clearly insufficient. first, temporarily, the european financial stability facility was introduced, and later, now on a permanent basis, the european stability mechanism was set up, which it is assumed should start operating next july. the complexities involved in the design of these devices are evident, since they must combine strength and flexibility to provide financial assistance to ailing countries, while ensuring that incentives are maintained to pursue the ambitious fiscal consolidation and structural reform programmes needed for laying the foundations for sustained growth in the medium term. bis central bankers ’ speeches but exiting the crisis will not be possible unless a stronger european governance framework is accompanied by a far - reaching revision of national economic policies, enabling them to be fully adapted to the conditions under which a monetary union can operate. it is imperative that the authorities and economic agents should fully assume the consequences derived from sharing a single monetary policy. the soundness of public finances and the flexibility of economic structures are vital requirements in this framework. taking a shorter - term perspective, the need to lower the high levels of public and private debt accumulated in the past makes improving competitiveness the key to restoring confidence and the growth of output and employment. with no possibility of currency devaluation, internal devaluation, i. e. the adjustment of prices and remuneration, along with productivity gains stemming from better work management, is the only alternative available in the immediate future to promote and restore lost competitiveness. almost 12 years back, angel rojo marked his departure from the banco de espana with his speech on the 1999 annual report. in a climate of exuberant optimism, he made a warning about credit growth which, he said, “ continues to rise at very high rates ”, the result being “ a heightening of demand pressure on trend output, with worrying effects ”. our problems now are not excess demand or a surfeit of credit, but how to correct these “ worrying effects ” rojo warned us about. let me close my address with his recommendations, as i am sure they will be of interest to you : “ under these conditions, the spanish economy needs to restrain the expansion of demand and increase the degree of flexibility in labour and product markets in order to sustain high, stable growth rates in the future

of making a rapid and forceful response in the initial stages of tensions, preventing the problems from becoming protracted and untreatable. these shortcomings in the original design of monetary union have played an increasingly greater role as the crisis has advanced. currently, investors have become fully aware of the particular fragility of the euro area countries ’ sovereign debt markets, which differentiates them substantially from the debt markets of other developed countries with their own currency and central bank. i refer, naturally, to the fact that the euro area combines a single central bank and single currency with 17 independent states and, therefore, 17 different sovereign risks. under these conditions, the well - known mechanisms that countries with monetary sovereignty have to counter potential liquidity problems on their national sovereign debt markets are blocked by the fact that the action needed would entail some transfer of income between states, action that the institutional arrangements of the euro area not only do not envisage, but which, it is assumed, must be avoided. this constraint paves the way for scenarios characterised potentially by self - fulfilling expectations and that lead to unfavourable outcomes in which funding suddenly dries up and the country affected may find itself bound to default on its debts, irrespective of the soundness of its economic fundamentals. euro area governments have spent almost two years trying to construct some mutual insurance mechanism that will perform a market - stabilising role, so far unsuccessfully. while waiting for them to achieve this, a disproportionate part of the task of defending the stability of the euro area has fallen on the european central bank. since the sovereign debt crisis broke, we have on the ecb governing council adopted numerous non - conventional measures to restore the workings of specific financial market segments – namely the money and public debt markets – that have proven crucial to bringing the operation of the monetary policy transmission mechanism back onto a more normal footing. bis central bankers ’ speeches early in the crisis the ecb adopted a generous liquidity - providing policy vis - a - vis financial institutions, implementing it over these years using far - reaching measures. for example, the change to a full - allotment system for all applications for liquid funds submitted by institutions ; the extension of the assets eligible as collateral for these funds, precisely to prevent potential bottlenecks in this area that might ultimately make the full - allotment arrangement inoperative ; and an extension of the maximum terms over which liquidity is granted, which in the