the financial and economic turmoil, in particular after the lehman insolvency. however, this was the case in most member states, and so the reasons why only some of them suffered a serious loss of market participants ’ confidence in their capacity to bear the debt burden lie further in the past : in these countries, fiscal and economic policy omissions in the years before the crisis led to an accumulation of explicit or implicit liabilities in the state ’ s budget and a significant loss of competitiveness. consequently, the driving forces behind the increase in perceived sovereign risk were not speculative forces on the financial markets but poor fundamentals. when the loss of confidence culminated for the first time in may, comprehensive support measures for greece – where the situation was particularly dire – were taken to avoid risks for the stability of the euro area as a whole. financial support was tied to a tough, closely monitored adjustment programme aimed at restoring the sustainability of public finances in greece. in addition, a rescue scheme financed by the imf, the european union and its member states was set up to deal with future intensifications of the crisis. again, financial support is granted only if a member state undergoes a tough adjustment programme that secures public solvency. this conditionality is crucial : financial support can buy some time, but confidence in the sustainability of public finances will only return if substantial structural improvements in the respective countries – be it in greece or in ireland, which called for support from the efsf, efsm and imf in november after the fiscal burdens related to supporting its oversized financial sector became overwhelming. for the financial system ’ s future stability and effectiveness, it is indispensable to ensure that confidence in the stability of public finances remains intact. to achieve this, not only a credible consolidation of public finances is needed but also improvements in economic governance in emu that ensure prudent fiscal policies in the medium to long run. against this background, the current discussion about – and even calls for – euro bonds must be viewed critically. euro bonds would render all euro - area countries jointly and severally liable, thereby eroding each state ’ s own fiscal responsibility. the incentive for consolidating public finances would be reduced, along with the credibility of and confidence in the state ’ s ability to service its debt – which is certainly the opposite of what is needed. 5. conclusion ladies and gentlemen, although the financial sector has been at the heart of the crisis, the third phase

as germany currently occupies the role of growth motor in the euro area. these differences within the union should not be dismissed as purely cyclical : they are a consequence of the structural adaptation crisis affecting several countries of the periphery. when one considers the difficulties these countries are currently facing as well as the possible consequences for the euro area as a whole, it becomes evident that the outlook for 2011 and beyond depends on drawing the correct conclusions from the crisis and, from there, taking the right decisions. the expectation at the moment is that the global recovery will continue in 2011, albeit at a slower pace than in the past year. under this assumption, the bundesbank in its december monthly report forecast gdp in germany to grow at a rate of 2 % in 2011 and 1. 5 % the year after. this means that the pre - crisis level of production would be reached at the end of 2011, and production would be back to full capacity at about the same time. indicators that have been bis central bankers ’ speeches released since then support the picture of an ongoing recovery and have even tended to surprise to the upside. developments on the capital markets during the past year were affected by the loss of confidence that emerged during the course of the debt crisis. the initial uncertainty of market participants about the economic course of major industrialised countries as well as the uncertainty about the capability of several states to service their huge accumulated debt manifested themselves in highly volatile stock prices. even so, financing costs for enterprises were only moderately affected. compared to their five - year average, they actually decreased. stock market developments, however, were rather diverse among industrialised countries. while the japanese nikkei ended the year with a loss of 3 %, the american s & p 500 and the german cdax recorded increases of 13 % and 14 % respectively. even their optimism only gained the upper hand during the course of the second half of the year – at the same time as the economic outlook brightened. 3. financial market regulation the crisis has clearly demonstrated the need for stricter financial market regulation, especially as the financial sector was at the heart of the crisis. safeguarding financial stability has therefore rightly been a top priority on the policy agenda. the g20 agenda and the summit in seoul in november testify to the global dimension of the task of financial market regulation. a number of crucial reform measures designed to secure financial stability have already been approved or at least got underway in the past year. the increase in capital requirements in quantity and quality, commonly termed