needs to be our clear sense of direction. keynes ( 1937 ), “ how to avoid a slump ”, article in the times, 12 january 1937. sound public finances and a stronger and more resilient banking sector will strengthen the fundamentals of the european economy. already prior to the crisis, the euro area was among the least volatile economies in the world. volatility of both inflation and output growth were significantly lower than in other industrial countries and inflationary expectations remained remarkably stable. once enacted and implemented fully, the new measures of fiscal consolidation and financial reform will help foster these sound fundamentals and turn the current cyclical upturn into sustained growth. the latest signs that we are receiving from the economy are encouraging. exports are recovering at a steady pace. industrial production is rising and employment is stabilising. this fundamentally distinguishes the current situation from the situation that we faced last year. but as i have said, the crisis is not yet over. for the ecb ’ s role as the guardian of the euro, this means, first of all, to remain faithful to its primary mandate of delivering price stability in the medium term, in line with its definition. in the exceptional financial market circumstances that we are experiencing since 2007 we have decided some non - standard measures to help restoring a more appropriate market functioning and a better transmission of our monetary policy. but our monetary policy stance has always been to deliver price stability and be credible in this delivery with a solid anchoring of inflation expectations. the securities markets programme is fully in line with this approach. the governing council is constantly and carefully monitoring all developments and stands ready to do all that is necessary to maintain price stability. later today, jurgen stark will present the outcome of our enhanced monetary analysis that enlarges our toolkit to pursue this aim. beyond our role as guardians of the euro, we also have to deliver on our responsibilities as part of european and global economic governance. in this context, i would like to touch on the work programme of the van rompuy task force, which was established by the european council in march 2010 and in which i am participating. vitor constancio and lorenzo bini smaghi will go into greater detail, and i will highlight a few elements of the task ahead. first, national fiscal reforms – to which i alluded before – need to find an anchor and a collective guarantee in renewed and strengthened institutions for multilateral budgetary surveillance. national fiscal frameworks will receive a blueprint of

policies that would respond to idiosyncratic national conditions. accordingly, a fiscal brake at the eu level, codified in the stability and growth pact, was designed to prevent fiscal profligacy, preserve fiscal space and hence allow automatic stabilisers to play out in full during downturns. moreover, country - specific shocks were expected to become ever less important as the euro would spur market integration and the flexible single market to allow an easy and fast rebalancing after such shocks. however, the scale of the shock after the 2008 financial crisis was unprecedented in a number of countries and it far exceeded their national shock absorption capacity. the euro area had no mechanisms to provide financial support for countries in difficulty and stave off cross - border contagion ; there were no area - level institutions to prevent governments from bis central bankers ’ speeches being pulled down by their domestic banking systems. this underscored the pitfalls of a design that relies exclusively on the national level to fulfil the stabilization function. third, we have learned that governance of economic policies at the eu level has to be broader and deeper than anticipated prior to the crisis. besides fiscal surveillance, which essentially focused on public deficits, 1 there was believed to be no need to closely monitor macroeconomic imbalances and disequilibria on the labour, product or financial markets. disequilibria originating from the private sector were supposed to be only short - lived and eliminated by market forces. the data clearly show that this was insufficient. between 1999 and 2007, the ratio of public debt to gdp in emu declined on average by 5. 6 percentage points. the improvement was by large the result of favourable economic conditions rather than concrete fiscal consolidation measures which should have aimed at approaching the reference value of a 60 % gdp to debt ratio at a satisfactory pace, as the treaty prescribes it. in some countries – as we all know – the sovereign debt dynamics were much less favourable than the euro area average. nevertheless, the accumulated private sector imbalances seem to have far exceeded those in the public sector. in the same period – between 1999 and 2007 – the ratio of private sector debt to gdp increased by 26. 8 percentage points. also for the same period, in the stressed countries, the cumulative increase in the private debt ratio to gdp versus the public debt ratio, amounted respectively, to 49 and 24 per cent for portugal, 75 and minus 35 per cent for spain, 101 and minus 10 per