greece during 2001 through 2009 was low by the country ’ s historical standards, inflation was relatively - high by euro - area standards. inflation was, on average, more than one percentage point higher per year than in the rest of the euro area. wage increases, adjusted for productivity changes, also exceeded the average increases in the rest of the euro area. with both prices and wages growing at relatively high rates, competitiveness declined. in the period 2001 through 2009, competitiveness, as measured by consumer prices, declined by almost twenty per cent ; as measured by unit labour costs, competitiveness declined by over 25 per cent. with relatively high real growth rates and declining competitiveness, the currentaccount deficit, which already had topped 7 per cent of gdp in 2001, rose to about 14 ½ per cent of gdp in both 2007 and 2008. the large and growing fiscal and external imbalances were not sustainable. on various occasions, including the publication of our annual reports and our bi - annual monetary policy reports, during the past several years the bank of greece has stressed the unsustainability of these imbalances and the need of urgent policy adjustments. unfortunately, our calls for actions were not heeded. the present financial crisis is the outcome of the lack of policy responses to the imbalances. the crisis in the greek economy the present financial crisis marks a third stage of the crisis that erupted in august 2007, following the collapse of the us subprime mortgage market, and escalated with the demise of lehman ’ s brothers thirteen months later. yet, during the first two years of the global financial crisis, the greek economy escaped relatively unscathed. there were few, if any, forewarnings that the greek economy would become the object of the speculators ’ attention. the spread between greek and german sovereign ten - year bonds, a key indicator of relative risk as perceived by credit markets, hovered around 130 basis points during the period august through october 2009. earlier in the year, at the height of the lehman ’ s phase of the crisis, spreads had climbed to over 300 basis points. that earlier widening of spreads occurred despite the fact that markets were expecting a fiscal deficit of less than 4 per cent of gdp and a debt - to - gdp level of only about 96 per cent of gdp, figures that would be repeatedly revised upward during the remainder of the year. in the fall of 2009, two developments combined to disrupt the relative tranquility of greek financial markets.

the bank was able to anticipate all future movements in inflation, and adjust interest rates in advance to offset them and keep inflation exactly at 2 per cent. in such a case, it might appear to the casual observer that interest rates were being adjusted up or down for no reason. taking together the approaching closing of the output gap and our understanding of recent soft inflation readings, today ’ s increase in interest rates is clearly warranted. that being said, we will of course monitor the details of inflation carefully to determine the extent to which it remains appropriate to look through fluctuations in inflation. interest rates were lowered in 2015 in order to help the economy adjust to lower oil prices, and much of that adjustment is now behind us. while lower rates contributed to greater household financial vulnerabilities, enhanced macroprudential policies helped to mitigate these and will continue to do so. as the economy approaches full capacity, a higher policy rate in pursuit of our inflation target also serves to reinforce efforts to mitigate financial system vulnerabilities. governing council acknowledges that the economy may be more sensitive to higher interest rates than in the past, given the accumulation of household debt. we will need to gauge carefully the effects of higher interest rates on the economy. future adjustments to the target for the overnight rate will be guided by incoming data as they inform the bank ’ s inflation outlook, keeping in mind continued uncertainty and financial system vulnerabilities. with that, senior deputy governor wilkins and i will be happy to take your questions. 2 / 2 bis central bankers'speeches